“1633. The fact that I have found that the Counterclaimants have not established the very serious allegations they put forward does not mean that I have rejected the claims as being a fiction dishonestly contrived: only that the claims have not been established having regard to the strength of the evidence that was necessary to discharge the burden of proof. 1634. Indeed, in considering whether to grant the declarations sought, I think it is relevant that I have, throughout the case, before, during and after the hearing, harboured a nagging and discomfiting feeling that the evidence by which alone the case is to be decided may not have revealed the whole truth; and that the very different conditions in Russia may mean that what seems improbable, or at least not probable, looked at through the lens of a different jurisdiction accustomed to different conditions, may yet have occurred … 1635. … I have misgivings such that I would not wish to elevate my findings into declarations which might be perceived to go beyond findings and conclusions on the balance of probabilities, on the basis of the available evidence, having regard to the burden of proof. Still less would I be inclined to make some declaration that the Counterclaimants were dishonest in pursuing their counterclaims.”
“For the reasons I have given, I would allow the appeal on the grounds that the judge applied too high a standard of proof, created inconsistencies within his decision, and failed adequately to stand back from his sequence of factual findings so as to consider them as a whole. Those conclusions, in my judgment, render the judge’s ultimate conclusion that there was no actionable dishonest conspiracy by the respondents to cause the appellants harm under article 1064, unsafe.”
“The essence of this version of the conspiracy is that, as a result of the Bank’s dishonesty, the assets pledged to the Bank were sold fraudulently to connected parties for less than their proper market value. Consequently, in order to establish “harm” within the meaning of article 1064, it was necessary for the appellants to prove both dishonesty on the part of the Bank and also that the sums realised at auction were less than the market value of the assets.”
“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.”
“It is, in these circumstances, common ground between the Russian law experts that if the Counterclaimants succeed in proving their factual case as to the dishonest conspiracy to steal their assets, liability under article 1064 is established.”
“Only the good faith enforcement of rights is sufficient to negate fault for the purposes of article 1064.”
“This version of the conspiracy involves allegations of dishonesty by the Bank in what was otherwise the lawful enforcement of its contractual rights. It is accepted that, if established, these allegations would found a valid claim for damages under article 1064 of the Russian Civil Code. The essence of this version of the conspiracy is that, as a result of the Bank’s dishonesty, the assets pledged to the Bank were sold fraudulently to connected parties for less than their proper market value.”
“The appellants had to prove harm caused by the conduct of the respondents under article 1064. They could not do so by showing that the respondents had enforced their lawful rights. They could only do so by proving the dishonest conspiracy they alleged, as was assumed by all parties and the judge at trial. The reversal of the burden of proof in article 1064(2) is not relevant to this stage of the analysis.”
“Consequently, in order to establish “harm” within the meaning of article 1064, it was necessary for the appellants to prove both dishonesty on the part of the Bank and also that the sums realised at auction were less than the market value of the assets.”
“It was common ground that the appellants had to prove they had sustained harm in order to succeed under article 1064. That required there to be some financial loss. I do not accept that the appellants had to be able to quantify that loss precisely, but they did have to show that they had sustained some financial harm as a result of the respondents’ alleged dishonest conspiracy.”
“864. In my view, and although this was not expressly put, the same analysis may apply where the value of pledged assets under the same pledge is reduced by the way in which they are presented for sale: for example, if two assets in the same ownership, pledged under the same agreement in respect of the same debt and having together a marriage value in excess of their individual value are sold in separate sales for no good or sufficient reason. However, by the same token, assets which are subject to separate pledges in respect of different indebtedness may lawfully be sold separately, even if combining the assets in the separate pledges might yield a higher aggregate amount. 865. Similarly, there was no suggestion, and I would not consider it to be the case, that a pledgee is obliged to sell pledged assets together with other non-pledged assets in its possession or control under some different arrangement, even if the combined package might yield a higher aggregate amount.”
“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.”
“1286 … whilst the affiliation of two parties may not itself provide grounds to invalidate an auction, it could do so if the relationship is such as in fact to prevent, limit or eliminate competition. 1287 … the question is whether, on the one hand, the bid process is real and competitive (which the participation of an associated person would not prevent, especially where there are other bidders) or, on the other hand, fictional and collusive (as where all bidders are associated and there is no genuine competition). An idle or rehearsed chorus is not, in reality, an auction.”
“1290. Neither expert specifically addressed the question of whether the auction organisers’ certificate as to the validity of the auction would be vitiated and invalidated if the only bidders were in collusion in fact, but the auction organisers were not aware or on notice of that, or what the other consequences might be in such circumstances. But if, as I take it (see below), the auction would cease to be capable of being invalidated by action if brought more than one year after the auction (see paragraph [1293] below), the matter may in any event be academic in this case.” “1292. The experts agreed also that only if the relevant auction rules have been broken is there a potential remedy for the pledgor, and in those circumstances, if there has been a violation of the auction rules, liability would fall upon the court bailiffs or auction house which conducted the auction rather than upon the pledgee.”
“1302. In summary, therefore, I take the position under the Russian law to be that in the absence of proof of such dishonesty there can be no claim, except for breach of the auction rules, the latter of which is a claim that could lie only against the bailiff or auction organiser, and must be brought within one year. But, if dishonesty which causes loss is established, a claim may lie at the suit of the victim under article 1064 for recovery of demonstrable loss. Causation may however not be easy to prove. 1303. Further, it seems to follow from the fact that the starting price is fixed by the court, or (in the case of out of court enforcement) by appraisal, that it would be necessary to show that the court or the appraiser were either dishonestly misled in some way which caused them to undervalue the asset (presumably as to some feature or quality of the auctioned asset, or some contrived flaw in the assets to make it appear less valuable than in truth it is) or themselves directly implicated in the dishonest attempt to harm the Counterclaimants and enrich the pledgee or its associated parties. 1304. Linked to that, it would also have to be shown that steps had been taken or deliberately omitted, presumably by or on behalf of those sought thereby to be enriched, calculated to have, and (in a causative sense) having, the result that the (unacceptably) low valuation should not be (as it were) “rescued” by active bidders raising the price by virtue of their competition.”
“Both parties cited Bryan J’s recent decision in Bank of Moscow v. Kekhman[2018] EWHC 791 (Comm) , in which he cited at [41] a passage from Flaux J’s judgment at an earlier hearing in the same case where he had said: “[t]he claimant does not have to plead primary facts which are only consistent with dishonesty. The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence. As Lord Millett put it, there must be some fact “which tilts the balance and justifies an inference of dishonesty”
“Neither the seriousness of the allegation nor the seriousness of the consequences should make any difference to the standard of proof to be applied in determining the facts. The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies.”
“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.”
“Dr Arkhangelsky also struck me as having a propensity to see things as he wished them to be in his ego-centric view of the world; and he tends to regard any detractors or criticism as either lamentably misinformed or inferentially dishonest.”
“This conclusion accords with my general impression of Dr Arkhangelsky as a buccaneer, “the “ultimate chancer” as the Claimants put it, whose confidence in his own abilities and determination to succeed caused him to take on risks that he did not contemplate would eventuate and which were the necessary price of raising the enormous sums that he borrowed from the Bank (and others also). Further, he is not a man for painstaking detail or care: it would be quite in character for him to have either signed the relevant documents without regard to their effect if the worst transpired, since he would have regarded that as remote, or even without regard to their content, so long as the immediate objective of bank lending was secured.” ii) At [758], having described the way in which Dr Arkhangelsky’s case as to the forgery allegation changed and developed during the course of the trial: “Not until the accumulation of evidence against him, and after extensive prevarication in the choice or acceptance of comparators, did he accept (though not unequivocally) that he might have signed the disputed documents, or some of them, mistakenly; and his efforts to resuscitate his case of forgery under cross-examination confirmed me in my feeling that by then it was an expedient adopted in the knowledge that it was without feet in fact, and dishonest accordingly.” iii) At [760] to [762]: “760. At trial, Dr Arkhangelsky’s oral evidence in relation to the Personal Guarantees and the Personal Loan persuaded me only that Dr Arkhangelsky at one and the same time appreciated the danger, in terms of its potential impact on the court’s assessment of his credibility, of abandoning his case on forgery, but also the weakness of his case in seeking to maintain it. He veered from absolute denial of signature to grudging acceptance that perhaps he might have signed accidentally, and back again. He was consistent in nothing but inconsistency. 761. His resort to unpleaded allegations, such as that the guarantees were contrivances to help the Bank manipulate its reserves, smacked of desperation and not conviction or substance; and his suggestion that the documentation was never intended to be given any legal effect and was signed for show did not impress me as even potentially plausible. 762. Similarly, his efforts to deny that the OMG debt schedules were reliable by depicting his own employee (Mr Dubitskiy, OMG’s business development manager) as a “low level, low quality employee”, confirmed the impression of someone prepared to throw in any accusation or excuse to deflect a straight question and avoid a straightforward admission, relying (in effect) on the proposition that, such is the scale and extent of corruption in Russia, and the participation or connivance of enforcement officers and others in it, anything is possible.”
“821. In reaching that conclusion I have had much in mind Dr Arkhangelsky’s main point that, without the alleged ‘Moratorium’, the repo arrangements exposed OMG to a ‘raid’ without any sufficient quid pro quo, and that it stands to reason that he would never have agreed such terms. But in my judgment, the truth is that Dr Arkhangelsky, by December 2008, was desperate. Unlike the Bank, he knew how serious the position had become (illustrated by the arrest of the ‘Tosno’, the deficits across the companies’ accounts, and his inability to fund the retainer proposed by BNP); and the repo was all he had left to offer to keep the Bank at bay. 822. My assessment is that Dr Arkhangelsky is a chancer with a belief that something will turn up in the end, so long as he can keep kicking the can down the road; and that he is capable of convincing himself in retrospect of things which have not in fact happened, and of denying any possibility that he personally may have made a mistake.”
“… the parties are in effect agreed that the purpose of changing the management was for the Bank and/or Renord-Invest to secure control of the assets and prevent Dr Arkhangelsky having any access to them: the real point between the parties is as to whether the Bank had the far-sighted objective of exercising its control to pass the assets out to Renord-Invest or SKIF (as subsequently did, in fact, occur).”
“I have been left with the impression, reinforced by the somewhat incidental way in which the claim was advanced and the overlap with other pre-existing proceedings it involved, that the plea was introduced as the means of bringing Mrs Arkhangelskaya into the fray. This may be relevant to the question of costs, but also may provide an insight into the relentless nature of the Bank’s pursuit of the Arkhangelsky family.”
“1131 … the report offers some confirmation of the prevalence of ‘raiding’ in the Russian Federation, and its adumbration of the usual characteristics of the practice is useful in that it elucidates the means whereby typically a raid may be effected. However, each case must be assessed on its own facts, and the departures from the usual ‘check list’ may be as instructive as the similarities. In particular, it is the element of premeditation, and the ability unilaterally to bring about the premeditated result, which is the overall characteristic. 1132. I suspect that the most telling indication of a ‘raid’ is evidence of a premeditated decision on the part of the Bank and/or a power reserved to it, to deliberately engineer a default, thus enabling the Bank to be sure it can implement the raid, and at a time of its own choosing.”
“1246. The actual evidence as to the ownership and control of ROK No 1 Prichaly is (leaving aside any inference from the allegedly ‘cosy’ deal) is very slim: indeed, I do not think there is any of any substance. Further, (again leaving the ‘inference’ case aside) the evidence of any substantial connection between the Claimants and ROK No 1 Prichaly, let alone such a connection as might of itself suggest conspiracy, was also vanishingly weak.” “1249. Apart from the ‘inference’ case as described above, I see no basis for the claim that ROK No 1 Prichaly was owned or controlled by Renord-Invest, SKIF, the Bank or Mr Smirnov. There is no evidence that it was part of either the Renord Group or the SKIF stable.”
“The question is whether these curiosities demonstrate a hard bargain which the Bank was in a position to and did drive in order to enhance its security and the prospect of full recovery; or whether, even at this early stage, the Claimants had their eyes not on repayment of the loans but on seizing the businesses. For the purpose of analysis, I turn to assess each curiosity in turn and then at the end seek to assess the arrangements in the round.”
“In my judgment, none of that is enough, of itself or in combination, to warrant an inference that when the Bank initially agreed the repo arrangements with Dr Arkhangelsky and put them in place it did so with the intention of later stealing the Group’s assets.”
“it wouldn’t be an unrealistic estimate that the bank may spend 2 or 3 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.”
“The Counterclaimants’ expert, Professor Guriev, acknowledged that the value of collateral is in substantial part a function of the ability to control its disposition, and that upon default a creditor bank’s main job is to “assure the control over the collateral” (as he put it in his report). Indeed, although he avoided giving a direct answer, when it was put to him that it was plainly a legitimate aim and advantage for a creditor bank to seek ways of vesting control of collateral in the event of default in friendly hands, Professor Guriev offered no cogent basis for denying it.”
“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.”
“…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.”
“It is not easy for an English judge to determine on the basis of this opposing and somewhat general evidence whether the arrangements were in compliance with Central Bank requirements and accounting fairness; and I am relieved that it is not necessary for me to attempt to do so, since that is not properly an issue in the case. What is necessary for me to decide is whether the justification offered is a plausible one. In my view, the rationale that the Bank simply could not take the shares into its own books, and that there would be regulatory difficulties if it tried, seems to me plausible, even if it may not provide the whole story; and the explanation that the Original Purchasers provided a solution similarly so.”
“I accept that the failure to match up the two sides of the repo arrangements by express cross-references was not intended to prevent or impede Dr Arkhangelsky in exercising his right to repurchase if the conditions under which the right arose were satisfied in time.”
“On that basis, it was an egregious feature of the repo arrangements that upon default and the exclusion of the repurchase right, the value of the businesses would enure to the purchasers, subject only to an obligation to apply sums realised for pledged assets in repayment or reduction of indebtedness. A further consequence is that any income generated by Western Terminal and Scan, so far as not applied in reduction of the interest and capital outstanding on the relevant loans, would also accrue to the purchasers as holder of the shares free, in effect, of anything like an equity of redemption.”
“…the value of collateral is in substantial part a function of the ability to control its disposition, and that upon default a creditor bank's main job is to “assure the control over the collateral”.”
“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.”
“It is no answer for Dr Arkhangelsky to complain that the Bank was acting in its own self-interest; that is what commercial enterprises, including banks, sometimes have, and are entitled, to do. Only if some breach of previous commitment, or some overriding or paramount illegitimate reason for the decision, is demonstrated is that pursuit of self-interest improper.”
“1016 In my judgment, there is every sign that by March 2009 the Claimants had determined to act in their own interests, without any real consideration as to the possibility of being able to assist the OMG companies to trade through and overcome their difficulties, and safe in the knowledge (as it then seemed) of well-adequate security. Indeed, I suspect that all the Bank had by then set its sights on was realization of its security in an auction process beyond challenge by Dr Arkhangelsky, abiding by the letter of the process required by law, but not taking any steps to seek to further the interests of OMG and the Arkhangelskys. However that may be, it does not seem to me that there is any sufficient basis for inferring from that commercially self-centred and ruthless approach an intention to ‘raid’.” “1017 To my mind, Mr Stroilov’s submissions that the inference from the fact that the Bank set its face so precipitately against refinancing despite having (so it appeared) more than adequate cover is that “by that time the Bank was already determined…to seize the assets” in a ‘raid’ is based upon a false premise that, even if there was no moratorium, the Bank was obliged to refinance unless it had good reason not to do so. In my judgment, the Bank had no such obligation. Upon default, which it had no duty to assist the borrower to avoid, it was entitled to act exclusively in its own interests subject to realising the security in a manner consistent with the law and its duties under relevant law to the borrower.”
“But the question is whether that [a reference to Mr Savelyev’s avoidance of a meeting with Dr Arkhangelsky], combined with the precipitate decisions to remove the Directors-General, is evidence of a ‘raid’, as distinct from a determination to wrest control from Dr Arkhangelsky as a means of securing the assets. Put shortly, I do not think the inference sought by Mr Stroilov can fairly be drawn from those facts, especially given the nature of the inference sought to be drawn. If an inference is to be drawn it must be by reference to other facts which combine to show unequivocal intention to ‘raid’.”
“No, what we say is well, it is -- what we say is essentially if you have someone who is transferring assets from one set of companies which he secretly controls to another set of companies that he secretly controls via nominees, with the intention of defeating an adverse judgment of the court, we say, well, (a) this is dishonest in itself ... and (b) this indicates that they are up to something, if I may put it that way. … “We say this is dishonest in itself to try and defeat judgments of courts; and then secondly, well, we invite you to consider, well, why would they expect an adverse judgment from a court if all they were doing was enforcing their lawful contractual rights. Because on their theory, there was no reason to expect court proceedings, let alone successful court proceedings.”
“It seems to me clear, and I find, that the decision to remove and replace Dr Arkhangelsky and Mr Vinarsky was made by Mrs Malysheva, as part of the overall strategy she, with those she had brought in and especially Mr Sklyarevsky and Mr Smirnov, had been developing to take control of all the OMG assets. As will already be apparent, I do not consider that it was the Morskoy Bank Loan issue which promoted the decision: that issue was in reality more in the nature of an opportunistic basis of justification than a catalyst.”
“In my judgment, the evidence is, as I see it, that Mr Savelyev and his managers did avoid having a meeting; and it is clear that the Bank (through Mrs Malysheva, her team and Mr Savelyev) had no wish to negotiate with Dr Arkhangelsky.”
“165. This dispute is forensically important, since each party’s case on it supports their respective wider narratives. The Bank and Mr Savelyev portray Dr Arkhangelsky as a fraudster who systematically borrowed large sums on grossly overvalued security, then siphoned off the funds, defaulted, and ran away with the money, leaving the Bank to enforce worthless mortgages. Dr Arkhangelsky, in turn, contends that he was lured into the Repo agreement under the pretence of fortifying the Bank’s securities; but almost as soon as he signed on the dotted line, the Bank stopped working with him, and ran away with his valuable assets. Almost inevitably, the element of ‘running away’ is an inherent feature of an alleged fraud. 166. It is natural enough that a working relationship gives way to a ‘war’ after the innocent party has discovered the fraud against him. It may then be difficult to unravel what exactly happened prior to that. However, between the period of ‘cooperation’ and the period of ‘war’, there is often an illuminating interlude of one party chasing the other in some bewilderment, with exclamations such as “wait, wait, what about my money?”, while the fraudster vanishes out of sight. 167. This is why this point of detail was robustly contested at the 2016 trial; and the facts as found by Hildyard J are forensically consistent with the Counterclaimants’ case and inconsistent with the Bank’s case.”
“(4) The general picture which emerges once again is that the Bank, by the end of March 2009, was intent on removing from the Counterclaimants any control over the assets of the OMG companies by any means available to it, without regard to the interests of the borrower or even the constraints of the legal arrangements that had given it legal power over the shares which enabled such control. (5) But though consistent with, that does not, in my view, necessarily mandate, the inference that the Bank was seeking to ‘raid’ the assets and parcel them out to its associated companies without accounting for their true value and intending to snaffle the surplus for its or their benefit free of any claims by OMG. (6) It is, as it seems to me, consistent with a shorter term and less complex objective of protecting and ensuring efficient realization of its security by making sure that Dr Arkhangelsky had no legal right or means of practical access to the assets or control of the companies by which they were held.”
“My perception that, in the war between the parties, all sense of commercial reasonableness was lost on both sides, and in the case of the Claimants, they determined to, and did, opportunistically and in some respects ruthlessly, pursue their own commercial objectives without any regard to anything more than formal compliance with their obligations under Russian law, and have personally profited in the result.”
“Dr Arkhangelsky painted a picture of the Bank as an aggressive and unscrupulous ‘raider’, stopping at nothing to secure its objectives. I accept that it was his perception that the steps taken to remove both him and Mr Vinarsky were all part, and lurid examples, of the same ‘raiding’ tactics.”
“likely entirely to destroy the value of the pledged asset to third parties for so long as [its terms] were in place and enforceable. Only to those with the ability to discharge or dissolve the terms of the lease or the lease itself would the pledged asset realistically have any value”
“I have concluded that when the Gunard Lease was put in place its object was protection of the assets of Western Terminal, rather than their extraction for the benefit of the Bank and its associates, and that Ms Mironova’s evidence to that effect, and to that extent, is correct. According to her (as appears from my summary of her evidence above), and though it is now confusingly denied by the Claimants, the purpose was indeed to subject the Western Terminal assets to an encumbrance calculated to prevent Dr Arkhangelsky re-establishing control if he should succeed in the Russian courts in setting aside the repo arrangements, and to impede and deter third party creditors from looking to Western Terminal assets for enforcement in competition with the Bank and/or Renord-Invest.”
“[The counterclaimants] also sought to rely on the fact that the relevant Management Board resolutions were not disclosed until an order for specific disclosure was made in September 2015; and that the record of the decision relating to the transfer of Western Terminal assets to SKIF was sought to be deleted by the substitution by Ms Blinova of many dozens of documents – the entire sequence of Investrbank’s weekly ‘bad debt reports’ – solely to delete the one entry referring to that transfer.”
“… at this stage, in June, we've got a situation where we've had the Morskoy loan, we've now got proceedings against Sevzapalians and others to unwind the repo and then, at this point, Mr Vinarsky is still in place. What one needs to appreciate is that there may well have been trouble if in fact the police had not turned up.”
“(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 well-known procedural tactic to secure the raided property.”
“In my view, the likelihood is that when Dr Arkhangelsky first left Russia he did so in the expectation that, one way or another, something would turn up and he would find some sufficient solution to return and carry on his businesses, even if in altered scale and form. But things did not work out that way; and his return became both dangerous and (once his early victories in court were reversed and the Claimants secured their control) practically futile. I do not find that he was forced to flee; but I would accept that it became both senseless and dangerous to return to Russia.”
“the Bank used its close connections to the political elite in Russia (especially through Mrs Matvienko) to manipulate the enforcement authorities to bring a fabricated case.”
“567 There seems to me to be no real doubt that, from the summer of 2009 onwards, Mrs Malysheva and the Bank, with Mr Sklyarevsky and Sevzapalians, were determined to take any steps available to them, deploying such state connections as they could call on, to make quite sure that Dr Arkhangelsky’s exclusion from OMG and the Bank’s means of appropriating its assets could not be undone. 568 Despite the Bank’s protests that it acted only within the law, I am in equally little doubt that some of these steps included actions of an intimidating kind, especially when Dr Arkhangelsky and Mr Vinarsky dared question the legal propriety and effectiveness of their removals.”
“They sang in unison the same song: but the song was untrue. Their evidence was both orchestrated and fundamentally false.”
“In this uncertain but troubling state of things, the Counterclaimants invited me to draw the following inferences: (1) A perjury by six witnesses telling substantively the same lie can only result from a collusion. (2) The only purpose of that perjury was to conceal the so-called ‘repo’ arrangement. (3) The reason for concealing it was because it was fraudulent. (4) Three different employees of the Bank gave the same false evidence because the Bank was responsible for that fraud. (5) Three different employees of Renord-Invest gave the same false evidence because Renord-Invest was also responsible for that fraud. (6) A conspiracy involving, at least, the Bank, Renord-Invest, and the six individuals is, by far, the most probable explanation.”
“… the purpose of the concocted chorus was to support and substantiate the criminal proceedings, as part of the continuing ‘war’ against Dr Arkhangelsky; and I do not infer from any of this any recognition or concern that the repo arrangements were fraudulent; the evidence was concocted and coordinated to assist the Morskoy Bank criminal complaint. That is reprehensible: but, in my judgment, it does not demonstrate a conspiracy to conceal the repo arrangements because the participants recognised them to be fraudulent.”
“evidence of a premeditated decision on the part of the bank… To deliberately engineer a default thus enabling the bank to be sure it can implement the raid and at a time of its own choosing.”
“… each case must be assessed on its own facts, and the departures from the usual ‘check list’ may be as instructive as the similarities. In particular, it is the element of premeditation, and the ability unilaterally to bring about the premeditated result, which is the overall characteristic.”
“It is only the issues arising from the auction sales of the pledged assets, the valuation of those assets, and the respondents’ motives for acquiring them that stand in a different position. Unfortunately, the judgment gives rise to the inconsistencies and difficulties that I have identified above that concern these matters and the resulting question of whether the appellants sustained harm as a result of the respondents’ conduct. Those questions may necessitate the calling of further evidence on these points. I say “may”, because I do not believe that this court is in the best position to decide that question. It will be for the judge hearing the re-trial to decide the extent of any new evidence which either party should be permitted to call and how the evidence heard by Hildyard J should be presented and considered.”
“1157. It seems to me to be clear that the Bank used the Renord companies, and in the context those specifically identified above, as and when it required them for such undertakings, business operations or investments as appeared to it expedient at the time. It does not seem to me to be possible to characterise the business of the Renord Group more exactly: its diversity is itself confirmatory of the Bank’s needs, and the facility with which the companies were made available to it to service them.” “1159. The fact that the Renord entities deployed by the Bank were not de jure subsidiaries no doubt was of utility: it enabled their operations to be kept off the Bank’s balance sheet. But de facto, as it appears to me, certainly those expressly identified above were used, or made available for use, by the Bank in the context of these proceedings. In my judgment, their involvement in the auctions and transactions referred to above was not as independent third parties.”
“… it may be that even the SPVs or other vehicles they provided were also engaged (or from time to time became so) in independent projects and businesses with which the Bank and/or Mr Savelyev were not directly concerned.”
“1241. However, in my view, the hard evidence to demonstrate ultimate control and ownership of Baltic Fuel (if not Renord-Invest) remains meagre. It is not such, in my judgment, as to displace the possibility that, consistently with my view that Renord-Invest and SKIF were corporate vehicles available for use for the control and fulfilment of various potentially independent projects, Renord-Invest and/or Kontur were used by Mr Smirnov (rather than the Bank and/or Mr Savelyev) as vehicles for the purposes of an oil business which included Baltic Fuel, in much the same way as I have found the Bank and/or Mr Savelyev used Renord-Invest in connection with the pledge realisations and transactions. …” “1242. In the end, therefore, though not without equivocation, I have concluded that such circumstantial evidence as was provided by the Counterclaimants is insufficient to warrant a finding, contrary to the evidence of Mr Savelyev (which, as I have previously noted, was not challenged), of Mr Smirnov and of Mrs Yatvetsky, and notwithstanding the equivocation of FTI, that the Bank and/or Mr Savelyev owned and/or controlled Baltic Fuel.”
“I do not accept Mrs Yatvetsky’s evidence if and insofar as it might be taken to suggest that Baltic Fuel was not and is not a Renord-Invest company: I find that it was and is. But, as previously indicated, that does not conclude the necessary enquiry.”
“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.”
“28. The Claimants deny any such agency, nominee or "puppet" arrangements between the Bank and the Original or Subsequent Purchasers, any Renord Group entity, or any of the three individuals. They contend that they have no right to possession of such documents and that such documents are not within their "control" for the purposes ofCPR 31.8 . They point out and object also to the extreme width of the search sought.” “31. The Claimants also stress that the question of the relationship between the Bank and the Renord Group and other transferees of OMG assets is of great significance to the Counterclaim, as indeed the Defendants themselves accept and assert: the Claimants urged me energetically against its summary determination.”
“… accepted during his cross-examination that ‘bid-rigging’ (which he defined as “a conspiracy among bidders not to outbid each other”) would give rise to liability as well under the combined effect of article 10 and article 1064, demonstrating that article 449 is not invariably exclusive in its application. However, as discussed later (see paragraphs [1380] to [1386] below), where the real cause of any loss is the non-attendance of anyone except associated parties, it may be very difficult (if possible at all) to establish causation.”
“1347. I also think it possible, and indeed more likely than not, that by this time the Claimants and/or their associates had determined to retain the assets within their circle, with a view (by 2012) to realising their potential by substantial investment of which they had been starved: they were not interested so much in maximising recoveries in diminution of the loans, but in maximising benefit for themselves and their associates, subject only to formal compliance with the Russian law and practice. On that basis, the lack of third party interest undoubtedly suited the Claimants and may well have been vital for the accomplishment of what had become their preferred outcome.”
“Even if, as Mrs Yatvetsky came close to conceding and I tend to think, the Claimants and/or their associates or “loyal friends” by now, or even some time ago, had resolved to retain within their circle and exploit Western Terminal for their own advantage, using the resources they (but not the Counterclaimants) could command, I do not think that gives rise to actionable impropriety, as long as fair value was achieved; and there is, as I say, nothing such as to dislodge the value accepted and approved by the Russian court.”
“So I think what you’re saying is it may be the judge found bad motives but it’s nothing to do with the 1064 and the Russian law of auctions and article 10 which allowed them to do what they did and that’s the end of it because they have the contractual rights to enforce their security.” “Can I put it another way. Your submission is that the unlawfulness at the stage of realisation of the assets has to be shown to be something unconnected with simple motivation?”
“1348. That said, however, it was not incumbent on the Claimants to do anything more than what was required by the relevant Russian law and practice. Provided the requirements were fulfilled to the satisfaction of the auction organisers they were, as I see it, entitled to pursue their own interests as they perceived them. 1349. As to that, the assumption must be, and I find, that a marketing exercise which appeared to the auction organisers to be compliant with their obligations was undertaken, unless there is sufficient evidence to establish that the organisers themselves were complicit and/or actively involved in a scheme or schemes to reduce the attractiveness of and demand for the relevant assets and/or to depress third party interest by inadequate marketing.”
“it is difficult to infer an intention to deter third party interest when there is no evidence that it was ever deployed or resulted in deterrence.”
“1344. The overall impression I formed from the oral evidence, consistently with the lack of documentary evidence to the contrary, was that no more was done to advertise and market the relevant assets than the basic minimum required, and the Claimants did not press for more. 1345. However, it must be remembered that, whereas the packaging of the assets for auction was a matter for the vendors/pledgees and their associates, the advertisement of the auctions was a matter for the auction organisers.”
“1371. Thus, the overall effect was that (a) the requirement in the mortgage/pledge agreement between the Bank and the original pledgor for the auction price for the pledged assets on public sale free of the pledge to start at RUB 1,209,784, was side-stepped with the blessing of the Russian court; (b) a new reserve price of barely half that (RUB 670 million) was also blessed by the Russian court; and (c) the entirety of the assets, pledged and unpledged, were brought together and sold to an associated company. 1372. I think it is difficult to regard this careful sequence of steps as anything other than contrived. The bringing of proceedings; the settlement agreement with its unrealistic deadline for payment; the inevitability of Vektor-Invest failing to pay; and the pre-ordained result: none of it bears scrutiny as other than a preconceived plan, with the object which it achieved of obtaining court blessing for auction sale, at a greatly reduced valuation, but nevertheless clearing off adverse claims.”
“I do not think that there is any evidence that the auction organisers were themselves prevented or deterred by the Claimants or Renord-Invest from further effort as regards presentation and marketing: and accordingly, I do not consider there to be any sufficient basis for inferring from the way the assets were packaged, presented and marketed that the auction organisers’ marketing processes were designedly deficient in terms of the Russian law requirements.”
“(2) Had the Claimants really wanted to maximise the amounts realised on enforcement to be applied in reduction of the loans, it seems strange that they did not make greater efforts to arrange a direct sale to ROK No 1 Prichaly in a single transaction: it is true that although the land at Onega Terminal was partly owned by Scan, and partly by another OMG company, LPK Scandinavia, both parts of Onega Terminal, as well as some (but not all) of the other real estate owned by Scan, were pledged to the Bank, and both those companies were subject to its control. (3) The complexity of the sales processes was not inherently likely to result in the realisation of the highest amount for application in diminution of indebtedness. On the contrary, Mrs Yatvetsky herself stated that “selling Onega 3 and 4 without Onega 1 and 2 was an exercise in futility…there would be no willing buyer”; the fracturing of interests in effect stripped out synergistic values until the final transaction of sale to ROK No 1 Prichaly (from which no amounts were raised whereby to diminish indebtedness). (4) A measure of proof of the adverse effect of fragmented sales is offered by the fact that the aggregate amount realised from sale of the pledges and apparently applied in diminution of the indebtedness was many factors less than the ultimate sale price of the pledged assets as eventually unified and sold to ROK No 1 Prichaly.”
“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.”
“income-generating assets and properties involved in manufacturing and trade, real estate, land and other areas”
“Valuers are not required to use more than one method for the valuation of an asset, particularly when the valuer has a high degree of confidence in the accuracy and reliability of a single method, given the facts and circumstances of the valuation engagement.”
“However, valuers should consider the use of multiple approaches and methods and more than one valuation approach or method should be considered and may be used to arrive at an indication of value, particularly when there are insufficient factual or observable inputs for a single method to produce a reliable conclusion.”
“Unless expressly required by statute or by other mandatory requirements, no one valuation approach or single valuation method necessarily takes precedence over another. In some jurisdictions and/or for certain purposes more than one approach may be expected or required in order to arrive at a balanced judgment.
“Inclusion of Synergistic Value is crucial to the valid determination of Market Value using the Income Approach. IVS 2 states that, “Synergistic Value is the result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values.”
“If the synergies are only available to one specific buyer then Synergistic Value will differ from Market Value, as the Synergistic Value will reflect particular attributes of an asset that are only of value to a specific purchaser.”
“Most bases of value prohibit the consideration of information or market sentiment that would not be known or knowable with reasonable due diligence on the measurement/valuation date by participants.”
“But Ust-Luga would have been a significant competitor to any developed Western Terminal. Ust-Luga’s location provided it with direct access to the transportation network which gave it a distinct advantage over a port located by the city centre. There is force in the Claimants’ submission that given its significantly lower tariffs, Ust-Luga would have exerted downward pressure on the charges at Western Terminal.”
“Moreover, if SV-16 were extended, both berths would have lost a considerable part of their working efficiency in relation to each other. With the two berths at an acute angle, the presence of a ship at one berth would restrict the ability of another ship to dock at the other berth. In addition, if two vessels wish to dock at or leave the terminal at the same time, this may not be possible due to the small space in front of the berths. In practice, the competition between terminals in the BP means that any vessel faced with these difficulties could easily find another terminal at which to dock.”
“Her assumptions as to throughput also appear over-optimistic. On the basis of a total capacity of 500,000 TEUs, Ms Simonova assumed a throughput of 420,000 TEUs per annum. That would be equivalent to 15% of the total activity in the Big Port of St Petersburg, generated from a land site that was only 1.5% of the total area of the Big Port of St Petersburg. By way of comparison, the largest operator in the Big Port, CSJC First Container Terminal, occupied a 74 hectare space and produced a turnover of 1,000,000 TEUs per annum. As a reality check, in 2014 Global Ports, the largest operator of berths and porting facilities in Russia, had throughput at its First Container Terminal in St Petersburg of 1.25 million TEUs per annum. On Ms Simonova’s analysis, Western Terminal would within only 5 years achieve a capacity equivalent to 40% of Global Ports. That is difficult to accept as realistic.”
“[Onega Terminal] was not a ‘port’ or a ‘transhipment terminal’: it had no access to the sea. It did not have its own berth on its own land, but had to rely on two berths owned by the SFP.”
“Mr Thomas’s revenue forecasts are only upwards, but Ms Shalaeva shows that his forecasts bear no sensible relationship to the market dynamics at the relevant time: 2008 was the highpoint for the car market in Russia; after 2008 the market collapsed and it has still not recovered to its 2008 level. There must be real doubt as to the realism of Mr Thomas’s projected tariffs given the physical constraints on the OT infrastructure.”
“a little like using apartment prices from Mayfair to infer property prices in Fulham as that is broadly how the areas in question compare.”
“that it was intended to apply the proceeds of the sale of the land in diminution of the debts of OMG. There is, however, an issue as to the sale price achieved in addition to the propriety of the deployment of the repo arrangements in this way. There is, once more, a very large gap between the experts as to the value of the land.”
“In the light of actual market evidence, I accept that [Ms Simonova’s] valuation is unrealistic. Mr Millard’s valuation seems to be closer the mark. But in any event, I am satisfied that the prices actually attributed do not demonstrate dishonesty.”
“The results show that once I change the key inputs to Mr Thomas’ DCF model, even where I use inputs that are more optimistic than my own estimates (e.g. for TEU capacity and utilisation), Mr Thomas’ model gives values for WT which range from US$ 11.079m to US$ 27.2m , which is consistent with my own valuation” ii) and as to Onega Terminal, Ms Shalaeva said: “Thus the 2009 value of OT calculated with the DCF model is between US$ 14.744 million and US$ 7.855 million ; and 2011 value of OT is in the range of US$ 22.693 million to US$ 8.822 million . Although this range is higher than my original valuation range, I consider my original valuation to be more reliable since the DCF model assumes that OT would be able to obtain access to a berth and it is not at all clear in practice how easy it would be to obtain such access.”
“Given the limitations to the available data, I qualify my valuation reported on the basis of ‘material valuation uncertainty’ per VPGA 10 of the RICS Valuation – Global Standards. Consequently, less certainty – and a higher degree of caution – should be attached to my valuation than would normally be the case. For this reason, I have given a range of values and I refer to the most likely interval of the market value in the Valuation Result section of this report. For the avoidance of doubt, my reference to ‘material valuation uncertainty’ above does not mean that the valuations in this report cannot be relied upon.”
“It would be a very odd corporate raid where the ‘raider’ leaves the ‘victim’ with the only assets of any value that he has.”