Baturina v Chistyakov [2017] EWHC 1049 (Comm)

Case No CL-2013-000803Case No CL-2014-000331[2017] EWHC 1049 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 10/05/2017
Before
THE HONOURABLE MRS JUSTICE CARR DBE
Between
ELENA BATURINAClaimantALEXANDER CHISTYAKOVDefendant
Mr Andrew Green QC, Mr Adam Baradon and Mr George Molyneaux (instructed by Paul Hastings (Europe) LLP) for ClaimantMr Stuart Isaacs QC, Mr Nicholas Cherryman and Ms Elizabeth Houghton (of or instructed by King & Spalding LLP) for DefendantHearing Hearing dates: 1 st, 2 nd, 3 rd, 6 th, 7 th, 8 th, 9 th, 10 th, 15 th and 16 th March 2017
JudgmentMRS JUSTICE CARR :
[1]This judgment is divided into the following sections: Section A Introduction Section B The parties Section C Other witnesses of fact Section D Expert witnesses Section E Factual overview Section F The agreement in February 2008 Section G Ms Baturina’s overarching case of dishonesty against Mr Chistyakov Section H The claim in deceit Section I The claim for breach of fiduciary duty Section J The claim for breach of contract Section K The alleged oral conversion and supplemental agreements Section L Causation and quantum Section M Conclusion A. Introduction[2]This is a bitter commercial dispute between two wealthy Russian business entrepreneurs who engaged together in a venture relating to property development projects in Morocco (“the Projects”). The Claimant (“Ms Baturina”) claims recovery by reference to some €74million which she caused to be paid into the control of the Defendant (“Mr Chistyakov”). She alleges that Mr Chistyakov misused the funds so paid over to him, making payments to various offshore companies, including €5million to a company incorporated in the British Virgin Islands (“BVI”) and beneficially owned by him, namely Ridgegrove Investments Ltd (“Ridgegrove”). Ms Baturina alleges that she was deceived and has been cynically exploited by Mr Chistyakov and made the victim of a very substantial fraud. She brings her claim by reference to three causes of action: deceit, breach of contract and breach of fiduciary duty.[3]Mr Chistyakov denies the claims in their entirety, describing them as “opportunistic and wholly without merit”. He has done nothing wrong and is under no liability to Ms Baturina. Even if he is liable, she has suffered no loss. The claim is factually and legally misconceived. Both Ms Baturina and Mr Chistyakov were co-investors in what was a highly speculative venture. Despite the efforts of all concerned, as a result of varied factors, including the severe and rapid global economic downturn, the impossibility of securing bank financing to underpin the costs of construction and the Moroccan government failing to take key steps in order for the Projects to move forward, the venture failed. Mr Chistyakov too has lost the money that he invested. He points to the ever-shifting nature of Ms Baturina’s case. Serious allegations of fraud have been abandoned, as recently as February 2017. Ms Baturina and her lawyers are willing to make unfounded allegations of dishonesty only to withdraw them at the last minute. This is a misguided attempt to fix Mr Chistyakov with a liability which he does not owe for a loss which Ms Baturina has not suffered or which otherwise is irrecoverable.[4]There are two sets of proceedings. The main proceedings were issued in January 2013 (claim no 2013-000803) (“the main proceedings”). What have been described as “protective” proceedings were issued in February 2014 (claim no 2014-000331) (“the protective proceedings”) at a time when the main proceedings were stayed on the ground of forum non conveniens. That stay was overturned on appeal ([2014] EWCA Civ 1134), on the basis that the claim for loss and damage as then formulated was unsustainable and accordingly did not justify a stay in favour of the Russian courts. Ms Baturina then successfully sought permission to amend her claims so as to reformulate her alleged losses. Causation and quantum issues remain very live, however, not least because of Ms Baturina’s complex personal financial arrangements. B. The parties[5]Ms Baturina is a sophisticated and extremely wealthy business person, with investments in the hospitality, renewable energy, manufacturing, construction and real estate sectors. She is also engaged in a range of philanthropic projects, focussing on education, culture, design and the arts. She lived in Russia until 2010 when she came to live in London upon the forced resignation of her husband as Mayor of Moscow. She owns property here and abroad, including in Austria and Spain. She gave her evidence in Russian.[6]Ms Baturina started her own business in 1989, as time went on operating through various different legal entities. She is experienced amongst other things in property construction projects, particularly by reason of her involvement in Inteco CJSC (“Inteco”), a Russian closed joint stock company.[7]Ms Baturina’s case is that she (directly or indirectly) owned and controlled Inteco until 7th December 2011. Between 2007 and 2010 her interest was held through Kontinental Fund, a closed-end unit investment fund established on 26th October 2006. Kontinental Fund was managed by CJSC Kontinental Managing Company, another Russian closed joint stock company. As of 31st December 2007 and 30th June 2008 all of the investment units in Kontinental Fund were held by Inteco itself as to 58.21% and Ms Baturina as to 41.79%. As a matter of Russian law, as set out in the expert evidence of Mr Alan Kartashkin (“Mr Kartashkin”), Ms Baturina retained ownership title to the transferred shares in Inteco, including all of the property and corporate rights attaching to such shares under Russian law. As a result of the transfer she became a settlor of fiduciary management over the Inteco shares, granting the managing company the power to exercise shareholder rights for her benefit. All of the economic risks and benefits associated with the ownership of the Inteco shares were retained by and remained with Ms Baturina (at least in proportion to her share in Kontinental Fund). Kontinental Fund was dissolved in June 2010. As set out further below, Ms Baturina asserts that on 7th December 2011 she sold all the shares and assets in Inteco (for approximately US$1billion).[8]Mr Chistyakov contended in closing that Ms Baturina had not proved that she owned Inteco at all material times as she alleges. No positive denial of ownership has ever been pleaded on behalf of Mr Chistyakov, though Ms Baturina was put to proof of ownership. Ms Baturina’s evidence as to ownership was not challenged directly in cross-examination. She was in fact cross-examined on the basis that she did own Inteco. Nor was her solicitor, Ms Duncan, challenged on her evidence as to Ms Baturina’s interest in Inteco (as set out in Ms Duncan’s fifth witness statement). There is also at least one sale agreement dated 12th October 2011 which records Ms Baturina as being the 100% owner of the shares in Inteco. There is also a letter dated 8th October 2014 from the Registrar of Kontinental Fund, confirming that Kontinental Fund was owned in part by Inteco and in part by Ms Baturina from 31st December 2007 to 30th June 2008. Whilst I fully accept the defence submission that the documentation available is very sparse, and the precise lines of ownership are, as it was put, “opaque”, a matter to which I will return in the context of quantum, I am satisfied in broad terms that Ms Baturina owned Inteco (directly or indirectly) until 7th December 2011 as she alleges.[9]Inteco’s business developed into a number of different fields, ranging from software to plastics. It also had a very substantial and successful construction business, including construction and property development, from the mid 1990s onwards. It entered the construction market to a more significant extent in the early 2000s. Between 2001 and 2010 Inteco’s work for the City of Moscow Government represented around 2% of the residential construction contracts awarded by the municipality. Ms Baturina also used Inteco as the vehicle through which to invest and conduct her various business activities, in addition to that business. She treated Inteco’s interests in effect as her own; individuals employed by Inteco for all practical purposes worked for her benefit and would carry out such tasks as she told them to. She thought of them as “[her] employees”.[10]Between 2007 and 2010 Inteco employed some 15,000 personnel directly and through subsidiary companies. Ms Baturina was President, and below her were three to four Vice Presidents. Heads of department and directors would report to them, with the exception of the Finance Director who reported directly to Ms Baturina. In the early 2000s a Mr Konstantin Edel (“Mr Edel”) and a Mr Oleg Soloschansky (“Mr Soloschansky”) joined Inteco to work on its construction and property development projects. Mr Soloschansky became the second and then first Vice-President in seniority, with responsibility for construction projects. Mr Edel also became a Vice-President, with responsibility for finance and strategy.[11]Mr Chistyakov is also a successful business person with a background in Russian real estate and energy companies, including the Federal Grid Company of Unified Energy System (“FGC”). He resides in Russia and is currently the Executive Chairman of Ruspetro. Outside Russia he owns a home in Marbella, Spain but no other property. He gave his evidence in English.[12]Mr Chistyakov studied Economics, graduating in 1995. As at 2007/8, he was only around 35 years old. Upon leaving university, he headed the risk management and commercial transaction financing departments at ING Eurasia Bank. He then became deputy director of investment management at MENATEP and deputy general director of Alliance Menatep. In 1999 he joined FGC, first heading its energy holdings project and trade financing department, then becoming director of investment policy and a member of management. From 2002 to 2008 he was first deputy chairman of the management board of the FGC. He joined Ruspetro as an executive director in December 2011, rising to his current position in 2013.[13]Mr Chistyakov owned the Hermitage Construction and Management group of companies (“the Hermitage Group”). The companies were land development companies and began business in around 2004. The group’s business is and was the identification of land development opportunities and the management of property investments.[14]Each party therefore had an impressive curriculum vitae as at 2007, although Ms Baturina was clearly by far the more experienced. Her experience included property construction development, experience which Mr Chistyakov did not have.[15]As already indicated, both gave evidence at trial. Ms Baturina was a well-prepared and engaging witness. She was very firm in her views and made no material concessions. A striking feature of her involvement in the index events was her reliance on others within Inteco to run her affairs, including the transactions the subject of this litigation. Apart from her order dated 15th February 2008 setting up Inteco’s Moroccan department on 15th February 2008, Ms Baturina does not appear personally (save by way of reference) on any of the documents until she signed the agreement entitled the “PRINCIPAL PROVISIONS OF THE PROJECT IMPLEMENTATION TRANSACTION” (“the PPA”) on 28th February 2008, a document at the heart of this litigation. Unsurprisingly, she struggled with recollections of precise dates. Her independent recollection of certain alleged representations was not identical to her pleaded case, as set out in more detail below.[16]Mr Chistyakov was a less well-prepared though nevertheless impressive witness. At times his evidence was at odds with his pleaded case, most obviously when he denied that the PPA was a legally binding document. A concerted attack has been made on his credibility in this regard. But he is not and never has been a lawyer, let alone an English lawyer, and in a sense his departure from his pleaded case on what is ultimately a legal issue lent credibility to what he was saying in the witness box. The events in question took place a decade or so ago, are highly complex in their arrangements and unclear in parts, and the contractual documentation is very far from perfect. He was not referred in his oral evidence at any stage to clause 11 of the PPA (which states in terms that the PPA was intended to be legally binding). Absent such a clause (and the choice of law clause 12), there would indeed be ample scope for suggesting that the PPA was too vague to be legally enforceable. I accept his evidence and, for example, that of Mr Soloschansky on this point, that in Russia it is common practice for principals to an agreement to sign documents such as the PPA on the basis that they are not intended to be legally binding.[17]Having listened to and watched Mr Chistyakov carefully in the witness box over several days of detailed and able cross-examination, I do not conclude that, as a result of inconsistencies between Mr Chistyakov’s evidence in the witness box and the statements of case that he signed or more generally, his evidence was dishonest or inherently unreliable. Further, some of the criticisms made of his evidence are unfair: thus, he did admit that no title to land was ever acquired on the Tetuan Azla project. His alleged “reluctance” to do so simply reflected the fact that he was keen to emphasise that in his view significant rights to the land were nevertheless acquired. Whilst his evidence was overstated in parts, he also made appropriate concessions, making it clear when he was not sure of something, and he freely admitted that he could not remember certain matters, given the passage of time. He appeared obviously surprised at some of the allegations being made against him, for example when it was suggested that he had seen documents at the time that he was in fact seeing for the first time. He came across as someone who wished honestly to defend his integrity against allegations which he realised were extremely serious, anxious to ensure that his recollection of events was understood properly in the context of obvious linguistic and cultural differences.[18]In the end, whilst I found neither Ms Baturina nor Mr Chistyakov to be wholly satisfactory witnesses, I have not concluded in broad terms that either of them were doing anything other than their best to recollect the relevant events, which now took place many years ago. Not only does the passage of time explain certain inaccuracies, the position is compounded by the relative paucity of contemporaneous record, the fact that Ms Baturina in particular was at one remove from the direct negotiations and the fact that they have both also now seen documents which they did not see at the time which will have (even if only sub-consciously) influenced their evidence. Where necessary, I will resolve their disputes of fact as they arise below. C. Other witnesses of fact[19]The following witnesses also gave evidence: a) For Ms Baturina: i) Mr Alexey Makeev (“Mr Makeev”): was an engineer. He died in May 2015 and his statement has been admitted under CPR 33.2(2). Accordingly, his evidence has not been tested in cross-examination. He only became involved in the Projects in July 2010 when he became employed by the Hermitage Group (until 2012). He states that since then he has effectively managed what remains of the assets of subsidiary companies involved in the Projects alongside the management of other business and property interests in Morocco. He also states that he now acts as a “consultant to a company that [he] understand[s] to be connected to [Ms Baturina]”. His evidence in summary is that the Hermitage Group was in sole management of the Projects for much of the period when he was there. He states that there were issues with the main Projects, that Paradise Golf was virtually unviable and that Ouad Lau was a fantasy. He says that the land comprising Paradise Golf was very steep, geologically unstable and riven with fissures. He makes further remarks as to the dissipation of funds from Sylmord Trade Inc (“Sylmord”). He refers to various calculations and tables setting out Mr Chistyakov’s funding contributions to the Projects. Mr Chistyakov discounts his evidence on the basis of his late arrival to the scene, his relationship with Ms Baturina and the fact that his evidence strays far into matters on which he is not qualified to comment; ii) Mr Mark McDonald (“Mr McDonald”) : is a director of Grant Thornton (BVI) Ltd and was appointed joint liquidator of Sylmord on 28th August 2014. He gives details in his three witness statements of Sylmord’s accounts, particularly in relation to the payments made by Sylmord for the purposes of the Projects. His evidence is not concerned with the beneficiaries, and it does no more than support other evidence as to the amounts of these payments. He gives the anticipated sale prices of Sylmord’s assets in liquidation and further distributions. He was not required for cross-examination; iii) Ms Michelle Duncan (“Ms Duncan”): is Ms Baturina’s English solicitor in these proceedings, as indicated above. She was not required for cross-examination. She gives evidence of Ms Baturina’s interest in Inteco. She exhibits notes of meetings that she had with a Mr Stepanenko (referred to below) on 6th and 12th December 2012. They broadly support and are consistent with the evidence that he gave both in his witness statement and in cross-examination, and he was not challenged by reference to them; b) For Mr Chistyakov: i) Mr Mikhail Edel-Smolnikov (“Mr Smolnikov”): acted as Mr Chistyakov’s representative in relation to the Projects and was otherwise a long-time consultant to him. He was able to provide some more detail on the negotiations between the parties but it became clear from his evidence that no-one on Mr Chistyakov’s side was heavily involved in the early project management or the negotiations. I found Mr Smolnikov to be a serious-minded witness on the detail. I am convinced that he did not believe at any time that Mr Chistyakov was doing anything wrong or underhand, for example, in terms of allowing payments to be made out from Sylmord to third parties, including to Ridgegrove. Mr Smolnikov was open with Ms Baturina’s representatives at Inteco at all times and saw nothing to hide. In particular, even though Mr Stepanenko said that he did not know at the time that Ridgegrove was Mr Chistyakov’s company, I prefer Mr Smolnikov’s evidence that he informed Mr Stepanenko in terms by telephone that Ridgegrove was Mr Chistyakov’s company. His testimony on this was compelling. He freely admitted that documentation was sometimes prepared on Mr Chistyakov’s behalf to satisfy banking requirements and for “technical” reasons only. The documentation on occasion did not reflect genuine transactions (such as an ostensible agency contract dated 6th June 2008 between Sylmord and Ridgegrove). I accept Mr Smolnikov’s evidence that Mr Chistyakov would not have been troubled with or aware of such matters, which were for Mr Smolnikov to manage on his behalf. Mr Chistyakov did not sign any of the documents. Whilst Mr Smolnikov clearly has loyalties to Mr Chistyakov, I do not assess him as being blinded by such attachment so as to give false evidence; ii) Mr Andrey Krupnov (“Mr Krupnov”): has been involved in Moroccan property development for a number of years. He was clear (and graphic) in his evidence as to the nature of the Moroccan property market, confirming that it was a complex, drawn out and risky process. He was and remains passionate about the Projects. He was vivid in his evidence as to Inteco’s involvement in and understanding of the Projects. Even if he was prone to exaggeration at times, I accept his evidence that Inteco was very present on the Projects, carrying out its own investigations and enquiries, and that Mr Krupnov engaged with the Inteco representatives fully; iii) Mr Soloschansky: was a Vice President of Inteco with particular responsibility for the Projects at all material times. His witness statement was misleading insofar as it implied that he had seen the PPA at the time (see in particular paragraphs 34 to 36 of his statement). In fact Mr Soloschansky had not seen the PPA before this litigation. I therefore treat his evidence with a significant degree of caution, but it is oversimplistic to conclude that as a result of such shortcoming, his evidence should be discounted in its entirety, particularly where it corresponds with or is supported by other evidence. He was clear that his understanding at the time was that this was a share purchase agreement. Ms Baturina suggests that his evidence is motivated by hostility towards her because of two unrelated claims that she has brought against him in Russia. I reject this assertion, which he addressed in his evidence in chief and which he shrugged off quite calmly in cross-examination. The evidence is that Ms Baturina has to date failed outright in both claims against him in the Russian courts, including after appeal. I accept the germ of his evidence that, at all times, he was aware that there was a consortium on the other side of this transaction that included at least Mr Chistyakov and Mr Krupnov; iv) Mr Anton Stepanenko (“Mr Stepanenko”): was junior to Mr Soloschansky and Mr Edel within Inteco and 37 years old in 2008. He was assigned to the Projects from 2008 to March 2011, and had a close involvement throughout, with close dealings with Mr Smolnikov at all times. He described clearly his functions and activities on the Projects, amongst other things commissioning substantial marketing research from Chorus Consulting in around October 2008. He was well aware of the involvement of Mr Chistyakov, Mr Krupnov and others in a consortium. He was a helpful witness. D. Expert witnesses[20]Expert evidence was also adduced from various disciplines, as follows: a) For Ms Baturina : i) M. Reda Guessous (“Mr Guessous”): is a French civil engineer now working as a real estate valuer in Morocco. He provided valuation reports of offices and also the land at Tetuan Azla and Paradise Golf as at 2008 and as at 2016. He was not an impressive expert witness. He revealed for the first time in cross-examination that he had never in fact himself visited any of the sites the subject of his valuations (though he stated that he knew the areas). He had relied heavily on members of his team for the purpose of his valuations. Perhaps more importantly, he was young and had no real valuation experience in Moroccan real estate in 2008. He did not start working in Morocco until mid 2008, and then in the residential property market. Beyond that he was able to confirm that Chorus Consulting was a company with a good reputation, though its report was not a valuation report and it did not specialise in real estate. He agreed that the report of Chorus Consulting Hospitality and Leisure, Chorus SARL (“Chorus”) was consistent with two January 2008 valuations commissioned by a Mr Hassan Laarbi Amar (“Mr Hassan”), an associate of Mr Krupnov and involved in the Projects, insofar as it stated that there was a scarcity of plots and high demand for beachfront properties; ii) Mr Andrew Wynn (“Mr Wynn”): is a managing director at FTI Consulting, a global business advisory firm. He carries out valuation and damages assessment work in commercial disputes. He was a professional and straightforward expert witness. He was instructed to proceed on the assumption that the initial loans, as defined below, caused Inteco’s assets to be depleted by €74,817,500, and duly did so. His opinion, amongst other things, was that the diminution in the value of Inteco’s shares due to such depletion “would have been the same amount as that depletion at the date of depletion”. Assuming that Ms Baturina was the 100% shareholder in Inteco, she would have suffered a loss of the same amount. On payment to Inteco, the increase in value of Inteco’s shares would be the same as the sums repaid, save for the effect of the interest income on the tax paid by Inteco. The amounts paid by Ms Baturina for shares in a Russian company known as Volinskaya TD (“Volinskaya”) in 2011 fell within an appropriate valuation range; iii) Mr Ilya Shershnev: is a real estate specialist. He valued the fair market value of certain propery owned by Volinskaya in Moscow as at 17th January 2011 at around RRUB13.6 billion with a range of RRUB10.8 to 16.3billion; iv) Mr Kartashkin: is a practising Russian lawyer. His evidence has already been referred to above. It related to the legal nature of the holding of Inteco shares through Kontinental Fund under Russian law, the nature of Ms Baturina’s control over Inteco whilst her shareholding was held through Kontinental Fund and whether or not Kontinental Fund had standing to bring a legal claim and, if so, in whose name and for whose benefit. He was not called for cross-examination. b) For Mr Chistyakov : i) Mr Valery Knyazev (“Mr Knyazev”): is a chartered certified accountant at Haberman Illett LLP and a member of the association of valuers in Russia, amongst other things. Although, as he identified, he made certain errors in recording fully accurately his opinions in, for example, his joint statement with Mr Wynn, he was a most impressive expert witness, whose oral evidence was easy to follow and understand. In his first written report, the thrust of his conclusion was that Ms Baturina had simply not provided sufficient details so as to enable him to undertake a sensible valuation exercise. For the purpose of his second report, he was instructed to provide a “critical review” of Mr Wynn’s first report. He remained of the opinion that there was an insufficient basis for a meaningful or realistic assessment of Ms Baturina’s alleged damages to be possible. Amongst other things, he did not agree with Mr Wynn’s conclusion that there would necessarily be a 1:1 ratio between the value of the initial loans and any diminution in shareholder value, and did not agree with the assumption upon which Mr Wynn had been asked to (and did) proceed; ii) Mr Alexander Molotnikov (“Mr Molotnikov”): is a Russian lawyer and Associate Professor in the Business Law Department of Moscow State University. His evidence responded mainly to the issues addressed by Mr Kartashkin. He was cross-examined briefly. He confirmed that if Ms Baturina bought units in Kontinental Fund from Inteco, thus buying all of Inteco’s units, the proceeds would all go to Inteco and she would own all of the units constituting Kontinental Fund.[21]Ms Baturina also served but did not rely on an expert report from Ms Soumaya Essadaoui (“Ms Essadaoui”), a Moroccan lawyer. Mr Chistyakov relies on it (as he is entitled to under CPR 35.11) as helpful evidence to demonstrate the intricacies and complexities involved in real estate development in Morocco. E. Factual overview[22]The claims are set against a detailed factual matrix, which I outline only as necessary below, highlighting areas of dispute where they arise. Much of the original documentation is in Russian. For the avoidance of doubt in relation to those documents, quotations below are of the English translations provided in the trial bundles. According to Ms Baturina, “certain documents” are not available due to a flood in February 2011 at a storage unit where such documents were being held. Her initial disclosure ran to only six files.

Prior dealings of the parties

[23]Mr Chistyakov first had dealings with Inteco whilst at FGC, dealing with utility connections for one or more of Inteco’s projects. In 2005 Ms Baturina and Mr Chistyakov engaged in what turned out to be an abortive project relating to a development in the north-east of Moscow. Then in August 2006 a company owned by Ms Baturina purchased shares in a Hotel Isaakievsky LLC from a company owned by Mr Chistyakov. The sale price was some US$18,000,000. Mr Chistyakov’s evidence was that he dealt with Mr Soloschansky alone at that time.[24]Mr Chistyakov became friends with Mr Krupnov in the early 2000s. Mr Chistyakov often spent holidays in Marbella and Mr Krupnov was an expatriate there. They had met socially on a number of occasions before the events relating to this case. It is unchallenged evidence that Mr Krupnov had long been trying to get Mr Chistyakov, amongst many others, to invest in Moroccan property.[25]Mr Chistyakov and Mr Krupnov’s business relationship began in May 2007 when Mr Chistyakov was approached by Mr Krupnov and asked whether he would be interested in investing in certain property in Morocco. As indicated, Mr Krupnov had approached Mr Chistyakov a number of times previously, but it was the appeal of Project Meloussa on this particular occasion that led Mr Chistyakov to make his first investment in the Moroccan property market.[26]During the course of a regular meeting between Mr Chistyakov and Mr Soloschansky in mid-2007 in Moscow, convened to discuss the utility connections of some of Inteco’s Russian developments, Mr Chistyakov mentioned in passing that he had been investing in a real estate development project in Morocco. Following this meeting, Mr Soloschansky mentioned Mr Chistyakov’s Moroccan investment to Ms Baturina. On either Mr Soloschansky’s or Ms Baturina’s initiative, a meeting was then arranged for July 2007 between Ms Baturina and Mr Chistyakov at Inteco’s offices in Moscow. That meeting was also attended by Mr Soloschansky on one side and Mr Smolnikov on the other. Potential for investment in Moroccan development projects was there discussed in general terms.

The August 2007 meetings

[27]The parties met in Marbella and Morocco on the 17th and 18th August 2007. This was Ms Baturina’s first encounter with Mr Krupnov, who hosted these visits. The meeting on 18th August 2007 was attended by Mr Soloschansky, Mr Edel and Mr Boris Balkarov (“Mr Balkarov”), then Vice President for Development for Inteco, alongside Ms Baturina. There is a dispute as to whether Mr Soloschansky was or was not present at the first meeting on 17th August 2007. The outcome does not materially advance matters; it would go at most to credibility. Mr Soloschansky was certainly there on 18th August 2007. On an itinerary organised by Mr Krupnov, the parties travelled to Morocco by boat where they were shown a number of development projects open for investment at the time, some of which are relevant to these proceedings. These included the land plots relating to those development projects known as Tetuan Azla, Paradise Golf, Ouad Lau and Asila Khasan.[28]By her re-amended case, Ms Baturina asserts that it was at this meeting that Mr Chistyakov orally represented that the Tetuan Azla project would shortly be ready to commence and that all necessary permits for the Tetuan Azla Project would be granted in the near future. There are no notes of this meeting, in common with all of the meetings at which Mr Chistyakov is alleged to have made material representations.

The consortium’s preparations for the deal

[29]Mr Chistyakov and Mr Krupnov both intended to participate in any subsequent deal with Inteco or Ms Baturina. It transpired, and Inteco employees were soon aware, that Mr Hassan would also participate. Each of Mr Chistyakov, Mr Krupnov and Mr Hassan had an existing interest in Moroccan land and property development before Ms Baturina entered the scene. However, at one end of the scale, Mr Krupnov had in excess of two decades of experience in the market, whilst at the other, Mr Chistyakov had just a few months. Due to the complex nature of land acquisition and development in Morocco, substantial sums were incurred on these participants’ projects in the mere expectation and hope that title would in due course be received.[30]Mr Krupnov’s (challenged) evidence was that before Inteco’s interest there were others interested in becoming involved in these projects. Such parties had been willing to pay higher purchase prices per square metre in relation to the projects than was Inteco. However, he says that it was Inteco’s willingness to become a strategic partner and to commit to a funding programme of €500,000,000 that provided the rationale for the consortium’s decision to pursue a joint venture with it.[31]Ms Baturina and Mr Chistyakov both agreed in their evidence that the impetus for having Mr Chistyakov’s involvement in the Projects at the forefront was Ms Baturina’s desire to have his engagement. The existing participants in the consortium had to restructure their interests so as to ensure that Mr Chistyakov and others could participate in the projects in which Ms Baturina was interested. In September 2007 Mr Chistyakov purchased a 50% share in the Tetuan Azla project. This was a speculative risky venture: as Mr Chistyakov put it, “there was a long way to go because this documentation process in Morocco takes a very long time, and we were lucky to get the derogacion within nine months.”[32]From at least October 2007 onwards, the consortium began to consider the structuring of their ownership in the Projects so as to arrange for the exit of some consortium partners while redistributing the assets of others. Until then, the consortium members’ interests in various projects were disjointed. The only clear link between them was Mr Krupnov. For the purposes of the future development projects with Ms Baturina, it was necessary for them to allow Mr Chistyakov to restructure his interests so that he had an interest in all relevant projects - so that his shares, together with those of Mr Krupnov and Mr Hassan would meet the necessary contribution under the envisaged transaction with Ms Baturina (or Inteco).[33]There appear to have been many proposed iterations of this restructuring scheme, initially in respect of the Paradise Golf and Tetuan Azla projects alone. The scheme for the restructuring of the interests in Tetuan Azla was set out in an email from Mr Chistyakov to Mr Krupnov (copied to Mr Smolnikov) dated 22nd October 2007. It opened as follows:
“I’ve spoken with Inteco. They confirmed their readiness to buy 65% in the Tetouan Project. They are ready to pay in November….”
[34]This scheme for the Tetuan Azla project, in which Mr Chistyakov already had a 50% interest held by Andros Bay Investments Holding Offshore SARL (“Andros Bay”) via Kudla Tetuan SARL (“Kudla Tetuan”), envisaged: a) Inteco purchasing the other 50% of shares from the existing project holders; and b) Inteco purchasing a further 15% of shares in Andros Bay as those shares became available. At this stage, Mr Chistyakov’s share in the Tetuan Azla project was agreed but apparently not formalised. However, there appears to have been an intention that he and Mr Krupnov would own 50% each of Sylmord, then a BVI company owned by Mr Chistyakov’s sister and controlled by him, which in turn would hold Andros Bay, the intended holding company of the Projects.[35]This scheme envisaged that Inteco would make a first payment for the 50% of shares in Andros Bay in November 2007. That did not happen. The restructuring of the consortium interest in Tetuan Azla continued in a piecemeal fashion thereafter. On Ms Baturina’s side of the deal, there was concern as to how she would hold her share in the Projects. Various structures were considered until, after discussion with Mr Chistyakov’s team, they settled on a loan structure in the first instance with shares in the Projects to be taken at a later date.[36]The evidence of Mr Krupnov, Mr Smolnikov and Mr Chistyakov was that the structure agreed on was set out in a manuscript note created by Mr Krupnov in around late 2007. That structure scheme envisaged: a) that Mr Chistyakov would purchase a 16% interest in the Paradise Golf project for €7.68m, calculated on the basis of €80 psm by reallocating some of his 50% share in the Tetuan Azla project; b) that Inteco would then pay €46.8m for a 65% interest, calculated on the basis of €120 psm; and c) that Mr Chistyakov would receive €5.58m of the payment from Inteco, in return for his interest being reduced to 8.25%.

The lead up to the PPA

[37]From August 2007, negotiations were underway between Mr Krupnov, Mr Chistyakov and his representatives on the one side and representatives from Inteco on the other. Various individuals from Inteco were involved on Ms Baturina’s behalf in addition to Mr Edel and Mr Soloschansky, namely Ms Baharevich, Mr Balkarov, Mr Stepanenko and Ms Strelina, an in-house lawyer. On Mr Chistyakov’s side, representatives for him included Ms Babirenko, an in-house lawyer and Mr Smolnikov. The negotiations appear to have been casual and at times unstructured. Thus, for example, Mr Krupnov would tend to lead enquiries into different development projects.[38]Mr Chistyakov’s personal involvement was limited but Mr Smolnikov, on his behalf, was substantially involved. At this stage it was Mr Balkarov who conducted the granular negotiation on behalf of Ms Baturina. There is reference in the documentation to extraneous discussions between Ms Baturina and both Mr Krupnov and Mr Chistyakov individually. Few of these discussions are recorded in detail. The impression is of high level direction from Mr Chistyakov and Ms Baturina - sometimes general, sometimes specific, but rarely comprehensive.[39]In January 2008 Mr Hassan (on behalf of Kudla Investissements SARL) appears to have commissioned two valuation reports from a Mr Abdelilah Benmakhlouf (“Mr Benmakhlouf”), a chartered accountant and a certified expert for financial institutions, on the Paradise Golf projects. Mr Benmakhlouf’s valuation figures as at 14th January 2008 were broadly in line with those ultimately set out in the PPA.[40]Multiple deal structures and projects were being considered at this time. For example, Mr Krupnov was named on many drafts of transaction documents at this stage as being a participant as “Party 2”.[41]In late January or early February 2008, Ms Baturina and Mr Chistyakov met again in person. It is Ms Baturina’s case that a meeting took place on 30th January 2008 between her and Mr Chistyakov alone. Mr Chistyakov was not clear whether or not a meeting took place on this date, but was clear that he never met with Ms Baturina alone. This is one of a number of meetings at which Mr Chistyakov is alleged to have made a representation that he would contribute 35% to the funding of the initial investment and ongoing expenses in relation to the Projects (“the Funding Representation”). I deal with it further in the context of the claim for deceit.[42]Mr Chistyakov’s anxiety to protect his position and have a formal record of six months’ work on negotiations and substantial expenditure on a significant deal is evident in his correspondence with Mr Smolnikov. Mr Balkarov and Mr Edel of Inteco produced an overarching memorandum of intent (“the memorandum of intent”) on 29th January 2008. Mr Balkarov sent it to Mr Smolnikov on 6th February 2008. The memorandum of intent then evolved in negotiation between Mr Smolnikov and Mr Stepanenko from broad direction from Mr Chistyakov on the one side, and Mr Edel and Ms Baturina on the other, into the document entitled the PPA.[43]Ms Baturina’s representatives within Inteco had been conducting due diligence. A team from Inteco had visited the Projects in November 2007 and had been shown plots relating to the Paradise Golf and Tetuan Azla projects as well as the potential land for the Ouad Lau project. This was followed by a number of emails from Mr Stepanenko, who came on board for Ms Baturina at the beginning of 2008, in which he posed questions to Mr Smolnikov in relation to the status of the land plots, the ownership of the Projects, potential profits and included a detailed financial model showing the potential for the Projects over the coming years.[44]On 15th February 2008 Ms Baturina issued an Inteco order setting up a “Department for Working with Projects in Morocco by 15 February 2008 as part of the Investment Directorate of the Division for Commercial Property of the Commercial and Residential Property Construction Unit.” It was said to be part of a “restructuring” “in connection with the intentions of [Inteco] to carry out the development of investment projects in Morocco, taking into account the promising outlook and the need for the development of the company”. The order identified 8 staff positions within the department, although Ms Baturina in her evidence was keen to emphasise that it in fact meant only “up to” 8 positions. Mr Edel and Mr Soloschansky were to set the department up. Mr Stepanenko was its head. The order stated that Ms Baturina was to retain control over its performance.[45]On 21st February 2008 Mr Smolnikov and Mr Stepanenko met to confirm the status of the Projects before finalising the PPA. As a result of this meeting, Mr Stepanenko then prepared an “Analytical Brief” for Mr Edel detailing the status of the Projects at the time. This document included an update on the ownership and registration of various holding companies and their owners, including references to Mr Krupnov and Mr Hassan and details on the development of pieces of the land. It made it clear that there was, for example, no derogacion in relation to Tetuan Azla, although an application had been submitted. It also made it clear that the land was owned by the Moroccan state, albeit leased to a private individual. The brief was forwarded on to Mr Smolnikov on 26th February 2008. On the day prior to the proposed signing of the PPA, which was still being referred to as a “memorandum”, discussions continued between Mr Smolnikov and Mr Chistyakov and between Mr Smolnikov and Mr Stepanenko.[46]There was then a meeting between Ms Baturina and Mr Chistyakov on 28th February 2008 attended also by Mr Smolnikov, Mr Edel and Mr Soloschansky. This is another meeting at which Ms Baturina alleges, amongst other things, that Mr Chistyakov made the Funding Representation, and also representations as to the readiness and permit status of all of the projects.[47]On 29th February 2008 Inteco, by Mr Edel, entered into the first loan agreement with Sylmord, represented by Hophil Services (BVI) Limited. By email dated 3rd March 2008 Mr Stepanenko informed Mr Smolnikov that Ms Baturina had signed the PPA and that signed copies would be sent to Mr Chistyakov’s office no later than 4th March 2008 for signature and return by him. Mr Chistyakov then duly signed the PPA as well. In the same email Mr Stepanenko referred to the need for Mr Chistyakov to take steps to avoid “any possible conflicts with his partner Mr Krupnov”.

The terms of the PPA

[48]The PPA read materially as follows :
“PRINCIPAL PROVISIONS OF THE PROJECT IMPLEMENTATION TRANSACTION….. These Principal Provisions have been signed …… By Baturina Elena Nikolaevna, hereinafter referred to as the Party 1 and Chistyakov Aleksander Nikolaevich, hereinafter referred to as the Party 2….. WHEREAS: the Parties expressed intention to jointly carry out activities on implementation of development projects in Morocco; WHEREAS: the Parties expressed intention to jointly carry out activities in the most efficient manner, the Parties intend to establish a joint venture and enter into a shareholders’ agreement determining the procedure of co-operation between the Parties pertaining to the joint holding of HoldCo shares and Project management (Hereinafter referred to as the Shareholders’ Agreement); WHEREAS: the Parties wish to ensure a common understanding of the reached agreements and exclude any disagreement as to the interpretation of their contents and implementation. The Parties have agreed as follows: 1. Project Herewith the Parties agree to work together to implement Development projects in Morocco. The shares of the Parties pertaining to Project implementation shall be distributed as 65 (Sixty-five)% Party 1 and 35. (Thirty-five)% Party 2. 2. Development Projects The activities under the Project shall be limited to the implementation of the Development Projects as defined in Annex No. 1 to these Principal Provisions (hereinafter referred to as the Projects Portfolio). The Parties shall jointly determine which Development Projects, over and above those listed in Annex .1, shall be included into the Projects Portfolio. The Parties understand that some of the Development projects included into the Projects Portfolio are only valuable for the image of the activities of the partnership carried out in Morocco and have no direct economic return. The key objective for such projects shall be to achieve the break-even point within the shortest time possible. The number of such “image projects” shall be strictly limited and the investment into such shall be minimal. Upon deciding on the inclusion of a Development Project into the Projects Portfolio, the Parties shall agree on the stage, up to which the project shall be implemented – securing land title, approval of the master plan and obtaining construction permission, construction and sale of real estate, etc. As soon as a Project reaches the agreed stage, the Parties shall jointly consider the feasibility of funding the following stage and decide either to continue or sell the Project. In the case that no agreement can be reached by the Parties as to further implementation of a Project, the Party willing to continue the implementation of a project shall have the preemptive [sic] right to buy the share of the other Party in the Project at a price agreed by the Parties. 3. Funding of the Project The Project shall be funded by the Parties proportionally: 65 (Sixty-five) % – Party 1 and 35 (Thirty five) % – Party 2 in accordance with the Projects Funding Schedule (Annex 2). The share of Party 1 shall be funded pro rata, as long as it has been confirmed that Party 2 has actually incurred its pro rata expenses. Party 1 may fund the expenses in the amount exceeding 65% only subject to a request being made by Party 2 and according to the principles of interest-bearing and repayable provision of funds as to the share of Party 2. In the above case, the Parties shall determine the following conditions in writing: the amount, terms of repayment of the investment as to the share of Party 2, payment (interest) for provision of the money, correlated with the terms of implementation of the respective Development Project and the terms of exiting. The interest for the provision of funds shall be accrued in accordance with the average market rate for lending at the current moment. The provision of funds by Party 1 within the framework of a standalone project is permitted in the amount of no more than 15 (Fifteen) % of the share of Party 2 in this project, for a term of no more than 1 (One) year. If these terms and conditions are violated, the ratio of the shares of the Parties in this project shall be redistributed commensurate to the funds actually invested. The targeted investment brought by the Parties on the Project shall not exceed 500,000,000 (Five hundred million) Euros for 2008-2010. As soon as the above investment amount is reached, any new projects may be included into the Projects portfolio and any agreed Projects Portfolio may be funded only by means of: (a) selling projects from the Portfolio, (b) refinancing, i.e. obtaining income from the sale of real estate at the stage of implementation (construction) of projects within the Portfolio, (c) upon agreement of the Parties, by means of increasing the investment limit (in exceptional cases). 4. HoldCo For the purposes of implementation of the Project, the Parties shall establish a joint venture company under the laws of Morocco (hereinafter referred to as HoldCo). HoldCo shall operate as a management company, shall be the cost and profit center in the course of the Project’s implementation. The equity participation interests in the capital of HoldCo shall be distributed between the Parties as follows: 65 (Sixty-five) % Party 1, 35 (Thirty-five) % Party 2. The shareholder of each of the Parties shall own the respective proportion of the issued and registered voting shares of HoldCo, and shall enjoy all and any other rights of a HoldCo shareholder under the laws of the country of HoldCo’s incorporation, subject to the provisions of the Shareholders’ Agreement. 5. Shareholders Non-resident company of Party 1 (hereinafter referred to as the Shareholder of Party 1) and non-resident company of Party 2 (hereinafter referred to as the Shareholder of Party 2), being shareholders of HoldCo. The parties should be entitled to involve third parties in the Project within the number of shares belonging to the Parties only in case a consolidated representation of the Party in the Project is ensured. 6. Companies - holders of the Projects […] 7. Management in HoldCo, Companies-holders of the Projects […] 8. Standstill for Sale […] 9. Profit […] 10. Confidentiality […] 11. Legal effect, binding power The Parties agreed that these PPA shall be legally binding upon the Parties. 12. Applicable law The Parties agreed that these PPA and the Shareholders’ Agreement shall be governed by English Law, disregarding its conflicts-of-law-rules. IN WITNESS OF THE ABOVE, Party 1 and Party 2 have signed these PPA in 2 (two) counterparts in the Russian language. Party 1: (signature) Elena Nikolaevna Baturina Party 2: (signature) Aleksander Nikolaevich Chistyakov”
These Principal Provisions have been signed …… By Baturina Elena Nikolaevna, hereinafter referred to as the Party 1 and The Parties have agreed as follows: Party 1: Elena Nikolaevna Baturina Party 2: Aleksander Nikolaevich Chistyakov”

Party 2:

[49]Appendix 1 to the PPA (“Appendix 1”) set out the Projects, the total purchase cost of each, “valuation information” including “an assessment of readiness in points”. Mr Chistyakov’s evidence, which I accept, was that the “readiness” rating came from an internal scoring system suggested by Inteco, in particular Mr Balkarov. It was Inteco’s scoring, albeit no doubt taking into account information from Mr Krupnov in particular. There was also reference in Appendix 1 to “projects bought from other unit holders”. Appendix 2 to the PPA (“Appendix 2”) set out a financing schedule, again showing a value for each land plot, and a financing schedule setting out dates and amounts of payments by each party. On the Paradise Golf and Tetuan Azla projects, Mr Chistyakov was not shown as making any payment towards the land plot values, whereas Ms Baturina clearly was (in February and April 2008). On projects such as Ouad Lau, where no previous investment had been made, Mr Chistyakov was shown as making contribution towards the purchase of land plot.

The February and April 2008 loan agreements

[50]As anticipated, Ms Baturina made her initial contributions under loan agreements dated 29th February and 15th April 2008 between Inteco and Sylmord (“the February 2008 loan agreement”) (“the April 2008 loan agreement”) (together “the initial loans”). Insofar as it remains an issue, this structure for payment was the consequence of “technical difficulties” within Inteco which prevented it from simply transferring the funds. Ms Baturina’s evidence was that Inteco was prevented from having a shareholding in non-Russian or EEA offshore companies.[51]Each loan was for only a three month term (although Inteco chose to extend the loans repeatedly). Under each loan agreement (at clause 1.2), individual sums were allocated to specific projects and ascribed particular purposes. In each agreement, the parties stated that monies were to be used for the “buy out” (or “re-payment”) of the share in, for example, the Paradise Golf project where substantial monies had already been invested. Where there was no such pre-investment, the payments were for “shared investment”.[52]Each loan provided security over shares in Andros Bay in the form of a pledge, along with different types of security over all group companies and assets. The value ascribed to the security substantially exceeded the total sum advanced to Sylmord under the initial loans.[53]By way of example, clause 2.2 of the February 2008 loan agreement listed the security which Inteco was to receive as follows: a) In accordance with clause 2.2(a), Sylmord pledged 65% of the shares in Andros Bay on 18th March 2008. The pledge agreement valued this 65% shareholding at €49.5m, and stated that Andros Bay owned 99.9% of Kudla Investissements, and 99% of each of Kudla Tetuan, Kudla Nord and Kudla Grupo; b) In accordance with clause 2.2(d), Andros Bay pledged 100% of the shares in Kudla Investissements on 29th February 2008. The pledge agreement valued these shares at €9.6m, and stated that Kudla Investissements owned the 8ha Plot; c) In accordance with clause 2.2(g), Kudla Investissements guaranteed Sylmord’s obligations on 13th March 2008. The guarantee agreement stated that Kudla Investissements owned the 8ha Plot and the 48ha Plot; d) Clauses 2.2(b)-(c), (e)-(f) and (h)-(j) envisaged that Inteco would receive the following further security, although there is no evidence that any of the relevant security agreements were ever executed: guarantees by Andros Bay, Atlantis and Kudla Tetuan; pledges by Andros Bay of shares in Atlantis and Kudla Tetuan; and pledges by Kudla Investissements of the 8ha Plot and the 48ha Plot.[54]€36.755m was advanced under the February 2008 loan agreement. The value ascribed to the security for the loan thus substantially exceeded this amount.[55]Clause 2.2 of the April 2008 loan agreement likewise listed the security which Inteco was to receive. The following security was provided on 15th April 2008: a) In accordance with clause 2.2(e), Andros Bay guaranteed Sylmord’s obligations. The guarantee agreement stated that Andros Bay owned 99.9% of Kudla Investissements, and 99% of each of Kudla Tetuan, Kudla Nord and Kudla Grupo; b) In accordance with clause 2.2(f), Mr Hassan pledged 100% of the shares in Atlantis. The pledge agreement valued these shares at €10.5m, and stated (incorrectly) that Atlantis owned the 10.5ha Plot; c) In accordance with clause 2.2(g), Andros Bay pledged 99% of the shares in Kudla Tetuan. The pledge agreement valued this 99% shareholding at €22m, and stated (incorrectly) that Kudla Tetuan held the “long-term lease right” of a 57ha plot ; d) In accordance with clause 2.2(j), Sylmord pledged 65% of Andros Bay. The pledge agreement valued this 65% shareholding at €49.5m, and stated that Andros Bay owned 99.9% of Kudla Investissements, and 99% of each of Kudla Tetuan, Kudla Nord and Kudla Grupo. e) Clauses 2.2(a)-(d), (h)-(i) and (k)-(m) envisaged that Inteco would receive the following further security, although there is no evidence that any of the relevant security agreements were ever executed: guarantees from Atlantis, Kudla Tetuan, Rusland SARL (“Rusland”), and Kudla Nord; a pledge by Andros Bay of shares in Kudla Nord; a pledge by Atlantis of the 10.5ha Plot; a pledge by Kudla Tetuan of the 57ha plot; a pledge by a Mr Tariq Ahrir of shares in Rusland; and a pledge by Rusland of a 1,268ha plot.

Initiation of the Projects

[56]Largely in accordance with the financing schedule set out in Appendix 2, a payment application letter signed on behalf of Sylmord was sent to Mr Stepanenko. The payment application letter certified Sylmord’s expenses of €5,000,000 for its share in the investment in the Ouad Lau project and detailed how the payment would be used in respect of the other projects, including €20,000,000 for purchase of the share in Paradise Golf 1 project, €3,138,000 for engineering and topographic work and salaries of the staff of the Paradise Golf 1 project, €3,120,000 for the purchase of the share in the Paradise Golf 2 project, €1,170,000 for the purchase of the share in the offices and €11,127,000 equity investment in the Ouad Lao project.[57]From then on preliminary work on the developments continued. Mr Krupnov and Mr Hassan continued to work with local officials and landowners on the ground and Mr Stepanenko and Mr Smolnikov kept an eye on progress and provided strategic planning from Moscow.[58]On 10th March 2008 Sylmord acquired 100% of Andros Bay. In March and April 2008 Mr Krupnov and others in Morocco were working on accomplishing the 27 stages of development as outlined by Inteco in respect of four of eight of the anticipated projects. This work was followed by the loans from Inteco under the April 2008 loan agreement. Again, the payments under the loans largely corresponded with the financing schedule in Appendix 2, accounting for some adjustments and reallocations that appear to have been made in respect of abandoned projects.[59]Inteco continued to monitor the Projects closely and also the distribution of monies. The funds under the February 2008 loan agreement were transferred to Sylmord on 18th March 2008. Shortly thereafter, between March and early July 2008 various payments were made by Sylmord to various companies as follows : Company Location Date Amount Joyton International SA (“Joyton”) British Virgin Islands 27/03/2008 €5,028.69 27/03/2008 €4,995,000.00 Englobe SA (“Englobe”) British Virgin Islands 27/03/2008 €1,000,028.69 22/04/2008 €6,065,028.01 Trading House BV Netherlands 27/03/2008 €375,048.69 Grupo Oxigeno Holding Offshore SARL (“Grupo Oxigeno”) Morocco 28/03/2008 €5,100,048.66 21/04/2008 €570,048.02 22/04/2008 €4,990,048.01 05/05/2008 €65,047.61 16/05/2008 €1,338,027.51 06/06/2008 €9,382,047.76 09/06/2008 €3,412,547.98 09/06/2008 €3,120,047.97 16/06/2008 €10,000,047.89 Vortex Finance limited (“Vortex”) British Virgin Islands 28/03/2008 €3,325,028.65 Rosetta Ltd (“Rosetta”) British Virgin Islands 28/03/2008 €1,553,048.66 Rogers Management Capital 22/04/2008 €1, 273,885.00 Ridgegrove 10/06/2008 €5,000,047.97 01/07/2008 €50,048.00[60]Grupo Oxigeno was a company owned or controlled by Mr Krupnov. As already indicated, Ridgegrove was beneficially owned by Mr Chistyakov.[61]None of these payments were concealed from Inteco or Ms Baturina (although Mr Chistyakov fairly stated that he did not tell Ms Baturina expressly or directly of them). On the contrary, Inteco was interested in them and Mr Smolnikov was at pains to point them out. Thus in June/July 2008 he specifically added to a table of payments being prepared by Mr Stepanenko so as to show, for example, the payments to Ridgegrove which, as I have found above, Mr Smolnikov told Mr Stepanenko related to Mr Chistyakov. The table prepared by Mr Stepanenko identified in terms that a payment to Grupo Oxigeno was a payment to refund Mr Krupnov. The payment to Ridgegrove expressly referred to Tetuan Azla. Mr Smolnikov identified other payments, for example, to Joyton, Englobe, Rosetta and Vortex as being payments to “other shareholders” in relation to Paradise Golf.[62]On 1st April 2008 Mr Stepanenko sent to Mr Smolnikov a proposed Appendix 3 to the PPA concerning “the partners” joining the Ouad Lau project. Clause 5, entitled “Risks”, referred to a large number of the risks associated with the project implementation, including the “lack of the general contractor’s experience in large-scale construction projects”.[63]In May 2008 Mr Stepanenko visited Morocco to carry out site visits. A preparatory email sent by him to Mr Krupnov on 28th March 2008 shows the depth and breadth of his proposed enquiries. Mr Stepanenko gave a full written report to Mr Edel following his 5 day visit, setting out how the Projects were progressing. On 19th June 2008 Mr Stepanenko emailed Mr Smolnikov with detailed regulations for the approval of decisions on the Projects. He stated:
“I’ve set it as a goal to me to draw up Regulations, in accordance with which all the key actions on the projects will be approved, such as: tenders, selection of counterparties, approval of architectural plans, purchase and sale of land plots and their respective prices, etc. This is necessary to avoid situations when Andrey relates to us post factum on the events that took place….”
[64]In July 2008, Mr Stepanenko was tasked with carrying out a “valuation and market capitalisation” of the Tetuan Azla and Paradise Golf projects. Correspondence continued throughout 2008 between Mr Smolnikov and Mr Stepanenko as the Projects progressed. Regular shareholder meetings began during this period and continued, always attended by Inteco representatives. Mr Chistyakov was in attendance on occasions. Mr Smolnikov and Mr Stepanenko were regular attendees and were often joined by Mr Edel and Mr Soloschansky. The projects continued largely as anticipated until 28th August 2008, when the construction permission for the Paradise Golf project was withdrawn by the local commune.[65]Inteco continued to monitor the running and management of the Projects in a similar fashion into 2009, including by the commission of the Chorus Consulting report referred to above. Mr Stepanenko visited Morocco again between 12th and 16th January 2009. He reported in detail to Mr Krupnov and Mr Smolnikov on the bank negotiations that he had conducted in the course of that trip. That Inteco was seeking bank financing in early 2009 shows the extent and importance of its involvement. The correspondence in relation to the bank financing suggests that Mr Stepanenko knew the situation in relation to all partners in some detail. He was the point of contact between Mr Krupnov and Mr Hassan just as much as he was the point of contact between Inteco and Mr Chistyakov’s team. On 10th March 2009 he sent Mr Soloschansky, copied to Mr Edel, a report on the conditions of the Projects and a cash flow model for the first phase of the Paradise Golf project.[66]Mr Chistyakov’s attendance of the project meetings increased as time went on, as did that of Mr Edel. Ms Baturina’s involvement was at all stages one step removed, although she was clearly aware of the status of the Projects in general terms. Her team had sight and approval of yearly accounts and budgets and on 1st June 2010 she personally signed off the budget on the Projects for 2010, showing past and future planned expenditure. She also became involved directly when her significant status and profile were called upon to advance matters, at least on the diplomatic side.

Problems with the project management and initial funding disputes

[67]For the early part of 2010, Mr Chistyakov and Inteco had seen and approved budgets and actual costs incurred. It appears that around this time that Mr Chistyakov arranged with Mr Stepanenko that the Hermitage Group would step in, in place of Mr Hassan, to lead the funding arrangements, led by the newly appointed Mr Makeev. Shortly thereafter, Ridgegrove entered into two loan agreements with Sylmord for €500,000 and €700,000 and dated 20th April 2010 and 20th September 2010 respectively. The loans could be transferred in instalments based on Sylmord’s request. Mr McDonald states that he has not seen any material to show that any funds were in fact (requested or) transferred before September 2010.[68]On 28th July 2010, the Paradise Golf construction permit was renewed and so architectural, construction and financial planning for the project was also renewed. As the Projects continued into the latter part of 2010, financing and budgeting were drawn into sharper focus. Mr Stepanenko began making underpayment demands on behalf of Inteco. These began with a suggested €35,400 overpayment by Inteco and an underpayment of €429,000 by the other partners in August 2010. By December 2010, the underpayment by the other partners had been adjusted to €291,600.[69]Mr Makeev states that at the same time he expressed concern at the state of finances. Mr Hassan had withdrawn an undisclosed sum, the Kudla companies had a negative balance and Mr Makeev was not expecting to be paid his salary for December 2010. His concern was such that he described himself as a “blind puppy” in relation to the financing of the Projects.[70]According to Mr McDonald, Ridgegrove made payments of €373,900 to Sylmord in (September, November and December) 2010. There is no further documentation as to actual funds advanced by Ridgegrove to Sylmord (beyond Sylmord’s bank statements confirming Mr McDonald’s evidence).[71]Ms Baturina alleges that there was a meeting between her and Mr Chistyakov in August 2010 at his house in Marbella when Mr Chistyakov represented orally to her that “there were some problems with the Projects but that these were nothing serious” (“the Subsequent Representation”). She contends that in reliance on the Subsequent Representation she signed a supplemental agreement to the PPA with Mr Chistyakov in March 2011 (“the supplemental agreement”). Mr Chistyakov denies that any such meeting took place in August 2010, although there was a meeting between them at his newly built beachfront house in Marbella in August 2011. In any event, he never made the Subsequent Representation.[72]By letter dated 1st February 2011, Mr Hassan communicated to Inteco his decision to resign from his management role in the Projects - on the basis that there was no clear and precise strategy for the Projects, that agreements reached a summer earlier had been breached and that the partners had all failed to keep to the commitments to the Moroccan government. It soon came to light that at various stages throughout August 2008 to August 2010, Mr Hassan had withdrawn amounts from the Projects for purposes unknown.[73]In response to Mr Stepanenko’s continued requests for payment of the balance of an underpayment by Mr Chistyakov and partners and the refunding of an overpayment by Inteco, Mr Makeev conducted an investigation. In March 2011, Mr Stepanenko provided Inteco’s archive of payment applications for the entirety following the PPA and the initial loan agreements.[74]Mr Tikhomirnov, one of Mr Chistyakov’s senior Hermitage employees, sent a report to Mr Chistyakov on 11th May 2011 explaining that, in view of the withdrawal of funds by Mr Hassan, Inteco had greatly exceeded its funding obligations. This report attached the result of Mr Makeev’s audit, in which he found that, after accounting for the sums withdrawn by Mr Hassan, the actual contributions to the Projects stood at 82% from Inteco and 18% from the other partners. While this was not noted in the report, the contributions without accounting for the sums withdrawn by Hassan, stood at 69% and 31% respectively. In Mr Makeev’s view, the disproportionate contributions meant that it was necessary to re-distribute the participating interests of the shareholders so as to unfreeze funding.[75]On 11th July 2011, Mr Makeev outlined his findings in a report to Mr Tikhormirnov, who was his line manager. This detailed report, of the kind previously provided by Mr Stepanenko to his Inteco superiors, detailed the status of each of the Projects, the political status in the region as well as necessary changes in the management of the Kudla companies.[76]Ms Baturina continued to cause funds to be advanced to Sylmord until 1st August 2011, when €125,295 was transferred from Inteco Beteiligungs AG. Mr Chistyakov’s last contribution to any Moroccan project was in November 2011 when he forwarded €10,000 in cash to Mr Makeev to fund his office, which then continued until May 2012.

Assignments of the initial loans and the Supplemental Agreement

[77]In October 2010, Ms Baturina and her daughters moved to London following her husband’s forced resignation as Mayor of Moscow. She became concerned that her business empire in Russia was coming under attack. She started to prepare for a process of separating the business interests that she could retain securely from Inteco.[78]As part of this process, the initial loans were assigned by Inteco to Ms Baturina for full value by way of two assignments dated 29th October 2010. Ms Baturina bought them at a sum equal to the outstanding principal plus interest.[79]In March 2011, Ms Baturina visited Inteco Beteiligungs AG’s offices in Austria. Mr Edel there suggested that she should convert the debt of the initial loans to equity in Andros Bay by way of supplemental agreement. She signed the supplemental agreement which was then sent to Mr Chistyakov in March 2011 for him to countersign. Although not specifically addressed in his witness statement, Mr Chistyakov’s case is that he signed it between 11th August and 19th August 2011 and a valid agreement was then created. Ms Baturina’s case, addressed in more detail below, is that she withdrew her offer in the supplemental agreement (by letter dated 18th October 2012) at a time when Mr Chistyakov had either not countersigned the agreement and/or not communicated such acceptance to her.[80]On 30th June 2011, Ms Baturina entered into a set-off agreement with Inteco. The sums that she owed to Inteco in respect of the assignment to her of the initial loans were set off against monies owed to her by Inteco in respect of her sale to it of 50 shares in the Russian company known as Volinskaya, already referred to above. Volinskaya owned some 48 hectares of prime land in Moscow. She had purchased a 50% shareholding in Volinskaya on 10th March 2010 for some €100million paid out of her personal funds on 17th March 2010. She agreed to sell the shares to Inteco on 17th January 2011 for just over RRUB 5billion. On 1st February 2011 it was agreed that that price would increase to approximately €130millon if payment was not made by 25th June 2011, which it was not.[81]Ms Baturina then sold Inteco on 7th December 2011 for sums stated by her in cross-examination to be in the region of US$1,000,000,000. The Volinskaya asset formed part of the assets of Inteco at time of sale, for which Ms Baturina received value, as she confirmed in cross-examination. From documents produced by Ms Baturina during the course of trial, it appears that the value attributed to those shares for the purpose of the sale was RRUB7,239,555,650.[82]In early 2012, the parties’ legal advisers, Ms Babirenko for Mr Chistyakov and Ms Strelina for Ms Baturina, continued to correspond over the finalisation of the documentation required to effect the transfer of the shares in Andros Bay to Ms Baturina following assignment of the rights and obligations under the Inteco-Sylmord loan agreements to her.

Legal proceedings

[83]On 2nd November 2012, and in conjunction with the initiation of these proceedings by Ms Baturina’s pre-action protocol letter, Inteco Beteiligungs AG made a statutory demand on Sylmord for repayment of its loans to Sylmord amounting to €3,731,345. Sylmord has not repaid those loans and was placed into liquidation on 28th April 2014. To date Ms Baturina has recovered €1.6m in the liquidation.[84]Mr Chistyakov responded to the pre-action letter against him on 10th November 2012, denying any liability. Ms Baturina issued her present claim against Mr Chistyakov on 22nd January 2013. F. The agreement in February 2008

The parties’ respective cases in overview

[85]Ms Baturina pleads that the agreement in February 2008 was partly oral and partly written. Insofar as it was written, it was contained in or evidenced by the PPA signed on or around 28 February 2008. Insofar as it was oral, it was agreed orally by Ms Baturina and Mr Chistyakov shortly prior to signing the PPA that Ms Baturina would discharge part of her funding obligation in the PPA by causing loans to be advanced for the purpose of the Projects for use at the direction of Mr Chistyakov. The PPA provides in plain terms that Ms Baturina and Mr Chistyakov were to contribute funds to their joint venture in a 65:35 ratio for the acquisition and development of the Projects.[86]Ms Baturina’s pleaded case on breach in its final form was that Mr Chistyakov breached clauses 1, 2, 3, 4 and 7 of the PPA, alongside breach of an implied term, “implied as a matter of necessity and/or obviousness and/or to give business efficacy to the [PPA], that any financing to be advanced pursuant to the [PPA] was to be applied exclusively for the purposes of the Projects” (“the Purposes term”). The implied term was earlier formulated by Ms Baturina as being a term that such financing was to be applied exclusively for the purposes of “developing” the Projects. At trial, Ms Baturina limited her claim to a claim for breach of clauses 3 and 4 of the PPA and of the Purposes term: Mr Chistyakov breached clause 3 by failing to contribute funding proportionate to that advanced by Ms Baturina; he breached clause 4 by transferring to recipients other than Andros Bay sums advanced by Ms Baturina; he breached the Purposes term by using funds advanced by Ms Baturina for purposes other than the Projects.[87]Mr Chistyakov : a) Contends (by late amendment in December 2016) that Ms Baturina entered into the PPA on behalf of and as agent for Inteco and, having given no consideration, she has no standing to sue on it. Alternatively, b) Denies that there was any oral agreement prior to signing the PPA that Ms Baturina would discharge part of her funding obligation by causing loans to be advanced; c) Contends that the PPA required Ms Baturina to pay a purchase price of €83,915,000 (in accordance with the amounts set out in Appendix 1) to buy a 65% equity stake in the Projects - Mr Chistyakov, Mr Krupnov and others having already invested in those Projects. Ms Baturina agreed to purchase from Sylmord a 65% equity stake in Andros Bay by reference to the agreed prices set out in Appendix 1. The terms of the PPA did not impose any restrictions on Sylmord with regard to the application or use of the purchase price funds. In addition, Ms Baturina agreed to provide approximately 65% of day-to-day financing as set out in Appendix 2 of the PPA. Mr Chistyakov’s obligation under clause 3 was limited to an obligation to contribute to ongoing financing, as opposed to initial acquisition costs; d) Denies the existence of the Purposes term.

The law

[88]The relevant principles of construction have been considered at the highest level in a series of cases including Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 and most recently in Arnold v Brittonand others [2015] AC 1619. In broad terms the proper construction of a clause must be identified in the light of: a) its natural and ordinary meaning; b) any other relevant provisions of the contract; c) the overall purpose of the clause and the contract; d) the facts and circumstances known or assumed by the parties at the time that the document was executed; e) commercial common sense; but f) disregarding any evidence of the parties’ subjective intentions. The test is an objective one, namely to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean.[89]Thus, in Arnold v Britton (supra) Lord Neuberger stated:
“[15] When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions. In this connection, see Prenn [1971] I WLR 1381, 1384-1386; Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] I WLR 989, 995-997, per Lord Wilberforce; Bank of Credit and Commerce International SA v Ali [2002] I AC 251, para 8, per Lord Bingham of Cornhill; and the survey of more recent authorities in Rainy Sky [2011] I WLR 2900, paras 21-30, per Lord Clarke of Stone-cum-Ebony JSC.”
[90]Lord Neuberger went on to emphasise additional factors of which five are relevant for present purposes:
“[17] First, the reliance placed in some cases on commercial common sense and surrounding circumstances (e.g. in Chartbrook [2009] AC 1101, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision. [18] Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve. [19] The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191 , 201, quoted by Lord Carnwath JSC at para 110, have to be read and applied bearing that important point in mind. [20] Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party… [21] The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties....”
[91]Pre-contractual negotiations are not admissible aids to the construction of the final contractual document – see ChartbrookLtd v Persimmon (supra) at [28] to [47]). Collateral contracts are admissible on matters on which the written contract being construed is silent (see Chitty on Contracts (32nd Edition 2016) (“Chitty on Contracts”) at 13-106.[92]Subsequent actions are an inadmissible aid to construction of a written agreement subject to limited exceptions. Thus, in Secret Hotels2 Ltd (formerly Med Hotels Ltd) v Revenue and Customs Commissioners [2014] UKSC 16 Lord Neuberger confirmed (at [33]) that “it is not permissible to take into account the subsequent behaviour or statements of the parties as an aid to interpreting their written agreement”. The well-established exception that the parties’ conduct subsequent to the conclusion of a contract is admissible insofar as it reveals “the existence of a contract and its terms” (see for example Reveille Independent LLC v Anotech International (UK) Limited [2016] EWCA Civ 443 at [41]) does not permit the use of post-contractual conduct to construe the terms that do appear in the written contract: see for example the recent comments of Hamblen LJ in Global Asset Capital v Aabar Block SARL [2017] EWCA Civ 37 (at [34] and [36]).[93]Lord Neuberger in Secret Hotels2 Ltdv Revenue and Customs Commissioners (supra) went on to state (at [33]):
“…The subsequent behaviour or statements of the parties can, however, be relevant, for a number of other reasons. First, they may be invoked to support the contention that the written agreement was a sham….Secondly, they may be invoked in support of a claim for rectification of the written agreement. Thirdly, they may be relied on to support a claim that the written agreement was subsequently varied, or rescinded and replaced by a subsequent contract (agreed by words or conduct). Fourthly, they may be relied on to establish that the written agreement represented only part of the totality of the parties’ contractual relationship.”
[94]Insofar as it was suggested (by Mr Chistyakov) that this fourth reason is authority for the proposition that subsequent conduct can assist in terms of interpretation of the written clauses in a contract, I reject this. It simply identifies that subsequent conduct can assist in identifying terms that are not written down.

The parties to the PPA

[95]As indicated above, Mr Chistyakov asserts that Ms Baturina only entered the PPA as agent for Inteco. He suggests that this is the only sensible construction of the PPA, having regard to the parties’ intention and understanding at the time it was made. It is submitted that the situation in which an agent contracts on behalf of a principal is a common one. Reference is made to the contractual rights and liabilities of an agent as set out in Montgomerie v United Kingdom Mutual Steamship Association Ltd [1891] 1 QB 370 and Chitty on Contracts at 31-84.[96]Mr Chistyakov points to the surrounding facts and circumstances as known to Ms Baturina and Mr Chistyakov at the time: a) The deep involvement of Inteco representatives at every stage from the very outset and continuing through with due diligence on the Projects and into the negotiations leading up to the PPA; b) On her own case, she delegated heavily to her employees at Inteco. There was no division between her role as President of Inteco and her personal affairs. She was at all relevant times acting as the President of Inteco. He also relies on the fact that it was Inteco that made the loans, that Ms Baturina did not contribute any of her own monies or assets to the Projects and to the fact that the Projects were managed by Inteco employees with minimal involvement from Ms Baturina.[97]The starting point in relation to the written PPA is simple. Ms Baturina is the named “Party 1” and has signed the document in her own name without qualification. Where a person signs an agreement, that is her seal and she does so personally unless there is clear wording to suggest that she does so as agent for a principal or there is otherwise objective evidence that both parties understood her to be doing so: see for example Hamid (t/a Hamid Properties) v Francis Bradshaw Partnership [2013] EWCA Civ 470 where Jackson LJ stated (at [57]):
“…iv) Where the issue is whether a party signed a document as principal or as agent for someone else, there is no automatic relaxation of the parol evidence rule. The person who signed is the contracting party unless a) the document makes clear that he signed as agent for a sufficiently identified principle or as the officer of a sufficiently identified company or b) extrinsic evidence establishes that both parties knew he was signing as agent or company officer.”
[98]There is nothing on the face of the PPA, let alone clear wording, to suggest that Ms Baturina was contracting as agent for Inteco. Nor is there any extrinsic evidence that both parties understood her to be doing so. Indeed, the heavy involvement of Inteco up to and at the time of the PPA points away from the parties having so understood - there would rather appear to have been a deliberate decision for Ms Baturina to contract in her own name and personally. It can hardly have been an oversight (in the sense that reference to Inteco was omitted) in circumstances where Inteco was at the forefront of activity. That Inteco representatives were involved both before (and after) the PPA simply reflects the fact that Ms Baturina treated Inteco’s employees as her own, being the sole beneficial owner of the company. The fact that it was Inteco which advanced the funds also reflects Ms Baturina’s position within the company. It is compatible with Ms Baturina contracting in a personal capacity, not least where both parties were operating in a world where corporate vehicles were used freely to effect personal financial transactions. There is thus no objective basis to interfere with the plain wording of the contract.[99]The accuracy of this conclusion is fortified (albeit forensically only) by the lateness in the taking of the point by Mr Chistyakov and his evidence in the witness box. If this was what he thought at the time, it would have been raised at the outset. But it is clearly not what he thought at the time. As he put it, he was told by Mr Soloschansky and Mr Edel that “Ms Baturina wasn’t sure where she wanted to put the project. She was certain that she didn’t want to put it within Inteco Russia, but she was still debating whether she wanted to put it under Inteco Austria, I believe, or under her own name or one of her other companies.”[100]There may at one time have been an additional issue relating to the capacity in which Mr Chistyakov entered into the PPA, namely whether for himself or as agent for a consortium. But it was accepted on his behalf at trial that he contracted personally in the PPA, assuming obligations personally to Ms Baturina, even if a consortium stood behind him. Thus this particular dispute has fallen away. To the extent that Ms Baturina seeks to challenge Mr Chistyakov’s credibility on the basis of false testimony by him to the effect that he was acting on behalf of a consortium at the time, I do not accept that Mr Chistyakov’s credibility was dented materially as a result. On any view, there was a consortium in the background, even if it was unclear in detail. Mr Chistyakov undoubtedly saw himself as acting in some way on behalf of a group. The situation was confused and fluid, and he is and was no lawyer.

The proper construction of clauses 3 and 4

[101]As both Ms Baturina and Mr Chistyakov knew at the time, land acquisition in Morocco with a view to development was a complex, technical, and time consuming process. It was highly speculative investment. Funds would need to be invested in no more than the hope that legal title to land would be forthcoming. Rights to obtain valuable interests in land could be obtained other than with full title, for example in the form of permits and derogacions. Both parties understood at the time of the PPA that, despite their investments, title to land might not ultimately be obtained. Even then, that would only be the first step in a complex process of developing, constructing, successfully marketing and selling the luxury developments planned.[102]It is common ground that the PPA is a difficult and unsatisfactory document. It contains long, rambling and unstructured clauses. It clearly consists of only an outline of terms of agreement. On its face, it was not intended to record a comprehensive agreement: it expressly set out only “[p]rincipal” provisions. It was to provide a framework for the parties’ subsequent dealings. By way of example only, it expressly provided (in clause 2) that the parties could agree to vary the Projects to be the subject of the venture. It expressly anticipated further detail in due course, including in the form of a shareholders’ agreement. At the time that it was concluded, the February 2008 loan (and the understanding that Ms Baturina would be making her initial investment through Inteco by that agreement and under a further similar loan agreement in April 2008) was also clearly in play, both as a matter of structure and detail (even if Mr Chistyakov did not see the actual loan documents at the time).[103]The terms of the PPA need to be construed against this broad matrix.[104]Taken at its literal pleaded level (or in his written opening), Mr Chistyakov’s case cannot be sustained : the PPA, properly construed, was not an agreement by Ms Baturina to purchase from Sylmord a 65% equity stake in Andros Bay or an agreement to pay a purchase price of €83,915,000. The PPA does not mention Andros Bay. The PPA does not identify which party is to buy or sell shares, or to the purchase or sale of shares at all. The figure of €83,915,000 does not appear anywhere in the PPA and includes some €6,825,000 referable to a plot not identified in the PPA but only subsequently.[105]A more realistic case as it emerged for Mr Chistyakov was that this was “in substance” a sale and purchase transaction whereby Ms Baturina agreed to buy a 65% equity stake in the Projects. The consortium (including Mr Chistyakov) held valuable rights in relation to the Projects and Ms Baturina was buying out a 65% interest in those Projects from the consortium. Both parties hoped that the land would be acquired, if it had not been already, and lucrative development projects would be realised. Mr Chistyakov and the consortium were the sellers of the existing projects in which they had previously invested (namely Paradise Golf, Tetuan Azla and the offices). They were not sellers in relation to projects in which no prior investment had been made (for example, Ouad Lau), and no purchase price was paid for those projects. Funds advanced in relation to those other projects were therefore a “shared investment” and not a “buy out” as set out in clause 1.2 of the initial loans. Mr Chistyakov submits that Ms Baturina’s approach to the construction of the PPA is unrealistically divorced from the factual background and circumstances prevailing at the time. He refers to the parties’ pre-contractual negotiations where there is, amongst other things, repeated reference to Inteco being the “buyer” and to subsequent meeting notes referring to “buy-out” and “re-purchase”.[106]Whilst I fully accept that relevant and admissible factual matrix can be taken into account, Mr Chistyakov’s approach to questions of construction involves in large part reliance on inadmissible pre-contractual negotiations or post-contractual conduct. Whilst there is no question but that the content of such negotiations as set out above does touch on several of the contested issues of construction, and may well explain why Mr Chistyakov and others took the view of the PPA that they did and continue to do, this is not a case where there has ever been any attempt by Mr Chistyakov at a claim for rectification (or any attempt to rely on arguments of variation, waiver or estoppel).[107]My task is to construe the PPA by reference to the well-established principles of law set out above. Standing back and looking at the PPA in the round, it is very difficult to square its express terms with a sale and purchase transaction. There is no mention of any purchase price. The recitals in the PPA record the parties’ intention to establish a joint venture. Clause 1 records the parties’ agreement to “work together to implement Development projects in Morocco”. Clause 3 is headed “Funding of the Project” in general terms and sets that funding (later) at an upper limit of €500,000,000 for 2008-2010. The first paragraph provides that the “Project” shall be funded by the Parties proportionally (65/35) in accordance with Appendix 2. To the extent that Mr Chistyakov suggested that his obligation was limited to 8.25%, I reject it. Whatever arrangements there may have been with other members of the consortium, his obligation under the PPA was for a 35% contribution.[108]Appendix 2 then sets out four heads :
“Purchase of land plot”, “Development”, “Project work” and “Staff”
. The fifth column of the table in Appendix 1 refers to a “Total purchase cost”. However, the table provides no indication as to who will be purchasing from whom. The natural and ordinary reading of clause 3 is that both parties are responsible for the funding of all aspects of “the Project”.[109]It is only in Appendix 2 that there is an indication as to how the Projects were intended to be funded by reference to any particular party, and it is of course by reference to Appendix 2 that the funding obligation in the first paragraph of clause 3 of the PPA arises. The sixth column, headed “Purchase of land plot”, is broken down by reference to each project and each party to the PPA’s proposed share. The following four columns add detail on further respective contributions in relation to development, project work and staff. These contributions are then totalled in the subsequent column and the final six columns provide details on general timing of when financing for those contributions should be made over the course of a year from February 2008.[110]This part of the table in Appendix 2, headed “Financing schedule for 2008”, does not envisage that Mr Chistyakov will provide any financing in 2008 for his share of the purchase price of the land plot in relation to those projects on which, on his case, he (and/or Mr Krupnov and others with him) had already invested (whether or not they actually owned the plots), namely the Paradise Golf and Tetuan Azla projects (and the offices). On those plots, Ms Baturina, by contrast, is shown as making payments totalling her 65% contribution in specific amounts on specific dates during the year. Although my conclusions do not turn on this, this is an approach consistent with the information known or reasonably available to the parties. I refer by way of example to the “Analytical Brief” sent by Mr Stepanenko to Mr Edel on 21st February 2008, demonstrating Ms Baturina’s (actual or imputed) knowledge of status of the Projects and land ownership. The fact that Mr Chistyakov did not have a stake in all or any at the time of the PPA does not undermine the fact that there was an understanding of pre-investment in some of the Projects on both sides of the equation.[111]Thus, whilst I do not accept that the proper construction of clause 3 can be that Mr Chistyakov’s obligation related only to ongoing, day-to-day financing, what is nevertheless clear from clause 3 and Appendix 2, objectively construed, is that it was not intended that Mr Chistyakov’s 35% contribution would be provided in the same manner as that of Ms Baturina on those plots where there was pre-investment on Mr Chistyakov’s side, namely the Paradise Golf and Tetuan Azla projects. A clear distinction was made by reference to those plots where there was pre-investment and those where there was not, namely the Ouad Lau and Asila Khasan projects. The terms of the February 2008 loan are significant and consistent with such an approach: on those projects where there was previous investment in the land Inteco’s funds were to “buy out”. Where there was no such investment, there was to be “shared investment”. This is consistent with Appendix 2 of the PPA : on those projects where there was previous land investment, Mr Chistyakov was not shown as paying anything in the months of 2008 by reference to the purchase price of the land plot in question, whereas Ms Baturina was.[112]The PPA is entirely silent as to how Mr Chistyakov’s plot purchase contributions were to be provided on the Paradise Golf and Tetuan Azla projects. That the contributions are expressed in euros does not answer the question: they are indications of value/amount. I see no basis for reading into such a fluid and incomplete document a restriction that would prevent Mr Chistyakov’s contribution towards land acquisition from being provided in kind. Equally, clause 3 does not distinguish between funding for work in preparation for title purchase and actual title purchase: the complexity of the projects meant that any such distinction would have been entirely artificial. Nor can I identify any basis on which Mr Chistyakov’s contribution could not come from third parties, just as that of Ms Baturina was to come, in her case from Inteco. Whilst Mr Chistyakov’s liability under the PPA was a personal one, as identified above, he could discharge it from any source he chose. In those circumstances, whether or not Mr Chistyakov himself had any existing interest in the Projects at the time of the PPA does not inform the question of whether or not he could make his contribution in kind or in cash.[113]In summary, therefore, I reject Mr Chistyakov’s case that the funding obligation on him under clause 3 of the PPA was limited to an obligation to make a contribution only to day to day ongoing financing contributions. Rather, where Ms Baturina and Mr Chistyakov decided to proceed with projects from time to time (as limited, unless agreed otherwise, by Appendix 1 and Appendix 2), the first paragraph of clause 3 imposed on Mr Chistyakov an obligation to fund initial capital and ongoing expenses relating to those projects in overall contributions of 35% in proportion to a 65% contribution by Ms Baturina. However, there was nothing to prevent Mr Chistyakov’s contribution to funding from being in kind and/or from a third party source.[114]I turn then to clause 4 of the PPA. Clause 4 provides that “[f]or the purposes of implementation of the Project”, the parties would establish a joint venture company which would operate “as a management company” and would be “the cost and profit centre in the course of the Project’s implementation”. The equity participation interests in the capital of this company would be distributed 65%(Ms Baturina)/35%(Mr Chistyakov), all subject to a shareholders’ agreement which never in fact came into existence.[115]No specific holding company was identified (even though the parties anticipated that it would be Andros Bay). It was envisaged that the holding company would act “as the cost and profit centre in the course of the Project’s implementation”, but these are very general words. It was certainly not stated that only the holding company could hold project funding. Moreover, clause 4 looked to a future state of affairs that never in fact came into existence. It cannot be said that clause prevented monies going other than to Andros Bay when, to everyone’s knowledge at the time, the shareholding structure in Andros Bay was not set up.[116]Clause 4 set the expectation that a holding company for the Projects would be established to manage the Projects and, once established, would act as the cost and profit centre, with the parties sharing in its equity in accordance with their respective 65/35% shares. It did not come close to creating an obligation on Mr Chistyakov to ensure that Ms Baturina’s initial funds were paid by Sylmord to Andros Bay and Andros Bay alone. Indeed, it was not a point pursued with any vigour on behalf of Ms Baturina. Additionally, there is force in the point that, of course, it was Inteco that advanced the funds in question under loan agreements which again contained no requirement that the funds be paid to Andros Bay.

The alleged Purposes term

[117]As set out above, Ms Baturina seeks to imply a term into the PPA that all financing advanced by Ms Baturina under the PPA was to be applied “exclusively for the purposes of the Projects”.[118]In Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72 Lord Neuberger endorsed the following well-known statement by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266, 284 (at [18]):
“[F]or a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
[119]Lord Neuberger went on at [21] to say:
“I would add six comments on the summary given by Lord Simon in BP Refinery as extended by Sir Thomas Bingham in Philips and exemplified in The APJ Priti. First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408 , 459, Lord Steyn rightly observed that the implication of a term was “not critically dependent on proof of an actual intention of the parties” when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon's first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 , para 27, although Lord Simon's requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is “vital to formulate the question to be posed by [him] with the utmost care”, to quote from Lewison, The Interpretation of Contracts 5th ed (2011), para 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of “absolute necessity”, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon's second requirement is, as suggested by Lord Sumption in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”
[120]The question of implication falls to be determined on the facts of each case and by reference to the particular contract in question. There is no parallel here, for example, between the detailed commercial lease the subject of scrutiny by Lord Neuberger in Marks & Spencer and the PPA.[121]I have come to the conclusion that, on the particular facts of the PPA, the Purposes Term does not fall to be implied. The PPA was a general framework agreement only, and but the start of the parties’ journey. Beyond the 65%/35% division and breakdown of payments, it provided no particulars as to how the Projects were to be run. It would be wrong to imply into the PPA detail that the parties can be taken to have omitted deliberately at the time. Objectively construed, the PPA was not the document intended to govern the purpose of payments made under its umbrella. Thus, for example, the payments when made (by Inteco) – as was intended and known at the time of the PPA – were to be paid under the initial loan agreements. Those loan agreements stated in express terms for what specific purposes the monies were to be used. In the circumstances, the implication of a (very broad) overarching term such as the Purposes Term was neither necessary nor obvious. Indeed, so far as the monies paid under the initial loan agreements were concerned, it would be otiose. Equally, albeit by way of confirmation only, if one looks beyond the initial loan agreements, much of the early project financing was provided in the first instance on an ad hoc basis by Mr Krupnov and Mr Hassan. They would then provide invoices to Inteco for the purposes of securing payment from Inteco. In short, the contractual purpose of monies to be paid over under the PPA was not intended to be the subject of the PPA, but rather something to be addressed in due course.[122]I therefore accept the submission for Mr Chistyakov that it would be wrong to expand the PPA beyond its intended purpose, which was to be a headline overview of the basis on which the parties agreed to go forward. Put another way, in the context of the relevant factual matrix and the nature of the document, the PPA is not deprived of any commercial and practical coherence without the Purposes Term.[123]There is an additional difficulty with the Purposes Term, namely that it has no sufficiently clear or fixed meaning in context. The PPA itself speaks in terms of a single “Project”. It refers to “Development Projects” as being those defined in Appendix 1, which “Projects Portfolio” could be expanded by agreement. Ms Baturina defines “the Projects” as being those identified in Appendix I. The PPA does not define “the purposes of the Projects”, nor does Ms Baturina seek to do so. She withdrew by amendment the limitation that they were for the “development” of the Projects. The lack of specificity in the Purposes Term has particular significance in the context of the very risky and complex dealings involved in Moroccan property development, as explained by Mr Krupnov and also, for example, in the evidence of Ms Essadaoui. Payment “for the purposes of the Projects” is an elastic concept in circumstances where multiple parties, communities and ministries are involved at various different stages, and where, for example, offers of hospitality and gifts are all part and parcel of the negotiating process. G. Mr Chistyakov’s alleged dishonesty : Ms Baturina’s overarching case[124]It will be necessary to examine the individual allegations of dishonest misrepresentations in the context of the claim for deceit in due course. However, I consider now the broad case of dishonesty that has been mounted against Mr Chistyakov. In this context, it is important to note that there is no pleaded claim of a conspiracy against Mr Chistyakov, who is also the only defendant. There can be no question of a self-standing liability based on a conspiracy and it was made clear on behalf of Ms Baturina in closing that no findings on any such basis were sought against Mr Chistyakov or anyone else. A finding of conspiracy is in no way a pre-requisite to a finding of deceit, and my conclusions in this section are not determinative of the claim in deceit, which I consider separately.[125]However, Ms Baturina’s case in cross-examination was to the effect that Mr Chistyakov (along with Mr Krupnov and others) set out together by agreement to and did defraud Ms Baturina. This is said to be part of the general attack on Mr Chistyakov’s credibility, in particular as to his state of mind and knowledge. It was essentially the theory behind Mr Chistyakov’s alleged dishonesty, and in reality the logical consequence of the allegations of dishonesty against him. It was put to him and, given its gravity, it is right that I should deal with it.[126]I accept the submission on behalf of Ms Baturina that there is an extent to which it is permissible to pursue unpleaded general challenges to credibility. But where it is intended to advance specific matters of dishonesty based on a particular set of facts, such matters should, as a matter of fairness, be pleaded. A striking example relates to the January 2008 valuations from Mr Benmakhlouf referred to above. It was suggested for the first time in Ms Baturina’s written opening that these were only “purported” valuations and that they “wildly overstate[d]” the true value of the Paradise Golf plots of land. Ms Baturina then gave evidence for the first time in cross-examination that at a meeting on 30th January 2008 Mr Chistyakov told her that a valuation had been received in Morocco commissioned by Mr Krupnov showing a market price of about €120 per square metre. This appeared nowhere in her pleaded case or her witness statements. It was then put to Mr Chistyakov in cross-examination that he had seen these valuations at the time and that they were false valuations commissioned by the consortium to justify the price allegedly being advanced to Ms Baturina. He denied seeing the valuations at the time, denied telling Ms Baturina of any such valuation and said that he did not believe the valuations to be false.[127]These are matters which should have been pleaded if they were to be advanced. Mr Chistyakov had no proper opportunity to consider in advance the allegations and to explore how he might wish to defend himself against them. In fact, Ms Baturina went on to withdraw (in the course of the preparation of closing submissions) any contention that Mr Benmakhlouf “knowingly produced inaccurate valuations”.[128]It is nevertheless convenient at this stage to record my finding that Mr Chistyakov was never shown Mr Benmakhlouf’s valuations in January 2008 (nor was he aware of their contents). His reaction in the witness box to the contrary suggestion was compelling; he appeared genuinely to be looking at the valuation documents for the first time. As far as he was concerned, it was Mr Krupnov who was leading the commercial price negotiations. There is no documentary evidence at all to suggest that Mr Chistyakov was sent or shown the valuations. Mr Krupnov did not remember informing Mr Chistyakov of them. I therefore also find that Mr Chistyakov did not tell Ms Baturina of any such valuations at any meeting on 30th January 2008. Given the nature of her allegations in deceit, addressed in more detail below, such a matter of detail would, if reliable, have been both pleaded and/or in any event set out in Ms Baturina’s witness statements. They were not.[129]Allegations of dishonesty require strong and cogent evidence if they are to be made out. In R(N) v Mental Health Review Tribunal [2005] EWCA Civ 1605 (at [62]) the Court of Appeal stated :
“Although there is a single civil standard of proof on the balance of probabilities, it is flexible in its application. In particular, the more serious the allegation or the more serious the consequences if the allegation is proved, the stronger must be the evidence before a court will find the allegation proved on the balance of probabilities. Thus the flexibility of the standard lies not in any adjustment to the degree of probability required for an allegation to be proved (such that a more serious allegation has to be proved to a higher degree of probability) but in the strength or quality of the evidence that will in practice be required for an allegation to be proved on the balance of probabilities.”
[130]It is striking in this regard that none of the personnel at Inteco who worked on behalf of Ms Baturina, such as Mr Edel or Ms Strelina, or any of her external legal or tax advisers, gave evidence on her behalf. The evidence of Mr Soloschansky and Mr Stepanenko called by Mr Chistyakov did not support her case.[131]I make no findings as to the existence or otherwise of an underlying conspiracy involving Mr Krupnov and/or Mr Hassan and/or others. But I am quite satisfied, having seen and heard the evidence, that if there were any such design, neither Mr Chistyakov (nor Mr Smolnikov) were part of it.[132]At a high level only for present purposes: a) Mr Chistyakov did not target Ms Baturina as a victim of some fraudulent design. Thus, Mr Chistyakov did not seek Ms Baturina out in the first instance to join the Projects. Her interest developed only as a result of Mr Soloschansky’s response to Mr Chistyakov’s mention of his involvement in Moroccan property. Mr Soloschansky knew that at the time Ms Baturina was looking to diversify her property interests outside Russia, as Ms Baturina accepted was the case. Indeed, Mr Chistyakov was a relatively reluctant participant in the venture with Ms Baturina, becoming party to the PPA at her insistence. Ms Baturina was always in fact a most unlikely target for a fraud, given her intelligence, sophistication and independent resources; b) Mr Chistyakov was not a Moroccan property development specialist, as Ms Baturina and those representing her knew at all material times. Mr Chistyakov did not see Mr Benmakhlouf’s valuations for Paradise Golf at the time. He did not believe that the price that Ms Baturina/Inteco was willing to pay under the February 2008 agreement was a matter for him. It was a matter for them; c) Mr Chistyakov was at all times aware of the involvement of Inteco personnel on behalf of Ms Baturina both before and after the PPA (and at all times when he is alleged to have made dishonest representations) and at all times aware of the depth and availability of her capabilities. Whether or not Ms Baturina’s representatives used their position to full advantage, the fact is that, to Mr Chistyakov’s knowledge, they had access to the Projects (and details of their funding) at all times. In any event, it appears that, to Mr Chistyakov’s knowledge, they did use their position to full advantage. Ms Baturina set up her Moroccan project department. Her representatives attended all key meetings; they visited the sites; they prepared an analytical brief for Mr Smolnikov on 26th February 2008; they called and held investor meetings for the Projects which took place at Inteco’s offices; they conducted their own due diligence; they set up decision-making processes to ensure that Inteco had control over the Projects; they were involved in raising finance for the Projects and bank negotiations; d) There is no suggestion that Mr Edel, Mr Soloschansky or Mr Stepanenko or any of Ms Baturina’s other representatives were doing anything other than acting in her best interests at all material times and that Mr Chistyakov ever believed otherwise. This is a very unpromising background for an alleged fraud on the part of Mr Chistyakov, which would involve serious wrongdoing on his part under the very noses of those acting for Ms Baturina - and for her alone; e) I do not accept that Mr Chistyakov in any way sought to conceal his ownership of Ridgegrove and, as set out above, I prefer Mr Smolnikov’s clear recollection that he had given Mr Stepanenko the relevant details in discussions during 2008. In writing, Mr Smolnikov responded fully to Mr Stepanenko’s requests about the project payments to Ridgegrove and other companies, so as to allow him to account for them to his lawyers when seeking bank financing, including by making a number of corrections where Mr Stepanenko had misunderstood. That is inconsistent with a scenario in which Mr Smolnikov was trying to mislead. One such entry by Mr Smolnikov clearly linked Mr Krupnov with Grupo Oxigeno. Even if I were wrong in my finding that Mr Stepanenko was not in any event told that Mr Chistyakov was behind Ridgegrove, this would suggest that information as to the ownership of Ridgegrove would have been readily forthcoming had Mr Stepanenko raised any questions about Ridgegrove; f) I am in no doubt that Inteco, on behalf of Ms Baturina, was aware in broad terms that on the other side of the transaction to her behind Mr Chistyakov sat a consortium involving Mr Krupnov in particular, who was a Moroccan property specialist, and others, including Mr Hassan. Ms Baturina’s position was that she was unaware of this. This is very difficult to accept, given that her right-hand men were so obviously aware of it, but I need make no positive finding in this regard for present purposes. On any view, Mr Chistyakov had no reason to think that she would not be told. The involvement of others was blindingly obvious from the documentation and every witness from Inteco, apart from Ms Baturina, accepts that this was fully understood; g) I struggle to see how Mr Chistyakov’s conduct, particularly after conclusion of the PPA, can be equated with dishonesty. His exposure to the Projects was consistent; he did not draw back from the Projects after Ridgegrove had received initial payments and, effectively, on Ms Baturina’s case the main fraud (in the shape of wrongful payments out to Ridgegrove (and Grupo Oxigeno)) was complete. He continued to participate. When the projects ran into trouble in 2010 he appears to have caused Ridgegrove (at least in principle) to make loan facilities available. The introduction of Mr Makeev to the Projects through the Hermitage Group in 2010 is also not suggestive of a guilty conscience on the part of Mr Chistyakov; h) It was clear from Mr Chistyakov’s evidence, consistent with that of Mr Krupnov, that he was not at the heart of the consortium. His only initial investment related to Tetuan Azla 1. He was working throughout full-time in Moscow at FGC.[133]I also consider that there is force in Mr Chistyakov’s answers at the end of his cross-examination. In response to the suggestion that he was party to an agreement with Mr Krupnov to deceive Ms Baturina he pointed to the fact the was being accused of “conspiring in a massive real estate scam against one of the largest real estate companies in Russia owned and controlled by one of the most powerful business persons in Russia” married to “probably the number 4 person in the country after the President, the Prime Minister and the Chief of Staff”. He pointed to the disclosure of all the payments impugned and their destination. His beneficial ownership of Ridgegrove was, he stated, a matter of public record: he had declared it to the Spanish tax authorities in 2005 and 2006 and later to the Russian tax authorities. The allegation was, he said, “simply ridiculous”.[134]Thus, whether or not Mr Krupnov and his other associates acted honestly at all times, I am unable to identify Mr Chistyakov himself as a conscious participant in a dishonest scheme with them. H. The claim in deceit

The case advanced

[135]The material alleged representations by Mr Chistyakov to Ms Baturina for the claim in deceit now relied upon are as follows: a) An express oral representation that “Mr Chistyakov would contribute 35% of the financing for the Projects” (“the Funding Representation”); b) An implied representation that “the funds to be provided by Ms Baturina would only be applied for the purposes of the Projects and were not to be applied nor diverted to any unauthorised purpose or third party” (“the Application of Funds Representation”); and c) An implied representation that “as at the date of the Principal Agreement, to the best of Mr Chistyakov’s knowledge the land prices which were reflected in correspondence prior to and ultimately stated in Appendix One were not higher than the fair market value of the plots in question” (“the Appendix One Representation”). Each is said to have been made by Mr Chistyakov knowing it to be false, alternatively recklessly.[136]Ms Baturina also alleges that Mr Chistyakov made an express oral representation to her in August 2010 that “there were some problems with the Projects but that these were nothing serious” (“the Subsequent Representation”), knowing it to be false, alternatively recklessly.[137]Various additional allegations of deceit have been the subject of amendment and/or then abandoned : a) That Mr Chistyakov made an express oral representation that “the Paradise Golf Project was ready to commence as soon as finance was forthcoming and the Tetuan Azla Project would shortly be ready to commence” (“the Readiness Representation”). This was an allegation amended materially during the course of the litigation and then withdrawn very shortly before trial; b) That Mr Chistyakov made an express oral representation that “All necessary permits for the first phase of the Paradise Golf Project had been obtained, and those for the Tetuan Azla Project would be granted in the near future” (“the Permits Representation”). This was also amended materially during the course of the litigation and then withdrawn very shortly before trial; c) An allegation that Mr Chistyakov made an express oral representation that he had already made a substantial investment in the Projects (“the Investment Representation”); d) An allegation that Mr Chistyakov made an express oral representation that Ms Baturina would have a 65% shareholding in the Moroccan company that would be the holding company for the Projects (“the Shareholding Representation”). Again, each of these representations (with the exception of the Shareholding Representation) was alleged to have been made by Mr Chistyakov knowing it to be untrue, alternatively recklessly.[138]Mr Chistyakov points to the comments of Flaux J (as he then was) in Republic of Djibouti and others v Boreh and others [2016] EWHC 405 (Comm) (at [26] to [28]). That was a very extreme case on its facts, involving the withdrawal by the claimants of some 13 detailed separate claims either just before, during or at the end of the trial. Flaux J (as he then was) emphasised the need for close scrutiny in those circumstances of the remaining allegations, and the need to be faithful to the pleadings. Whilst the facts here are not so stark, it is nevertheless right, in the context of the evolution of Ms Baturina’s case, to examine closely the surviving allegations that she makes and to limit her case to the pleaded one.

The relevant law

[139]In order to sustain an action of deceit, there must be proof of fraud and nothing short of that will suffice – see Derry v Peek [1889] 14 App. Cas. 337 (at 376). As there stated, a statement honestly believed to be true, however implausible it may be, is not capable of amounting to fraud, albeit that an alleged belief that is destitute of all reasonable foundation may itself convince a court that it was not really entertained.[140]In order to make out her case in deceit Ms Baturina must establish a) a false representation b) made knowingly, without belief in its truth, or recklessly as to its truth or falsity c) which is intended to be relied upon d) on which the claimant in fact relies and e) damage is caused by that reliance: see generally Clerk & Lindsell on Torts (21st edition) (“Clerk & Lindsell”) (18-05 to 18-38). A representation as to the future will not as such found liability in deceit. However, it is clearly established that a representation of present intention is a sufficient representation of an existing fact to form the foundation for an action in deceit – see for example Edgington v Fitzmaurice [1885] 29 Ch D 459 (at 483).[141]The law as to actionable representations was summarised usefully by Christopher Clarke J (as he then was) in Raiffeisen Zentralbank Osterreich AG v The Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm):
“81. RZB must show that RBS made to it a statement which amounts to a representation, that is to say a statement of fact upon which RBS was entitled to rely. Whether any and if so what representation was made has to be “judged objectively according to the impact that whatever is said may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee”
. MCI WorldCom International Inc v Primus Telecommunications Inc [2004] EWCA Civ 957, per Mance LJ, [30]. The reference to the characteristics of the representee is important. The Court may regard a sophisticated commercial party who is told that no representations are being made to him quite differently than it would a consumer. 82. In the case of an express statement, “the court has to consider what a reasonable person would have understood from the words used in the context in which they were used”: IFE Fund SA v Goldman Sachs International [2007] 1 Lloyd's Rep 264 , per Toulson J at [50] (upheld by the Court of Appeal at [2007] 2 Lloyd's Rep 449). The answer to that question may depend on the nature and content of the statement, the context in which it was made, the characteristics of the maker and of the person to whom it was made, and the relationship between them […] 87. Lastly C must show that he in fact understood the statement in the sense (so far as material) which the court ascribes to it: Arkwright v Newbold (1881) 17 Ch D 301; Smith v Chadwick (1884) 9 App.Cas 187 ; and that, having that understanding, he relied on it.”[142]A representation may be implied. The court then again has to carry out an objective assessment, considering what a reasonable person would have inferred was being implicitly represented by the representor’s words and conduct in their context. In Raffeisen Zentralbank (supra) Christopher Clarke J stated:
“85. The essential question is whether in all the circumstances it has been impliedly represented by the defendant that there exists some state of facts different from the truth. In evaluation the effect of what was said a helpful test is whether a reasonable representee would naturally assume that the true state of facts did not exist and that, had it existed, he would in all the circumstances necessarily have been informed of it….”
[143]Where a statement is capable of being understood in more than one sense, it is essential to liability in deceit that the party making the statement should have intended it to be understood in its untrue sense, or at the very least that he should have deliberately used the ambiguity for the purpose of deceiving the claimant – see Whyfe v Michael Cullen & Partners [1993] EGCS 193.[144]The relevant intent is that the defendant must make the false statement with the intent to deceive the claimant, that is to say that it shall be acted upon by the claimant. Intent includes the situation where the statement-maker actually desires the claimant to rely on what he says, but also appreciates that in the absence of some unforeseen intervention that the claimant will actually do so.[145]If the representor believes the representation to be true at the time it is made, but learns that it is false before the point at which the representee acts upon it, liability arises unless the representor notifies the representee of the representation’s falsity – see With v O’Flanagan [1936] Ch 575 (CA).[146]As for reliance, the claimant must show that he was induced to act as he did by the misrepresentation, but the misrepresentation need not have been the sole cause, provided that it substantially contributed to deceiving him. It must play a “real and substantial part, albeit not a decisive part, in inducing the representee to act” - see Dadourian Group International Inc v Simms [2009] 1 Lloyd’s Rep 601 (at [99] and [101]).[147]Where a fraudulent misrepresentation has been made, there is a rebuttable presumption that the representor intended the representee to rely on it: Goose v Wilson Sandford & Co (a firm) [2001] Lloyd’s Rep 189 (CA). There is no self-standing requirement in a claim for deceit that reliance be reasonable – see Clerk & Lindsell at 18-37 and 18-38. In The Directors &c of the Central Railway Company of Venezuela v Kisch [1867] LR 2HL 99 (HL) Lord Chelmsford stated (at 120-121):
“But it appears to me that when once (sic) it is established that there has been any fraudulent misrepresentation or wilful concealment by which a person has been induced to enter into a contract, it is no answer to his claim to be relieved from it to tell him that he might have known the truth by proper enquiry….”
[148]However, questions of reasonableness and the allied notion of “an entitlement to rely” remain relevant, in the sense that they may at least inform the question of whether or not there was reliance in fact. Cartwright on Misrepresentation, Mistake and Non-Disclosure (4th ed) (2017) (at 3-12) suggests that in the search for an actionable representation the courts are in fact looking to identify “those statements on which the representee ought to be entitled to rely”. Consideration of whether or not there was an entitlement to rely is equally important as the key requirement of whether there was reliance in fact.[149]Finally on the law, a person who has made a fraudulent representation cannot escape liability on the basis that a claimant’s agent knew the representation to be untrue, providing that the claimant did not him or herself know the truth. A fraudster cannot say that the representee’s agent should have warned him or her of the untruth : see Renault UK Ltd v Fleetpro Technical Services [2007] EWHC 2541 (QB) at [124]-[128].

The Readiness and Permits Representations

[150]Whilst the Investment and Shareholding Representations appear to have fallen away altogether, whether or not the Readiness and Permit Representations were made as a matter of fact remains in issue, albeit that they are no longer relied upon as actionable. I consider them as relevant to the general question of credibility between the two parties.[151]Ms Baturina’s Voluntary Further Information particularises that the Readiness and Permit representations were made in respect of the Tetuan Azla project orally on 18th August 2007 in the presence of Mr Edel and Mr Soloschansky. They were then made in respect of each of the Projects orally at a meeting on 11th December 2007 at Inteco’s offices in Moscow, in the presence of Mr Edel, Mr Soloschansky and possibly Mr Krupnov; at a meeting on 30th January 2008 at Inteco’s offices in Moscow when only Mr Chistyakov and Ms Baturina were present; at a meeting on 28th February 2008 at Inteco’s offices in Moscow in the presence of Mr Edel, Mr Soloschansky and Mr Smolnikov; at other meetings at Inteco’s offices in Moscow between 19th August 2007 and 28th February 2008 which may, in addition to Mr Chistyakov and Ms Baturina have included one or more of Mr Edel, Mr Soloshansky and Mr Krupnov.[152]I do not find that Mr Chistyakov made either of the representations. The allegations are unreliable, given the manner in which they have changed over time. The changes are not ones that can be explained by legal nuance; rather they are material changes as to what Mr Chistyakov is alleged to have said as a matter of fact. Thus the Readiness Representation was alleged originally to have related to “Projects” (then defined only generally as “proposed real estate projects in Morocco” and not by reference to Appendix 1) being “ready to commence as soon as finance was forthcoming”, then “alternatively the Tetuan Azla Project and the Paradise Golf Project, or at least some of them” being ready to commence. The representation in respect of the Tetuan Azla project was ultimately that it “would shortly be ready to commence”. The Permits Representation too was originally said to have related to all of the Projects. As now formulated, it relates only to the first phase of Paradise Golf and a representation that all necessary permits for Tetuan Azla “would be granted in the near future”. Moreover, Mr Chistyakov was not the Moroccan property specialist. If these matters were touched on at all, it is more likely that it was Mr Krupnov who said anything to Ms Baturina. It would also have been extraordinary if at any stage Ms Baturina was told, in the presence of Mr Edel and Mr Soloschansky, that all of the Projects, including for example, Ouad Lau and Asila Khasan were ready to commence and that all necessary permits had been obtained or would be granted in the near future (which is what the Voluntary Further Information suggests is alleged). Additionally, Ms Baturina’s witness statement does not fully support the Permits Representation. Thus her evidence was not that it was represented that all necessary permits for the Tetuan Azla project “would be granted in the near future”. Rather, she stated that it was represented that “it was anticipated that” the permit for the Tetuan Azla project would soon be granted. In a case of alleged fraud, this is potentially a highly material distinction. For the avoidance of doubt, Mr Soloschansky denied that either the Readiness or Permits Representation was made. His evidence was that at no point was he told or did he think that Mr Chistyakov had said something that was relied on that caused Ms Baturina to be deliberately misled by Mr Chistyakov. As already indicated, Mr Edel was not called by either side as a witness. It is also relevant that no complaint was made by Ms Baturina or anyone on her behalf early on when, for example, no permit for the Tetuan Azla project emerged in 2008 (or even 2009). Indeed, no complaint of any misrepresentation was made until 2012.

The Funding Representation

[153]Ms Baturina’s Voluntary Further Information provides that the Funding Representation was made orally at a meeting on 11th December 2007 at Inteco’s offices in Moscow, in the presence of Mr Edel, Mr Soloschansky and possibly Mr Krupnov; at a meeting on 30th January 2008 at Inteco’s offices in Moscow when only Mr Chistyakov and Ms Baturina were present; at a meeting on 28th February 2008 at Inteco’s offices in Moscow in the presence of Mr Edel, Mr Soloschansky and Mr Smolnikov; at other meetings at Inteco’s offices in Moscow between 19th August and 28th February 2008 which may, in addition to Mr Chistyakov and Ms Baturina have included one or more of Mr Edel, Mr Soloshansky and Mr Krupnov.[154]The Funding Representation cannot have been made at the meeting on 11th December 2007, not least since it is clear that the division of 65%/35% was not arrived at until later in the day. Ms Baturina’s witness statement indicated that that apportionment was agreed in the course of discussions in January and February 2008. In cross-examination Ms Baturina confirmed that it was only decided upon in January 2008. (She stated that the discussions in December were on the basis that her equity stake would be “between 50 and 75%”.) Thus Ms Baturina’s pleaded case on any view overstates the making of the Funding Representation. In terms of the reliability of Ms Baturina’s recollection, this is significant. She personally signed the Voluntary Further Information in December 2014 and specifically identified a meeting on 11th December 2007 as being an (indeed the first) occasion when the Funding Representation is said to have been made. Nor was any case developed for Ms Baturina in evidence in relation to the Funding Representation by reference to the unspecified “other” meetings outside January and February 2008.[155]There will doubtless have been some discussion about that division when Ms Baturina and Mr Chistyakov met in early 2008. As to whether or not there was a meeting on the precise date of 30th January 2008, there appears to have been a meeting at around that time, and a meeting on 28th February 2008 as already set out above. Although Ms Baturina thought that she met alone with Mr Chistyakov on 30th January 2008, I find it unlikely that they ever met alone. Mr Chistyakov was “pretty clear” that he had not done so, and it would have been out of kilter with Ms Baturina’s general modus operandi, which was to rely heavily on those around her, for her to have attended a meeting alone. It is more likely than not that, as with all other meetings between the parties, any such meeting was attended by others as well. Thus, by way of example, an email of 19th February 2008 from Mr Smolnikov to Mr Stepanenko refers to a meeting in the previous week: “with Chistyakov and Soloschansky (Baturina was next to him)”.[156]Although the parties will have discussed the 65%/35% participation split at around this time, I find that Mr Chistyakov did not orally represent to Ms Baturina that he personally would be contributing 35% (in cash or in kind). It is common ground that Ms Baturina wanted Mr Chistyakov’s “skin in this joint venture game”, but he was agreeing to enter the PPA with her personally. I reject Mr Chistyakov’s evidence (given for the first time in cross-examination) that he told Ms Baturina in terms that he would only be financing ongoing expenses and only in proportion to whatever his percentage stage in the consortium ended up being. But that does not mean that it is likely that he made the Funding Representation alleged. It would not have been true for Mr Chistyakov to say that he personally would be contributing 35%, and I do not conclude that it is likely that he was acting dishonestly in an attempt to lure Ms Baturina into the deal under false pretences. It is noteworthy that, when asked about the existence of the Funding Representation in cross-examination, it was clear that at the time Ms Baturina’s focus was in fact on the PPA, not on anything that Mr Chistyakov may have said orally:
“Q. …..the funding representation was made orally….. A. The funding representation was actually the signed one. Our agreement provides that he was going to provide funding for his equity interest. Now, whether he confirmed that orally or not, yes he did.”
[157]There are no written records or notes, contemporaneous or otherwise, to support the making of the Funding Representation. As for the PPA itself, I have made my findings of construction above. It does not point to the Funding Representation having been made, nor do the preceding drafts of the memorandum of intent. Nor are there any witnesses to support Ms Baturina’s recollection. Neither Mr Soloschansky nor Mr Krupnov recollect the Funding Representation. Mr Stepanenko’s evidence was that he was unaware of it; although he was not present at any of the meetings relied upon, he was engaged heavily in running the Projects for Ms Baturina.

The Application of Funds Representation

[158]Ms Baturina’s Voluntary Particulars state that the Application of Funds Representation is to be implied from the following facts:
“Ms Baturina had informed Mr Chistyakov that she had no experience of doing business in Morocco and was only prepared to consider an investment in the Projects on the basis of a joint investment with Mr Chistyakov. Both Ms Baturina and Mr Chistyakov were aware that the funds to be advanced by Ms Baturina would effectively be advanced into the control of Mr Chistyakov who was to arrange for the proposed Moroccan holding company to be acquired and/or established (and in the event the funds were advanced to Mr Chistyakov’s own company, Sylmord). The entire basis for the discussions between Ms Baturina and Mr Chistyakov (and the subsequent agreement into which they entered) was that Ms Baturina was to invest (together with Mr Chistyakov) in the Projects. It was obvious to both Ms Baturina and Mr Chistyakov, and was necessary to give business efficacy to the proposals and representations being made by Mr Chistyakov, that the funds to be advanced would only be applied for the purposes of the Projects and were not to be applied nor diverted to any unauthorised purpose or third party.”
[159]Ms Baturina’s case overlaps very obviously with her case on the (implied) Purposes Term, which I have already rejected. Obviousness, necessity and business efficacy are considerations that may be apt in the contractual context. Here, no specific words are relied on by Ms Baturina as giving rise to the implication of the Application of Funds Representation. I do not see how the Application of Funds Representation by Mr Chistyakov can be said to arise out of Ms Baturina’s lack of experience in Morocco and her insistence on a joint investment with Mr Chistyakov, nor out of the fact that it was anticipated that her monies were to be paid into the control of Mr Chistyakov. Looking objectively, Ms Baturina has identified no words or conduct on the part of Mr Chistyakov from which a reasonable person would have inferred that he was implicitly making the Application of Funds representation.[160]That there was no Application of Funds Representation as alleged was demonstrated starkly by Ms Baturina’s evidence in cross-examination. The proposals and representations allegedly made by Mr Chistyakov as creating the need for and obviousness of the Application of Funds Representation are not particularised in Ms Baturina’s Voluntary Information. When asked in cross-examination to identify the words or conduct that she treated as giving rise to the Application of Funds Representation upon which she allegedly relied in entering into the PPA, she could not identify any. She stated that no representations were needed. She pointed only to the initial loans :
“Q. I want to know from you very clearly what you say was said or done by Mr Chistyakov which led you to believe that he was making the application of funds representation. A. Chistyakov and I entered into a loan agreement which clearly set out the purposes that the funds had to be applied for. No representations were needed. According to that agreement the money had to be used to purchase the land from those who used to own the land, and there’s no way Chistyakov could have been one of those owners. Q. Are you talking now about the February 2008 and the April 2008 loan agreements? A. Da. Q. Those were not agreements to which you were a party. A. Correct. I was not. Q. So I come back to my question: what do you say was said or done by Mr Chistyakov which led you to believe that he was making to you the application of funds representation? A. We reached the loan agreement and that agreement was signed by my deputy on behalf of the company that I was representing. Q. The loan agreement in February 2008 was concluded the day after the principal agreement, wasn't it? A. Yes. Q. So nothing in the loan agreement could have induced you to enter into the principal agreement? A. I'm not sure I understood your question. The loan agreement was signed after the execution of the principal agreement. Q. Yes, so it couldn't have induced you to enter into the principal agreement because the principal agreement had already been concluded. A. Correct. Q. And that applies even more in the case of the April 2008 loan agreement? A. Correct. Q. What your case on this comes down to is no more than that it was obvious or necessary to give business efficacy that the defendant was making such a representation to you? A. I'm not sure I understand the question to be honest. Q. Never mind. Apart from what you've told the court about the loan agreements, you're not able to point to any specific words or conduct which led you to believe that Mr Chistyakov was making the application of funds representation, is that right? A. Well, he simply had to transfer the money to the appropriate recipients, which is something he never did.”
Q. Are you talking now about the February 2008 and the April 2008 loan agreements?

Q. And that applies even more in the case of the April 2008 loan agreement?

[161]Thus, Ms Baturina did not understand Mr Chistyakov to be making the Application of Funds Representation by reference to any pre-contractual statement or conduct on the part of Mr Chistyakov. The Application of Funds Representation was not made.[162]Even if, contrary to the above, the Application of Funds Representation was made, I am not satisfied that Mr Chistyakov understood that he was making it, let alone intending Ms Baturina to rely on it. Even if he was aware of it, I would not find that Ms Baturina has proved that Mr Chistyakov made it knowing it to be untrue (or recklessly as to its truth). It would be actionable to the extent that it was a statement of present intention. I would not be satisfied that Mr Chistyakov did not believe at the time that the monies that Ms Baturina was to cause to be advanced would not be used in broad terms solely “for the purposes of the Projects”. This highlights again the width and uncertainty in context of the phrase “the purposes of the Projects”, as already discussed above. Questions of “unauthorised purpose” do not assist Ms Baturina either, not least since there is no evidence that Mr Chistyakov intended that the monies would be used for unauthorised purposes. It is not clear by whom the purpose would have to be authorised. It appears that Inteco, on behalf of Ms Baturina, did in broad terms approve the payments out. I am not satisfied that Mr Chistyakov did not honestly intend at the time that payments to those with pre-investment in the Projects were proper payments, even if they involved profits to them. For example, his evidence was that it was up to Ms Baturina to decide how much she was prepared to pay for her investment; this was a matter for her and her advisers. Thus, even if he had been planning to take a profit since late 2007, that does not mean that the Application of Funds Representation, such as it would have been, would have been dishonest.

The Appendix One Representation

[163]There are no pleaded voluntary (or other) particulars of the Appendix One Representation. This may be at least partly because it was not introduced as an allegation until amendment some 3 years after the commencement of proceedings. This itself casts doubt on whether or not it was indeed an “obvious” representation as alleged.[164]In written opening and closing submissions Ms Baturina developed her case as follows : the Appendix One Representation is implicit in the correspondence passing between the parties in relation to the memorandum of intent and the drafts of the PPA. Reliance is placed on the draft memorandum sent by Mr Smolnikov to Mr Stepanenko on 10th and 11th February 2008 which stated that “the partners” would buy the existing projects “at an agreed price”. The drafts of the PPA which passed between the parties and which Mr Smolnikov approved on behalf of Mr Chistyakov used a single price per square metre and the parties’ contributions, as did the PPA. Ms Baturina believed that Mr Chistyakov’s interests were aligned with her own and that Mr Chistyakov was investing in the Projects at the same time as her. It follows that he would need to contribute cash at the prices per square metre specified. He obviously would not have been willing to do so if he knew that the prices were higher than fair market value. A reasonable person would therefore infer that Mr Chistyakov was impliedly representing that, to the best of his knowledge, the prices were not higher than fair market value.[165]It is also suggested that the Appendix One Representation is implicit in the manner in which the prices were determined and presented to Ms Baturina and her representatives. It is suggested that the prices stated in Appendix One were determined by Mr Chistyakov and/or Mr Krupnov by reference to an email sent by Mr Chistyakov on 7th January 2008 to Mr Smolnikov. There he stated they had discussed with Mr Krupnov “the parameters of the offer which he intends to present to Inteko on January 14-15.” Paradise Golf was included at €120 per square metre, and Tetuan Azla at €80 per square metre. The assertions by Mr Chistyakov and Mr Krupnov that they had asked for initially for a price of €180 or €200 per square metre are incredible.[166]It can be seen at a glance that the route to the alleged Appendix One Representation is a tortuous one and a difficult basis for a claim in dishonesty. None of the documents and exchanges relied upon, many of which did not involve Mr Chistyakov directly, were put to Mr Chistyakov in cross-examination in the context of or as constituting the basis of the Appendix One Representation. Nor was his denial of the making of any such representation challenged by reference to the analysis for Ms Baturina as set out above (or even generally). Particularly when this case was not particularised in the statements of case, this was a striking omission. Many of the underlying assumptions relied upon are questionable (or on my analysis wrong), for example the requirement for a cash contribution by Mr Chistyakov or the suggestion that he would obviously not have been willing to pay cash if he knew the prices were higher than fair market value. Mr Chistyakov would certainly not have accepted that he was responsible for the validity of the property prices put to Ms Baturina. He was no Moroccan property specialist, as everyone knew, including Ms Baturina. He would have been relying on Mr Krupnov. Moreover, in his eyes, what Ms Baturina was prepared to pay was entirely up to her and her advisers.[167]When Ms Baturina was questioned in relation to the Appendix One Representation, her case was a much simpler one, albeit not one reflected in her pleaded case (or contained in her witness statements):
“Q. And again I want to know, please, what was said or done by Mr Chistyakov which led you to believe that he was making such a representation? A. On 30 January he told me a valuation had been received in Morocco which had been commissioned by Krupnov and the market price was about 120 per square metre, something that they actually had been thinking was going to be the case. Q. You make no reference to that in the voluntary information that you've provided. A. I'm so sorry.”
A. I'm so sorry.”[168]As set out above, if there was a meeting between Ms Baturina and Mr Chistyakov on 30th January 2008 at all, a date that Ms Baturina identified only by reference to her secretary’s diary, it is unlikely that Ms Baturina and Mr Chistyakov were alone. Moreover, Mr Chistyakov had not seen the valuations of Mr Benmakhlouf or been told of their contents at the time. I therefore do not accept that he told Ms Baturina that a valuation had been received supporting a figure of €120 per square metre that matched the expectations of himself and Mr Krupnov. Moreover, I treat Ms Baturina’s evidence in this regard as unreliable in circumstances where such a conversation was neither pleaded nor referred to in any of her witness statements. It would have been a far more straightforward and direct basis on which to advance the Appendix One Representation and the obvious matter to plead and identify at the outset, if the representation was to be relied on at all. I do not need to decide whether, as was suggested for Mr Chistyakov, that this was “pure invention” on the part of Ms Baturina, although I understand how that submission can be made. It may well be that, having now seen the valuations of Mr Benhmakhlouf, Ms Baturina has falsely recollected a conversation with Mr Chistyakov at around that time. In any event, Ms Baturina confirmed that in fact she never understood Mr Chistyakov to be making any representation as to fair market value, rather he was, even on her case, expressing his view as to the best of his knowledge about land prices in Morocco.[169]I therefore do not find that Ms Baturina has established that the Appendix One Representation was made as a matter of fact, ignoring the question of Mr Chistyakov’s state of mind and intention. For the sake of completeness, however, I would not have found that Mr Chistyakov knowingly made any such representation without belief in its truth or recklessly, or with the intention that Ms Baturina should rely on it.[170]For all these reasons, I do not find that Ms Baturina has made out her case in deceit based on the Appendix One Representation.

The Subsequent Representation

[171]Ms Baturina alleges that Mr Chistyakov told her in August 2010 that “there were some problems with the Projects but that these were nothing serious”. This is, on any view, a very loose representation indeed and a challenging premise for a claim in deceit. As set out below, Ms Baturina’s witness statement went further than her pleaded case in this regard. For the Subsequent Representation to be relevant to Ms Baturina’s case, save on questions of general credibility, it needs to have been made before 16th March 2011, when she sent the supplemental agreement to Mr Chistyakov. Her case, as already indicated, is that she signed it in reliance on the (allegedly dishonest) Subsequent Representation and is accordingly entitled to rescind it.[172]Ms Baturina’s evidence in her second witness statement was that she was staying in Spain in August 2010, as she usually did at that time of year. Mr Soloschansky suggested that he arrange a meeting with Mr Chistyakov who would be there at the same time. She understood that Mr Chistyakov had not provided project financing proportionate to that which she had provided “through the Austrian loans”. She was told that Mr Chistyakov had had disagreements with Mr Edel and was considering trying to exit the Projects. So she went with her husband to visit Mr Chistyakov and his wife at their villa in Marbella. When they visited, Mr Chistyakov had other friends present. At one point, she and Mr Chistyakov went to sit separately. They discussed the status of the Projects and Mr Chistyakov stated that he had not been able to finance his project costs in July and August 2010. He told her that “although delays in obtaining the construction permits had caused costs to increase, the problems were nothing serious now that the construction permit had been reissued for the Paradise Golf project”. But Mr Edel was causing problems. Ms Baturina declined to buy Mr Chistyakov out but did agree to remove Mr Edel and leave Mr Chistyakov and his representatives with sole responsibility for the execution of the Projects. She also agreed to refinance Mr Chistyakov’s July and August costs.[173]Mr Chistyakov was clear that a meeting did take place at his beachfront villa in Marbella, but that it did not take and could not have taken place in 2010, since he did not own the villa at that time. The meeting took place in 2011 when his wife was pregnant with their second child, who was born very shortly after they moved in. The villa was newly built with a beach-front view on the Mediterranean coast. He only received the “first occupational licence” in Spain in July 2011. Ms Baturina and her husband visited sometime in mid-August 2011. This was not something that he set out in his witness statement, but rather something that he added by way of oral evidence in chief. (He did not in fact deal with the Subsequent Representation at all in his witness statement for trial.) He said in short that the meeting could not have taken place in 2010.[174]There is thus a stark dispute between the parties as to the timing of this meeting. Ms Baturina relies on the fact that the Paradise Golf permit was reissued in July 2010 to support her recollection of timings. But the meeting was convened, on her evidence, because of problems with Mr Chistyakov’s funding and Mr Edel, not because of the Paradise Golf permit. Mr Chistyakov also stated there was very little communication with Ms Baturina, as opposed to Mr Edel and Mr Soloschansky, over the status of the Projects. It is clear that there was a meeting between Mr Chistyakov and Mr Krupnov and Mr Raskovalov in Marbella in August 2010 to discuss the Projects, but that does not assist on the question of whether or not Ms Baturina and her husband visited Mr Chistyakov in his coastal villa then. Ms Baturina also points to minutes of a meeting on 2nd September 2010 attended by Mr Soloschansky and Mr Edel for Inteco and Mr Chistyakov, Mr Tikhorminov and Mr Makeev. It is suggested that they confirm that the parties had agreed that project management should henceforth be the responsibility of the Hermitage Group. These minutes were not put to Mr Chistyakov (or Mr Soloschansky). But it is not in fact clear that they do provide confirmation of what Ms Baturina alleges was discussed in the previous month. The minutes do not refer to any agreement (or discussion at all) between Ms Baturina and Mr Chistyakov in August 2010. Rather they refer to a proposal (made that day, that is to say 2nd September 2010,) by Mr Chistyakov on a new management structure, with the Hermitage Group being the “management company”. Inteco, including by Mr Edel, was to have control over expenditure. Mr Edel is thus not shown as being removed. Additionally, he is shown as having responsibility for: developing the form and procedure for reports for presentation to shareholders and for issues relating to “the selection of the operator, the design and operation of the hotel as part of the Paradise Golf project.”[175]On balance, I find that Ms Baturina and her husband did not meet with Mr Chistyakov at his villa in Marbella in August 2010. I accept Mr Chistyakov’s evidence that such a meeting did take place at his new beachfront villa on the Mediterranean coast and that the meeting occurred in August 2011, not August 2010. Ms Baturina remembered the house being on the Mediterranean coast. Mr Chistyakov had a very specific memory of the meeting in that house and when he moved into it. The meeting could not have taken place in 2010.[176]Whatever the date, I find that it is unlikely that Mr Chistyakov sought to reassure Ms Baturina as alleged. It would have been sheer folly in circumstances where Ms Baturina’s advisers were aware of the many problems. In his evidence Mr Chistyakov readily admitted that in 2010 they had “every reason to be concerned about the projects”. He referred in particular to the market being down, the financing not being in place, the fact that the government had not built the infrastructure. The Paradise Golf permit had been re-instated but with a lower rate of constructions because the rules of coastal construction had changed. Additionally, Ms Baturina’s evidence has not been consistent as to what was said. Thus in cross-examination she put it like this :
“He said that as everyone knows, the projects were delayed a great deal. But they were then moving forward.”
[177]No complaint was made about the Subsequent Representation until 2014, albeit that Ms Baturina must have discovered its falsity, if it had been made, in early 2012. At that stage Ms Baturina says that she “started to become concerned about the lack of material progress”. It is also notable that she did not mention it in the context of her purported withdrawal of the supplemental agreement in October 2012, when she contends that she relied on it. I. The claim for breach of fiduciary duty[178]Ms Baturina alleges that Mr Chistyakov owed her fiduciary duties by reason of the relationship created by the February 2008 Agreement. Her pleaded case relies on the following factors : a) It was a joint venture and/or joint enterprise; and/or b) It was a venture in respect of which, as Mr Chistyakov knew, Ms Baturina was significantly dependent on Mr Chistyakov who had introduced the Projects to her on the basis of his knowledge of Moroccan property ventures and his contacts in relation thereto; and/or c) It was an agreement to which Ms Baturina was to advance an initial sum of up to €94,545,000 for the purpose of the Projects, which monies were to be used at the direction of Mr Chistyakov who thereby had total control over their distribution; and/or d) It was understood by the parties that it was Mr Chistyakov’s responsibility to obtain all necessary construction permits and to complete the preparatory work on the Projects. This allegation was never actively pursued by Ms Baturina. To the extent necessary, I do not find that there was any such understanding.[179]Fiduciary duties are not an ordinary incident of relationships between commercial co-venturers, but can arise where particular features exist. Thus in Ross River Ltd v Waveley Commercial Ltd [2013] EWCA Civ 910 the Court of Appeal stated (at [34]) that:
“The phrase ‘joint venture’ is not a term of art either in a business or in a legal context, and each relationship which is described as a joint venture has to be examined on its own facts and terms to see whether it does carry any obligations of a fiduciary nature”
[180]At [56], the Court of Appeal approved the following passage from the judgment of Briggs J (as he then was) in Ross River Ltd v Cambridge City Football Club Ltd [2007] EWHC 2115 (Ch):
“In relationships falling short of partnership, but having in them elements of joint enterprise or joint venture, there is no hard and fast rule as to the existence or otherwise either of a duty of good faith, a fiduciary duty or a duty of disclosure. Each case will turn on its own facts, but if the relationship is regulated by a contract, then the terms of that contract will be of primary importance, and wider duties will not lightly be implied, in particular in commercial contracts negotiated at arms’ length between parties with comparable bargaining power, and all the more so where the contract in question sets out in detail the extent, for example, of a party’s disclosure obligations.”
[181]In Crossco No 4 Unlimited v Jolan Ltd [2011] EWCA Civ 1619, Etherton LJ said:
“In the absence of agency or partnership, it would require particular and special features for such fiduciary duties to arise between commercial co-venturers. It is clear, however, that in special circumstances they can arise: Snell's Equity (32nd ed) at 7–006; Murad v Al-Saraj [2004] EWHC 1235 (Ch) at [325]-[341], [2005] EWCA Civ 959.”
[182]It will in each case be a fact-specific exercise to determine whether or not sufficient features to give rise to a fiduciary relationship exist. Examples can be found in the authorities. Thus, in Murad and another v Al-Saraj and another [2004] EWHC 1235 Mr Al-Saraj was held to be under a fiduciary duty to disclose relevant matters to the Murads in circumstances where they were dependent on him for recommendations in relation to the project and for negotiating with the vendor. They reposed trust and confidence in him by virtue of their relative and respective positions.[183]In my judgment, the facts here fall very far short of establishing the existence of a fiduciary relationship : a) Ms Baturina was at all material times a powerful and rich businessperson with ready access to all of the independent and specialist advice that she might want. Moreover, she was experienced in the construction industry. She admitted that she had one of the largest construction business empires in Russia. Whilst he had various business interests, Mr Chistyakov by contrast was much less established and experienced than her. Ms Baturina describes him as a “junior business partner who was trying to build his business profile”. It cannot be said that Ms Baturina was vulnerable viz-a-viz Mr Chistyakov in any sense; b) Nor were they close, either professionally or socially. They had very limited involvement prior to the summer of 2007. Mr Chistyakov’s unchallenged evidence was that they only met some 10 times in all. There are no letters or emails passing direct between them at any material time up to 28th February 2008. Ms Baturina agreed that they never communicated or dealt with each other “in a very close way”; c) Nor was Ms Baturina “significantly” dependent, let alone wholly dependent, on Mr Chistyakov’s advice and recommendation. On the contrary, Ms Baturina was the more experienced party with greater resources. Mr Chistyakov’s evidence was that it was he, in fact, who relied on Inteco. He was not experienced in construction development and had only limited previous experience in Moroccan property. I find that Mr Chistyakov did not know that Ms Baturina was “significantly dependent” on him on the basis of his knowledge of Moroccan property ventures and his contacts. She was very clear that she made her own assessment as to whether or not to invest in the Projects. No-one was “twisting [her] arm”. She knew that it was up to her to satisfy herself as to whether she or Inteco was going to invest; d) The circumstances in and terms under which Ms Baturina agreed to pay over very large sums of money were agreed by Ms Baturina. Mr Chistyakov did not have complete control over the distribution of those monies, as evidenced by Inteco’s monitoring of the payments out. In addition, her investment through Inteco was secured by a raft of share pledges and guarantees and, importantly, the loans were of short duration (namely three months). Each of the initial loans was extended but those extensions were within Inteco’s gift. It was open to Inteco to call them in during the course of 2008; e) Mr Chistyakov did not have sole responsibility for the joint venture. There was no unequal involvement in the day-to-day running of the venture or in the control of the venture. As set out above, Ms Baturina set up her own department in Inteco to manage the venture on her behalf. She and her representatives had direct access to Mr Krupnov as they wished. There is ready evidence of Mr Stepanenko and others being pro-active in the management of the Projects.[184]This was, in short, an arm’s length commercial arrangement between the two parties with at least comparable bargaining power. There is insufficient justification for the introduction of wider duties than those beyond the contract. J. The claim for breach of contract[185]In the light of my findings as to the terms of the agreement in February 2008 set out in section F above, only breach of clause 3 of the PPA falls for consideration. There was no obligation on Mr Chistyakov to cause Sylmord to pay Inteco’s advances to Andros Bay and the Purposes Term did not exist.[186]Based on my findings on the construction of the PPA, Mr Chistyakov will be in breach of clause 3 if he did not secure 35% of funding of the Projects, both initial and ongoing. He could secure it in cash or in-kind and himself or through others.[187]For Ms Baturina it is said that Mr Chistyakov made no meaningful in-kind contribution to the Projects: he never had any ownership in Tetuan Azla 1. The derogacion in which he had an interest was valueless, but in any event was not worth €80 psm, the figure appearing in Appendix 1 and Appendix 2 for the “land plot purchase price”. He had no interest in any of the other projects before 4th June 2008. Nor can it be said that the consortium made any in-kind contribution, in circumstances where any such contribution of land was made in return for payments which substantially exceeded the market value of the land in question. As for ongoing financing, in reliance on Mr Makeev’s calculations, even if one includes payments by the consortium as a whole, the total contribution was approximately €1.75m, whereas Ms Baturina had contributed approximately €5.15m. Reliance is placed on an email of 11th May 2011 where Mr Tikhorminov wrote to Mr Chistyakov as follows :
“Our payments to date comprise ….about EUR 363,000. This amount corresponds to 3.9% of the total investment in the project. We have to pay another EUR 462,000 to reach 8.75%. The situation with our partners is the same – to date, only Hassan and Inteco have performed their financing obligations. In view of withdrawal of funds by Hassan, Inteco has greatly exceeded their obligations. This will become known to them in due course….”
[188]Mr Chistyakov’s position is that, on the basis of this contractual construction, there has been no breach: the consortium contributed 35% to the purchase of land in kind and met the ongoing financing requirement. Reliance is placed on a document signed by Mr Edel on 1st December 2010 showing a sum of “291.6 thousand euros” as of 1st November 2010, which Mr Chistyakov states that the consortium paid.[189]Although the evidential position is far from satisfactory - there has never for example been a full or proper accounting exercise - I am satisfied that Mr Chistyakov did breach clause 3 in failing (either himself or through others) to meet his 35% financing obligation.[190]As for the question of contribution in kind, I refer again to the table of payments made by Sylmord as set out below (with the addition of certain payments made to World One Inc in 2009): Company Location Date Amount Joyton British Virgin Islands 27/03/2008 €5,028.69 27/03/2008 €4,995,000.00 Englobe British Virgin Islands 27/03/2008 €1,000,028.69 22/04/2008 €6,065,028.01 Trading House BV Netherlands 27/03/2008 €375,048.69 Grupo Oxigeno Morocco 28/03/2008 €5,100,048.66 21/04/2008 €570,048.02 22/04/2008 €4,990,048.01 05/05/2008 €65,047.61 16/05/2008 €1,338,027.51 06/06/2008 €9,382,047.76 09/06/2008 €3,412,547.98 09/06/2008 €3,120,047.97 16/06/2008 €10,000,047.89 Vortex British Virgin Islands 28/03/2008 €325,028.65 Rosetta British Virgin Islands 28/03/2008 €1,553,048.66 Rogers Management Capital 22/04/2008 €1,273,885.00 Ridgegrove 10/06/2008 €5,000,047.97 01/07/2008 €50,048.00 One World Inc 31/03/2009 €5,052.66 31/03/2009 €1,795.66 31/12/2009 €3,671.23[191]These payments appear to correspond roughly with the valuations contained in the appendices to the PPA. For example, payments listed as having the purpose of paying shareholders in Paradise Golf – 1 total €33,105,885. These included the payments to Trading House B.V., Englobe, Joyton, Rosetta, Rogers Management Capital, Vortex, the payments of €5,100,000 and €9,382,000 to Grupo Oxigeno, and the €50,000 payment to Ridgegrove. The payments on Paradise Golf – 1 are recorded in Mr Stepanenko’s later reporting to Mr Edel to have been €32,427,000. Either way, the amounts paid are well within the bounds of the €40,560,000 of financing that Ms Baturina was obliged to provide under the PPA for the purchase of her share in the Paradise Golf – 1 project. Similarly, payments listed as having their purpose of paying shareholders in Tetuan Azla 56 ha total €15,000,000. This is within the bounds of the PPA and was again reflected in Mr Stepanenko’s later reporting to Mr Edel. A similar pattern arises in relation to the initial payments for the other plots. Mr Stepanenko’s reporting was as detailed in each case. In circumstances where these payments were disclosed and agreed by Inteco, it is difficult to say that the contributions were not agreed as values in the sums in which they were made. Whether or not they represented fair market value by reference to the figures now produced by Mr Guessous, they were the valuations agreed at the time.[192]The evidence in relation to overall funding is sparse and, at least in part reflecting the complex nature of the venture, the whole picture is not available. There were numerous requests by Mr Stepanenko by reference to underpayment on Mr Chistyakov’s side in 2010. On Mr Makeev’s contemporaneous calculations, Mr Chistyakov’s share had by this stage only provided 31% of the funding. Apparent withdrawals by Mr Hassan on his resignation took the contribution of funding on Mr Chistyakov’s share down to only 18%. There is significant doubt as to whether, even without Mr Hassan’s withdrawal, Mr Chistyakov’s side provided a 35% contribution to the funding of the Projects. On any view, on the material available to me, it is likely that he was underfunding thereafter. The November 2010 figures produced by Mr Edel and relied on by Mr Chistyakov do not reach the end of the story which continued into 2011.[193]I therefore find Mr Chistyakov was in breach of clause 3 in that he failed to provide (either himself or through others) a 35 % contribution to the funding of the Projects. It is not possible for me to make any more precise finding, for example by reference to a specific shortfall; the evidence does not permit me to do so. K. The alleged oral conversion and supplemental agreements[194]Mr Chistyakov contends that Ms Baturina’s claims are precluded either by an oral conversion agreement and/or by the supplemental agreement, which was duly concluded, on the basis that either or both obliged Ms Baturina to accept (or nominate a recipient to accept) the transfer of 65% of the shares in Andros Bay in exchange for procuring the discharge of the initial loans. If the initial loans were terminated validly, Ms Baturina cannot rely on them to make out any of her claims.[195]Ms Baturina contends : a) That there was no oral conversion agreement; b) That no contract was ever concluded on the terms of the supplemental agreement. Whilst she signed and sent the supplemental agreement to Mr Chistyakov’s lawyers on 16th March 2011, that offer was never accepted. She withdrew the offer by letter dated 18th October 2012 before Mr Chistyakov had signed and returned it; c) Alternatively, the supplemental agreement would not preclude or compromise Ms Baturina’s claims. It merely set out how the transactions necessary to transfer the shares and terminate the obligations to repay were to be effected. The transactions were never executed. Any termination of Sylmord’s obligation to repay the Initial Loans would not in any event preclude or compromise Mr Chistyakov’s obligations arising from the rescission of the PPA or his liability for deceit, breach of fiduciary duty and/or breach of contract; d) In the further alternative, Ms Baturina is entitled to rescind the supplemental agreement and to equitable compensation and/or damages in respect of such of her claims as may have been precluded or compromised. But for Mr Chistyakov’s deceit and/or breaches of fiduciary duty she would not have entered into the supplemental agreement. Additionally, she entered into the supplemental agreement in reliance on the Subsequent Representation.[196]It is right that the parties always anticipated that the initial loans would be converted into equity in Andros Bay. But I am not persuaded that the evidence is there to sustain a separate binding contractual obligation on Ms Baturina to do so. Mr Chistyakov has not been able to give any particulars of agreement either in his statements of case or through his witness evidence and the evidence called on his behalf, including that of Mr Soloschansky, for example. Nor was there any mention of such agreement in the initial loan agreements (or indeed in the supplemental agreement which is said to reflect and supersede it). Thus, whilst the parties envisaged that the initial loans would in due course be converted, there was no legal burden on Ms Baturina to carry out such conversion.[197]Turning then to the supplemental agreement, Mr Chistyakov should have addressed the full factual circumstances surrounding execution in his pleaded defence and in his witness statement. He did not. But it is in fact quite clear from the documents that the supplemental agreement was duly concluded: a) It is common ground that Ms Baturina signed the Supplemental Agreement (which had been prepared back in October 2010 and dated 29th October 2010) in March 2011 in Vienna. The signed copy was sent to Mr Chistyakov’s in-house lawyer by email on 16th March 2011. It was also sent by Ms Babirenko, Mr Chistyakov’s in house lawyer, to a Mr Tikhomirnov of the Hermitage Group by email attachment on 1st April 2011; b) Mr Chistyakov then counter-signed the Supplemental Agreement by 19th August 2011, most probably between 11th August (when there was a meeting between the parties’ representatives, including their in-house lawyers) and 19th August 2011. The document signed by both parties is within the documents disclosed; c) That document was sent to Inteco and was with Ms Baturina’s in-house lawyer, Ms Strelina, by 19th August 2011. On that day Ms Strelina emailed Ms Babirenko, Mr Chistyakov’s in-house lawyer, as follows under the heading “Re: Purchase and sale of shares of Sylmord”:
“…With regard to participation of Chistyakov in the transactions. There is no need for the purchase and sale of shares. As for the shareholders’ agreement, at the present moment it is essential because Memorandum and Supplementary agreements concluded between [Ms Baturina] and [Mr Chistyakov]…”
[198]Thus the supplemental agreement was concluded and binding on the parties before Ms Baturina sought to withdraw her offer. I note that on Ms Baturina’s case, which is at odds with the documentary record, Mr Chistyakov must have signed the document after she had withdrawn her offer, which is not something I accept that he is likely to have done. It may of course be that Ms Baturina was personally unaware of Mr Chistyakov’s counter-signature at the time of her purported withdrawal of her offer: she states that she was unaware of it until receipt of Mr Chistyakov’s letter of response before action in November 2012 (when Mr Chistyakov sent a copy of the document signed by him as well, referring to Ms Strelina’s email of 19th August 2011). But that does not alter the fact that a binding contract was concluded between the parties as set out above.[199]I turn then to the legal effect of the supplemental agreement. It is headed “ADDITIONAL AGREEMENT TO THE PPA ON PROJECT IMPLEMENTATION TRANSACTION OF FEBRUARY 28, 2008”. After a preamble, clause 1 set out the initial loans (defined as “the Convertible”) going on to state :
“2. The Parties jointly understand that the Convertible were given out with the aim of subsequent conversion into a participation interest in Holdco ([Andros Bay]) under the [PPA] in particular : Party 1[Ms Baturina] issued the Convertible as payment for the participation interest corresponding to 65% of the Charter Capital of Holdco. Thus, the Borrower’s obligation to the Lender to repay the Total debt amount on the Convertible shall be terminated in full from the Time of transfer of the title to the interest corresponding to 65% of the Charter Capital of Holdco to the Party 1, while the transfer by Party 1 to Party 2 [Mr Chistyakov] of the participatory interest in HoldCo shall be effected by means of the signing between the Lender and the Borrower of a Release Agreement or some other agreement providing for conversion of the Total debt amount into the 65% participation interest of Party 1 in HoldCo. Party 2 shall not make any payments whatsoever, nor transfer any other property (property rights) to Party 1 due to the termination of the Borrower’s obligations under the above Convertible, and Interest Pledge Agreements and Surety Agreements, indicated in Annex No. 1. The transfer to Party 1 of the 65% interest in the Charter Capital of Holdco, provided for by clause 2, can also be transferred to the affiliated person of Party 1 determined by the same Party 1. 3. The Parties guarantee that, starting from the Time of transfer of title to the interest equal to the 65% participation interest in HoldCo to Party 1, and termination of the obligations under the Convertible under the procedure provided for by clause 2 above, the Parties shall have no financial claims to each pertaining to the fulfillment of the obligations of the Parties provided for by the PPA as to participation of Party 1 in Holdco. After the transfer of the title to the interest and termination of the obligations on the Convertible according to the procedure provided for by clause 2, party 1 shall not lay any other property claims to Party 2 and (or) the Borrower pertaining to the Borrower’s fulfillment of its obligations under the Convertible, as well as Surety Agreements and Interest Pledge Agreements concluded to secure repayment of the Total Debt amount by the Borrower. ”
[200]This did not itself, without more, terminate the initial loans (under clause 2) or release any party from any obligations under those loans. Such matters would flow only upon transfer of the title to the interest corresponding to 65% of Andros Bay’s shareholding to be effective by a release agreement or some other agreement providing for conversion. Clause 3 makes it clear that termination takes place under the procedure in clause 2, not upon the supplemental agreement being signed. The supplemental agreement merely set out how the transactions necessary to transfer the shares and terminate the obligation to repay were to be effected. Those transactions were never executed. Thus the supplemental agreement, albeit binding, does not afford a defence to Ms Baturina’s claims.[201]Finally, had it been relevant, I would have rejected Ms Baturina’s claim to be entitled to rescind the supplemental agreement. As already set out above, her claims in deceit and for breach of fiduciary duty fail. The Subsequent Representation was not made and in any event was not made before Ms Baturina signed the Supplemental Agreement. Further, I would not have accepted that Ms Baturina relied on any representations from Mr Chistyakov made back in 2007/8 (or indeed the extremely vague Subsequent Representation had it been made in August 2010) at the time of signing the supplemental agreement in March 2011, many years (or months) later. Her clear evidence in the witness box was that she signed it because Mr Soloschansky and Mr Edel persuaded her that it was better to have shares in Andros Bay where there were assets registered than to have a loan to an offshore company and she agreed with that. L. Causation and quantum

Background

[202]In its judgment in 2014 ([2014] EWCA Civ 1134) the Court of Appeal commented (at [80]) that it might be possible for Ms Baturina to allege “a particular detriment to her personal financial position” and/or “to contend that at some stage Inteco suffered a loss which affected the value of her shares which, had the deceit not occurred, she would have avoided, and that her purchase of the Loans for full value should not be treated as cancelling out that loss (by making Inteco whole and, thus, restoring the value of the shares) since, in a sense, it was done in mitigation of it.”[203]Since then Ms Baturina has sought to formulate her claim on quantum in varied and multiple overlapping, alternative and confusing ways. This is not to criticise Ms Baturina’s lawyers, who have battled valiantly with the formidable task of attempting to identify and prove for her a coherent case on quantum.[204]Several formulations or alternatives have fallen away, by way of example: a) Any claim to damages by reference to the appreciation in value of the Initial Loans which would have occurred if deployed in Inteco’s business, invested in alternative profitable ventures which were available to Inteco at the time or deposited to earn interest; b) Any claim by reference to Inteco’s value at the date of sale being substantially greater had the Initial Loans not been made, because such sums would have been invested in alternative, profitable ventures and the purchase price which Ms Baturina received for the sale of Inteco would have been greater; c) Any claim to damages by reference to loss of profits as a result of her investment in the Projects.[205]So Ms Baturina’s case on quantum has been very much a moving target. Even in opening, her primary case was one of loss by reference to a diminution in value of her shareholding in Inteco. In closing, however, her claim was by reference to the value of the Volinskaya shares. There is force in the submission for Mr Chistyakov that the Court should proceed with caution in circumstances where Ms Baturina has had such apparent difficulty in formulating any precise claim on quantum.[206]Her claim for damages for breach of contract ultimately centres on a claim for “reliance loss”. Whilst she formally maintains a claim for damages on an expectancy basis, she does not contend that it is in fact the correct measure of loss. She has sought to quantify two possible outcomes of proper contractual performance : a) the repayment of the initial loans with interest in 2010 and b) the bare minimum expected value of a hypothetical investment in Andros Bay (in circumstances where Mr Chistyakov paid his 35% contributions, but no development was carried out of the land plots which that company came to own). Whilst not formally abandoning such claims, Ms Baturina submits that neither seems to be a likely analogue for the proper performance of the PPA. I agree.

The case for Ms Baturina

[207]Ms Baturina’s case as finalised in closing can be summarised as follows. First, it is said that she should have a remedy, consistent with the policy of the courts that the loss of a person who has been wronged should not be pushed into a “black hole”- see for example White v Jones [1995] 2 AC 207 and Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 (at 109-115). Mr Chistyakov’s reliance on what are described as “technical” arguments to defeat recovery would in any circumstances be unattractive, but is particularly so on the facts of this case, because Mr Chistyakov always contemplated that Ms Baturina would fund and own her interest in the Projects whether in the form of the initial loans or equity. The use of corporate vehicles was the norm for individual principals such as Ms Baturina and Mr Chistyakov. Mr Chistyakov knew that Ms Baturina was certain to transfer whatever interest she held in the Projects out of Inteco, very possibly to herself personally. It must have been obvious to him that she would have to pay Inteco to take the initial loans from it. As planned, Ms Baturina first procured that Inteco advanced the initial loans, then she procured the Austrian loans. Subsequently, she transferred the initial loans out from Inteco to herself. She paid Inteco money’s worth in the form of her own asset, her Volinskaya shares, in the sum of the outstanding capital and interest due on the initial loans.[208]Her primary claim, irrespective of which cause of action applies and said to be “entirely conventional”, is to the loss crystallised at the last of those steps: the payment from her personal resources of €89,396,708 in the form of the Volinskaya shares as at 30th June 2011. By the transaction on that date, she crystallised the losses flowing directly from Mr Chistyakov’s breaches, fixing a precise financial detriment in her own pocket. But for his breaches, she would not have caused Inteco to make the initial loans, or taken the assignments of those loans in consideration for the sale of the Volinskaya shares to Inteco. Neither the assignments nor the set-off are a novus actus interveniens, because they only gave effect to what was planned all along. The Volinskaya transaction was the culmination of the re-arrangement by which Ms Baturina was to take ownership of the Projects.[209]In this case it is speculative to quantify the expectation loss, because the counterfactual of proper performance is difficult to identify. Ms Baturina exercises her unfettered choice to claim “reliance loss”. She claims all of her wasted performance expenditure, as crystallised in the Volinskaya transaction, less the recoveries she has made on the initial loans.[210]Although the “reliance loss” claim is Ms Baturina’s primary claim, Ms Baturina maintains an alternative claim for indirect loss, namely the loss that she says she suffered in the form of a diminution in the value of shareholding in Inteco when Inteco made the initial loans.[211]On each occasion it is said that Inteco’s cash balance was depleted by the sum transferred, though its assets were increased by the value of any asset which it received in return. The quantum of depletion was the difference in value of these two items. Ms Baturina suffered a loss equivalent to that depletion. Reliance is placed on Mr Wynn’s evidence to the effect that the incremental effect of a change of a business’ assets on its shareholders can be quantified without valuing the whole business.[212]Ms Baturina’s case is that Inteco’s assets were depleted by this sum because what it received from Sylmord was of “minimal (relative) value”: a) No value should be put on Sylmord’s covenant to repay; b) The Court should assess the position in the light of the facts now known, which make it clear that Sylmord’s covenant was worthless; c) In reality, the only value which Inteco could be said to have received was security over the assets ultimately acquired by Andros Bay and its subsidiaries. These were insufficient to offset Inteco’s advances.[213]That the court should use the best available information is supported by recent authority, including for example DNB Mortgages Ltd v Bullock & Lees (a firm) [2000] PNLR 427 (CA) (at 436D); South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 (at 220); and Phillips and another v Brewin Dolphin Bell Lawrie Ltd [2001] 1 WLR 143 (at [25] to [26]).[214]As for Mr Chistyakov’s contention that Inteco suffered no loss: a) The fact that Inteco did not write down the value of the initial loans at any date prior to the assignments is not a good ground for holding that there was no loss. It is well-established that it is possible for a claimant to suffer loss of a type which constitutes actual damage for the purpose of constituting a tort before he/she is aware of it, as is apparent from for example s. 14A of the Limitation Act 1980; b) The fact that there was no breach of the initial loans by Inteco because Sylmord did not default on its obligations to Inteco is not to the point. The absence of a cause of action does not inform the question of whether or not a loss has in fact occurred.[215]As for Mr Chistyakov’s objections by reference to reflective loss, Ms Baturina’s primary claim is a direct non-reflective loss : a) As a conversion of her existing indirect loss, in the process extinguishing any claim that Inteco might have had or in future have. There is no basis for Mr Chistyakov’s submission that once a loss has been identified as a reflective loss, it cannot be “rescued”. This is something for Mr Chistyakov to make out on the facts – see Shaker v Al-Bedrawi [2003] Ch 350 (at 83) – and he has not done so. The rule against reflective loss does not extinguish a shareholders’ cause of action, but operates as a procedural bar only for as long as the policy considerations which underpin it continue to apply – see Giles v Rhind [2003] Ch 618; Webster v Sandersons Solicitors [2009] PNLR 37 (at 36 onwards) and Kazakhstan Kagazy plc and others v Zhunus and other [2017] 1 WLR 467 (at [37]). There are no policy considerations justifying Ms Baturina now being barred from recovering any of her alleged losses; or b) As a new loss arising at a time when Inteco had no claim.[216]As for Ms Baturina’s alternative claim, the rule against reflective loss is discussed authoritatively in Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 (at 35E-36A) where Lord Bingham set out the following principles:
“(1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss…... (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding….. (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other…..”
[217]Lord Bingham went on to say (at 36B):
“…On the one hand the court must respect the principle of company autonomy, ensure that the company’s creditors are not prejudiced by the action of individual shareholders and ensure that a party does not recover compensation for a loss which another party has suffered. On the other, the court must be astute to ensure that the party who has in fact suffered loss is not arbitrarily denied fair compensation….the object is to ascertain whether the loss claimed appears to be or is one which would be made good if the company had enforced its full rights against the party responsible, and whether (to use the language of Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, 223) the loss claimed is "merely a reflection of the loss suffered by the company". In some cases the answer will be clear, as where the shareholder claims the loss of dividend or a diminution in the value of a shareholding attributable solely to depletion of the company's assets, or a loss unrelated to the business of the company. In other cases, inevitably, a finer judgment will be called for….”
[218]The policy reasons for Lord Bingham’s categorisations are clear : a) The principle behind category 1 respects company autonomy and affirms the rule in Foss v Harbottle [1843] 2 Hare 461. Lord Millett (at 66D-G) also referred to policy considerations motivated by concern to prevent conflicts of interest arising at board level; b) The rationale behind categories 2 and 3 reflects the fact that, where a company has and will have no cause of action to recover a loss, a claim by a shareholder does not engage the considerations underpinning category 1. There is no difficulty in recovery, subject to the normal principles of causation and remoteness.[219]Ms Baturina’s claim for indirect loss has arguably always fallen within Lord Bingham’s second category. But whether or not that be right, certainly now, contends Ms Baturina, her claim does so. Since the assignments of the initial loans, Inteco has had no rights at all, and her cause of action has always and will always be the only extant cause. As already set out above, there is nothing to prevent a previously irrecoverable loss becoming recoverable.

Mr Chistyakov’s position

[220]Mr Chistyakov points to the confused nature of Ms Baturina’s case on loss. She has failed to prove any identifiable and recoverable loss. Even if a legal loss can be identified, it is too remote and cannot be said to flow from any unlawful conduct on the part of Mr Chistyakov. Mr Chistyakov points in general terms to the chronology and the very significant passage of time between the PPA, the assignments of the initial loans and the Volinskaya transaction.[221]As for the direct “reliance loss” claim now made by reference to the Volinskaya transaction, Mr Chistyakov states that he has had no fair opportunity to consider this latest version of the claim for loss. Nevertheless,: a) Neither the amounts paid for the assignment of the initial loans nor the Volinskaya transaction are “wasted expenditure” by Ms Baturina in performance of the PPA. In no sensible way can they be viewed as sums paid under the PPA; they were sums paid under entirely different and separate contracts; b) Ms Baturina’s case entirely confuses reliance loss (that is to say, expenditure incurred,) and expectation damages (which are forward looking); c) It is not correct that either transactions were contemplated at the time of the PPA. The conversion agreement was, but that is separate.[222]In any event, there is ample evidence to show that, on the balance of probabilities, the expenditure made by Inteco in the Projects would not have been recouped.[223]As for the claim made by reference to loss as a shareholder in Inteco: a) As a matter of fact and law, Inteco’s assets were not depleted by €74,817,500 upon the initial loans being made. Mr Wynn agreed that the making of a loan does not amount to a depletion of a person’s assets. As the current assets may decrease, the amount of receivables due to it increase, leading to a “neutral” overall effect. In Mr Knyazev’s view, Inteco was replacing one type of assets with another type. The fact that Sylmord had no other assets did not alter his view that there was no depletion. This is reflected in the fact that Inteco did not write off the loans, but rather assigned them for full value in 2010; b) Authorities such as Nykredit Mortgage Bank plc v Edward Erdmann Group Ltd (No 2) [1997] 1 WLR 1627 (HL) do not assist. They address cases of negligent overvaluation by surveyors and the question of when loss arises to complete the cause of action in tort. In contractual cases between lender and borrower, no cause of action accrues until there has been contractual default; c) Because the assignments here took place before Ms Baturina sold her interest in Inteco, Inteco (and so Ms Baturina’s shareholding) were made whole before there could be any crystallising effect on the value of her shares.[224]In any event, Mr Chistyakov submits that any loss suffered by Ms Baturina is a classic example of irrecoverable reflective loss as identified in Johnson v Gore Wood & Co (supra). It is a claim for a “diminution in the value of a shareholding attributable solely to depletion of the company’s assets”. The fact that Inteco (now) has no cause of action does not entitle Ms Baturina to claim the loss: Inteco did have a cause of action upon which it could have sued. This is a situation where Inteco should be treated as having declined or failed to make good its loss. The exception in Giles v Rhind (supra) has no application to the present facts where there is no pleaded wrong done by Mr Chistyakov against Inteco and where it was not impossible for Inteco to sue under the initial loans (because for example of impecuniosity, as was the case in Giles v Rhind (supra)).

The primary “reliance loss” claim for direct loss : analysis

[225]As set out above, Ms Baturina ultimately claims all of her wasted performance expenditure by reference to the sum crystallised in the Volinskaya transaction. (In oral opening, the claim was made by reference to the monies transferred by Inteco under the initial loans). Alternatively, she claims the sums due from her to Inteco under the assignments of the initial loans. In either case she gives credit for the recovery that she has made on the initial loans.[226]Ms Baturina’s pleaded case on causation and quantum in this regard is unsatisfactory. As was apparent from exchanges on the first day of trial, I did not read the Re-Re-Amended Particulars of Claim as bringing a “reliance loss” claim at all. Paragraph 37(v) of the Re-Re-Amended Particulars of Claim, which is said to contain the claim for “reliance loss” merely cross-refers to the pleaded particulars of loss for the claims in deceit and breach of fiduciary duty. It is right that at the hearing of Ms Baturina’s application to amend before Blair J in June 2015, Ms Baturina had indicated that she was seeking to bring such a claim. Mr Chistyakov was then represented by different counsel and solicitors. His current advisers do not appear to have understood that a “reliance loss” claim was being brought, at least not until Ms Baturina served her written opening.[227]The reliance measure has its modern beginnings in the short judgment of Lord Denning M.R. in Anglia Television Ltd v Reed [1972] 1 Q.B. 60 CA where he stated (at 63-64): “It seems to me that a plaintiff in such a case as this has an election: he can either claim for loss of profits; or for his wasted expenditure. But he must elect between them. He cannot claim both. If he has not suffered any loss of profits - or if he cannot prove what his profits would have been - he can claim in the alternative the expenditure which has been thrown away, that is, wasted, by reason of the breach.” (and see generally Chitty on Contracts at 26-022 to 26-024).[228]It is well-established that the expectation damages are the normal measure of damages for breach of contract : see for example Chitty on Contracts at 26-021. Use of the alternative measure is only necessary and likely to be relied upon in circumstances where the claimant would find it difficult to prove the profit that he/she would have made from a bargain. The measure is said to be used not because it is different in principle from the expectation measure, but because the sums paid in reliance on an unbroken contract, in the hope of making profits thereon, are an easy sum to prove as a measure of their expectation. Reliance losses can only be claimed on a contract that would, at a minimum, have broken even, so that the parties can be expected to have recovered their expenditure. The basic proof gives rise to a rebuttable presumption that the claimant would have at least recovered the sums expended. The onus is then on the defendant to show (on a balance of probabilities) that the claimant would not have in fact recovered those sums: C.C.C Films (London) Ltd v Impact Quadrant Films Ltd [1985] Q.B. 16 at [39] to [42]. In the absence of such proof, the court will assume in the claimant’s favour that he would have recouped all the costs incurred in his performance, and so be willing to award damages to reimburse the claimant.[229]In Kramer on The Law of Contract Damages (Hart Publishing 2014) the author writes:
“§1.3A(iii) ……Traditionally the expectation measure has been contrasted with the ‘reliance’ or tort measure. This is often said to be a separate measure of loss based on the claimant’s expenditure rather than the expectation principle. In truth such thinking is unhelpful. The basic principle is as stated by Parke B in Robinson v Harman. Where but for the breach the claimant would not have entered into a transaction, the claimant can recover all the losses suffered in that transaction (as well as lost profits that would have been made in the alternative transaction). But this is not because any different measure applies to the expectation measure, putting the claimant in the position it would have been in but for the breach… In contract law the claimant cannot recover damages measured by the expenditure incurred in entering into the contract that was breached by the defendant, ie damages to put the claimant in the position as if it had never contracted with the defendant… However, as discussed below, where the position that would have arisen but for the breach is uncertain, the courts may rely on a presumption that the claimant would have broken even, and therefore would have earned the revenue (the expectation measure) equal to the expenditure in the transaction. Such an award is not an award of a reliance measure; rather a conventional expectation award but under which the measurement is assisted by a rebuttable presumption.”
And at § 18.3C:
“…..The reason why expenditure is a useful proxy (for the minimum revenue that would have been earned) is that it is easy to prove. Whereas it may be difficult to prove the total amount of revenue that would have been received – i.e. that a profit would have been recovered and how much it would have been – the claimant will be able to prove the historical fact of how much expenditure it has occurred.”
[230]Neither party chose to engage with me in the debate as to whether the reliance measure allows for claimants to seek restitution “by the back door” in the sense that it allows a claimant to claim the cost of his/her own performance or the price that he/she was due to pay under the terms of the contract without there being a total failure of consideration. In Khan v Malik [2011] EWHC 1319 (Ch) Nugee J (then sitting as a Deputy High Court Judge) considered the issue of reliance loss as follows:
“131. As Mr Haque points out, McGregor deals with the principle of reliance loss under the rubric: “An alternative measure: recovery for expenses rendered futile by the breach”
. The well-known case of Anglia Television v Reed [1972] 1 QB 60 was an example of this: Anglia TV were seeking to recover expenses that they had incurred in putting together the production in question such as director's fees, designer's fees and the like. They were not seeking to recover money paid to Mr Reed for his promised performance. 132. But in a case where the innocent party has paid money under the contract and seeks to recover it, there will either have been a total failure of consideration or not. If there has, there is no difficulty and the money can be recovered; if however there has not, then ex hypothesi the defaulting party has nevertheless provided some part of the contractual performance for which the money was paid, some part of the benefit bargained for under the contract (see Paragraph 123 above). To allow the innocent party to recover the entirety of the money he has paid as wasted expenditure seems to me wrong in principle, as he has received some of the performance that he paid it for. In the present case it would mean that Mr Khan could recover the whole £110,000 from Mr Malik even though Mr Malik had in performance of the contract contributed his own money to the purchase of Elgin Road and Chatsworth Road in a way that must have benefited Mrs Khan by reducing the AIB debt secured on her property, and the Maliks had also given up any claim to recover the £100,000 debt from her. I do not think this would be right in principle.”[231]But, as indicated, this aspect was not pursued before me.[232]Putting all of Mr Chistyakov’s anterior objections to the “reliance loss” claim to one side, the fundamental problem for Ms Baturina on her primary claim is that, whether or not it was foreseeable at the time of the PPA that she would ultimately enter into some sort of assignment, she has not established that she entered the assignments of the initial loans pursuant to the contract. Her loss was not therefore caused by Mr Chistyakov’s breach as a matter of fact. It was rightly accepted for Ms Baturina that this was something for her to establish.[233]The relevant trigger event is Ms Baturina’s taking of the assignments of the initial loans on 29th October 2010. Even if the Volinskaya transaction is the correct moment at which to fix the amount of any damages, that transaction merely reflected the obligations that she undertook under the assignments, which was when her loss was incurred.[234]But either way, I accept the submission for Mr Chistyakov that the sums paid either under the assignments or transferred through the Volinskaya transaction cannot be treated as “wasted expenditure” in performance for the PPA, or paid or transferred under the PPA. It is very clear that Ms Baturina did not rely on Mr Chistyakov’s past or ongoing performance of such obligations as he had under the PPA when entering into the assignments.[235]Ms Baturina addressed the circumstances of entering the assignments in her second witness statement (at [121]) as follows :
“In the months after I left Russia, my business in Russia came under attack. I therefore instructed my Vice Presidents to start to prepare for a process of separating those business interests which I was able to securely retain from Inteco. This included all of my non-Russian business interests. As a part of this process, Inteco’s rights under the Initial Loans were assigned to me for full value by way of agreements dated 29 October 2010….At this stage I had not yet sold Inteco, although it was already clear I would have to do so in due course…”
[236]This makes it clear that the assignments were part of the separation process from Inteco, a process being applied to all of Ms Baturina’s non-Russian interests. That this was the reason behind the assignment was further confirmed by Ms Baturina in cross-examination :
“Q. So by the time we get to August 2010, looking at paragraph 118, your husband's position was becoming somewhat precarious. Is that fair? A. Yes. Q. And indeed you say that the decree requiring your husband to resign was delivered by armoured personnel carriers at a dacha at which you were staying, and then understandably as you say in 119, your family's position in Russia became difficult, and in October you moved to London with your daughters in the light of your profound concerns about the security and safety of your family? A. Yes. Q. And in the subsequent months, as you say, your business in Russia came under attack. A. Yes. Q. And it was those considerations and the risk of your assets being taken from you in Russia that led you to sell your 50 per cent share in Volinskaya to Inteco. A. No, not quite. These thoughts, these considerations, led me to take those assets which are not in Russia to separate them from Inteco and one of those assets was the loan, the Moroccan loan, and in order to be able to take it out, I paid Inteco by the shares in Volinskaya, i.e. that land. Q. Your assets in Russia were at risk of being potentially expropriated, weren't they? A. Moreover, that is exactly what happened as it turns out now. They were expropriated. Q. And that's what in due course led to the setoff agreement in June 2011? A. The agreement, the setoff agreement, between whom and whom? Q. The setoff agreement of 30 June 2011 that we'll come and look at later between you and Inteco. A. Am I right in understanding you that at the moment we're talking about my undertaking the debts of Andros Bay before Inteco and transfer it to Volinskaya? Is that what we're talking about now, just to clarify? Q. Yes. This was all connected with the risk with your assets being under attack in Russia and, as you've told us, they were in fact expropriated subsequently. A. Yes, part of the assets indeed were expropriated by the state through the court procedures later on, yes, indeed.”
Q. Your assets in Russia were at risk of being potentially expropriated, weren't they? Q. And that's what in due course led to the setoff agreement in June 2011?

A. The agreement, the setoff agreement, between whom and whom?

[237]It is correct that (at [124] of Ms Baturina’s second witness statement) she responded to the defence suggestion that she was aware that Mr Chistyakov’s alleged representations were untrue when she entered into the assignments. She said that this was untrue. She referred to the meeting which she alleged took place in Marbella with Mr Chistyakov in August 2010 when she said that she was told that, although there were some problems with the Projects, these were nothing serious, now that the construction permit for the Paradise Golf project had been reissued. She stated that at the time she entered into the assignments, she believed: a) That Mr Chistyakov had provided project financing proportionate to his 35% share in our joint venture, with the exception of that due for July and August 2010; and b) That the Projects could now proceed on the basis that the Paradise Golf construction permit had been reissued and that it would be possible to obtain the necessary permits for the Tetuan Azla development.[238]However,: a) I have found that there was no such meeting or representation by Mr Chistyakov in August 2010; b) Ms Baturina does not state in terms that she would not have entered the assignments had she not held these beliefs. This is striking in circumstances where, in the very next paragraph of her witness statement [125], she states in terms that she would not have made the last two tranches of the Austrian loans in December 2010 and August 2011 had she been aware that Mr Chistyakov’s alleged representations were false and/or of his alleged breaches of contract. Nor does she say that she would only have paid some lesser (unparticularised) amount instead.[239]Yet further, Ms Baturina has not given any evidence or disclosed any documents surrounding the assignments beyond her witness statement and the assignments themselves – for example, in terms of instructions given by her or advice received. The uncontradicted impression is that it was the wider picture that was driving her decision-making at this time, untrammelled by other considerations. Significantly, there is no suggestion that, prior to entering the assignments, she made any enquiries of Mr Edel, Mr Soloschansky or Mr Stepanenko, to check that Mr Chistyakov was duly performing all of his obligations and that all was proceeding with, for example, Paradise Golf. This is wholly inconsistent with Ms Baturina entering into the assignments pursuant to the PPA.[240]The same reasoning would apply to the Volinskaya transaction. By this stage, Ms Baturina was liable to pay Inteco one way or another. As she confirmed in cross-examination, it was the assignments that led to the set-off agreement. Additionally, the transfer of Volinskaya shares was connected with the risk of Ms Baturina’s assets in Russia being expropriated, as she said they ultimately in fact were.[241]For this reason, the “reliance loss” claim for direct loss fails. The alternative “reliance loss” claim for indirect loss - diminution in value of shareholding in Inteco : analysis[242]As is apparent from the above, difficult issues are raised in relation to the alternative claim by reference to questions of reflective loss and, in particular, the question of whether or not it amounts to an impermissible claim falling within category (1) of Lord Bingham’s analysis in Johnson v Gore Wood Co (supra). A striking feature of the facts in this case which attracted little attention before me is that, unlike the position in the authorities referred to, there is here no single defendant for a claim by Ms Baturina and a claim by Inteco. Inteco never had a cause of action against Mr Chistyakov, only against Sylmord; Ms Baturina (pre-assignment) never had a cause of action against Sylmord, only against Mr Chistyakov. The facts of this case do not therefore sit easily within the conceptual principles identified in Johnson v Gore Wood & Co (supra).[243]Putting the legal difficulties relating to reflective loss to one side, however, Ms Baturina’s alternative claim faces fundamental flaws on the facts.[244]First, it proceeds on the basis that Inteco suffered a loss equivalent to the amount of the initial loans at the time of their making. This was the express basis of the evidence of Ms Baturina’s quantum expert, Mr Wynn, upon which he was not asked to comment but simply to adopt.[245]This is an ambitious submission in circumstances where, on Ms Baturina’s own case, there has been substantive recovery on the loans (assigned to her) by her – some €1.6million to date. Even Ms Baturina in her written closing submissions had to accept that what Inteco received from Sylmord was of some value. I do not consider the proposition that Inteco suffered a loss equivalent to the amount of the initial loans at the time of their making to be a well-founded premise.[246]There is force in the submission that what the court is searching for is loss to Inteco as a result of a breach, that is to say relevant loss. Cases such as Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) (supra) and DNB Mortgages Ltd v Bullock & Lees (a firm) (supra) address the very different position where there has been a prior breach viz-a-viz the party said to have suffered the loss. There was no breach viz-a-viz Inteco.[247]But more fundamentally, I do not consider that the evidence establishes that Inteco received nothing at all in return for the initial loans. As both Mr Wynn and Mr Knyazev accepted, the making of a loan does not lead to a depletion of a person’s assets. In fact here, Inteco received full value for the initial loans, and Ms Baturina has made recovery under the assignment of those loans. Additionally, the initial loans were backed by a raft of additional security in the form of pledges and guarantees.[248]Further, even if one were to accept that the initial loans did cause a loss of €74,817,500 to Inteco, I do not accept that that would lead to an equivalent loss in the value of Ms Baturina’s shareholding. Inteco was a huge company and, as Mr Knyazev put it, “a complex business”, with many different and varied interests, holdings and liabilities. Inteco was not a small company of the type under consideration in Johnson v Gore Wood (supra) (see the comments of Lord Millett at 62B). The valuation of any shareholding at any one time in such a company will be affected by multiple different factors: one would have to consider Inteco’s financial position (including its cash balance, working requirements and future cashflow) to assess what value of loss might be transferred to the shareholders. As Mr Knyazev said :
“You could not ignore Inteco’s business”
. He went on to say:
“…the valuation, it’s forward looking exercise, you have to get more information apart from the financial statements, you have to look at prospects of the business, and you have to look at the budget, their plans, their operational structure. In case of Inteco, because it’s a huge business, big conglomerate, developing a lot of sites especially…in developing country like Russia, you have get access to this project information as well…..”
[249]Moreover, the precise chain of Ms Baturina’s shareholding has never been clear. No shareholding certificates (or equivalent) for Inteco have ever been produced. The circumstances surrounding the “collapse” of the Kontinental Fund are opaque at best, but apparently involved back to back contracts with four foreign companies. By reference to documents produced in relation to the sale of Inteco in December 2011, by way of example, it appears that Ms Baturina may then have held her interest in Inteco through multiple companies, including possibly companies known as Aurevo Ltd, Certerra Ltd and Montener Ltd.[250]Without further evidence, I can go no further than accepting the commercially sensible point made forcefully by Mr Knyazev that the depletion book value of Inteco’s assets would not have been reflected 1:1 in diminution in value of Ms Baturina’s shareholding in Inteco. It was “absolutely clear” to him that this was not the case. In this regard, so far as there remained any dispute between the experts, I prefer the evidence of Mr Knyazev. But in fact Mr Wynn fairly accepted in cross-examination that the value of shares reflected not only the book value of a company’s assets but also factors such as the company’s future prospects.[251]In those circumstances, Ms Baturina has failed to make out the quantum of her claim. It is not without relevance that Ms Baturina is seeking very substantial compensation. It is and has always been for her to prove her case. I bear well in mind that the fact that damages are difficult to assess does not disentitle a claimant to compensation for loss resulting from a defendant’s breach of contract. But this is not a case where I have been provided with the tools with which to make any assessment of the level of diminution of value of shareholding, once it is accepted that a 1:1 approach is oversimplistic. This is not a case where I am balancing identified speculative factors, for example, so as to evaluate a loss of profit. I simply do not have the relevant factors and material from which to speculate or make any meaningful evaluation. This is not a case where assessment is difficult for me; it is impossible.

The counterfactual

[252]The above findings are sufficient to dispose of both Ms Baturina’s primary and alternative claims for damages for “reliance loss” on her claim for breach of contract. For the sake of completeness, however, I would have found that Mr Chistyakov had discharged the burden of showing that it is more likely than not that Ms Baturina would have lost her monies in any event. It is right to record that there was no positive pleaded case in his defence or elsewhere in this regard, because of an apparent lack of appreciation on Mr Chistyakov’s side as to the nature of Ms Baturina’s case (of “reliance loss”). Objection was taken on behalf of Ms Baturina that it was too late for Mr Chistyakov now to advance such a case. But there was no serious suggestion from either side that I should adjourn this issue, were it to be relevant, and Mr Chistyakov’s case that the Projects failed for reasons unconnected with any underfunding was always on the table as a matter of fact as part of his case that he had not underfunded the Projects.[253]Neither Mr Soloschansky nor Mr Chistyakov were challenged on their evidence as to the reasons for the failure of the Projects. These included the severe and rapid economic decline shortly after the PPA was executed; the impossibility of securing bank financing (in which Inteco was directly involved); and the fact that the Moroccan government failed to take certain fundamental steps that were necessary to move the projects forward, including key infrastructure. By way of further example, the draft third appendix to the PPA relating to the later abandoned Ouad Lau project, expressly outlined the risks involved, disclaiming liability on either side for any loss consequent upon it. The issues with non-resident ownership of land, the appearance on the land register of multiple unknown claimants, the partial expropriation of land in the public interest, the possible lack of the final product’s competitiveness and “the lack of the general contractor’s experience in large-scale construction projects” were all highlighted.[254]The Projects did in the end undoubtedly fail, despite the full endeavours of Inteco, Mr Krupnov and others, and despite the fact that they were substantively funded. Ms Baturina provided her 65% contribution (and she says more), and there was on any view at least some additional funding from Mr Chistyakov’s side. The question is whether, but for Mr Chistyakov’s breach of clause 3, the Projects would have failed (and the investors lost their money) in any event. On the available evidence, they would probably have done so. The Projects failed because the risks inherent in such complex, risky and speculative investments came to fruition, despite the best endeavours of Inteco, including Mr Stepanenko. The difficulties of land acquisition and development, as set out in the evidence of Ms Essadaoui amongst others, are and were always readily apparent. It is more likely than not that Ms Baturina would have lost her monies in any event.[255]For this additional reason, the “reliance loss” claim (both primary and alternative) would also have failed.[256]These conclusions are not ones that push Ms Baturina into a “legal black hole”. The submission that to deny Ms Baturina a remedy in damages would do so is predicated on her having proved both factual causation and loss in the first place, which she has failed to do. M. Conclusion[257]This has been a protracted, hard fought and expensive battle on both sides. Both Ms Baturina and Mr Chistyakov behaved with dignity and composure throughout the trial, Mr Chistyakov during several days of searching cross-examination. These are two sophisticated parties who chose to engage together in a highly speculative foreign property venture which has not produced the profitable outcome for which they had genuinely hoped. This was an inherent risk from the outset. There is an abundance of evidence before the court to demonstrate the hurdles that lie in the path of such proposed developments.[258]I have not been persuaded that Mr Chistyakov was dishonest as alleged or that Ms Baturina was the victim of foul play at his hands through breach of fiduciary duty. Things may have appeared differently to Ms Baturina at the outset of her complaints, given her relative distance to the index events, coupled with the passage of time. A fuller picture has now emerged, in particular so far as the contemporaneous knowledge and involvement of her representatives are concerned.[259]Although there has never been a proper or full accounting exercise, I have been persuaded that Mr Chistyakov did not fully meet his contractual obligations. But Ms Baturina has not proved that she has a good claim to substantive damages as a result. I was not addressed by either party at trial on the question of nominal damages.[260]Ultimately, and for the reasons set out above, in the main proceedings: a) The claim in deceit fails; b) The claim for breach of fiduciary duty fails; c) The claim for breach of contract succeeds in part; d) Ms Baturina has failed to establish recoverable loss as a result of Mr Chistyakov’s breach of contract.[261]The claim in the protective proceedings for rescission, alternatively damages by reference to the supplemental agreement, also fails.[262]I will invite the parties to agree all consequential matters, including costs, so far as possible. I end by thanking all counsel and solicitors for their courteous and able assistance to the Court. I also commend the work of the simultaneous translators who worked tirelessly throughout the trial and without whose skill the trial could not have proceeded as efficiently as it did.

Cited in 10 later judgments

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