Oral contract - Losses - Credibility of parties
Berezovsky v Abramovich; Berezovsky v Hine and others: QBD (Comm) (Mrs Justice Gloster): 31 August 2012
The claimant commenced proceedings against the defendant concerning Russian oil and aluminium companies.
The basis of the claims were a series of allegations as follows. In August 1995, he and P had entered an oral agreement with the defendant, providing that the claimant and P would acquire a 50% interest in an oil company (Sibneft) and the defendant would acquire the remaining 50% (the 1995 agreement). In 1996, the claimant, P and the defendant had agreed, inter alia, that the defendant would arrange matters so that the defendant or his companies were the legal owner of the Sibneft shares, but the claimant and P would continue to have the rights and interests they had acquired under the 1995 agreement (the 1996 agreement).
Between 1996 and 2000 large sums of money were paid by Sibneft, at the defendant’s direction, to the claimant and P ‘in connection with their interests in Sibneft’. The defendant threatened the claimant with expropriation of his and P’s interest in Sibneft or a friend’s indefinite detention in prison unless the claimant and P sold their interests to the defendant. As a result of the threats, the claimant sold his interest in Sibneft to the defendant at a substantial undervalue.
The claimant sought compensation for the loss suffered as the result of the coerced sale. With respect to the second company (RusAl), it was the claimant’s case that from 1998 or 1999 he, P and the defendant began to acquire assets in the Russian aluminium sector (the pre-merger aluminium assets). The claimant initially contended that under the 1995 agreement, he and P would have a combined ownership interest of 50% and the defendant the other 50% of any future business venture entered into by any of them.
Shortly before trial, the claimant amended his case to plead that a specific oral agreement had allegedly been made in 1999 to apply the terms of the 1995 agreement to the pre-merger aluminium assets and that their contribution to the acquisition of such assets would be paid for from their respective entitlements to their proportionate share of Sibneft’s profits (the 1999 agreement). About 1999, at the defendant’s suggestion, the claimant, P and the defendant entered into merger negotiations with D for the pooling of their aluminium assets.
The final agreement was reached at a meeting in a London hotel (the hotel meeting) to pool their assets in RusAl, and it was agreed that 50% of RusAl would be owned by D and 50% by the claimant, P and the defendant. It was further agreed that they would not sell their shares in RusAl without the agreement of the others. The defendant sold his 25% share in RusAl to D without consulting the claimant or P, or obtaining their consent.
The claimant contended that the defendant’s conduct was in breach of contract, trust and his fiduciary duty, and sought compensation for the loss suffered. The defendant contended the claimant had never been the registered or beneficial owner of any significant number of Sibneft shares. He denied the claimant’s claim to an interest in the pre-merger aluminium assets on the basis that there were no 1995 or 1999 agreements. He further denied that there had been any agreement made at the hotel meeting. The defendant asserted that he alone had purchased the aluminium assets pursuant to the terms of an agreement (the master agreement) and specifically pursuant to 10 individual sale and purchase contracts. He contended that his payments to the claimant concerned a protection, or krysha, arrangement.
The issues were: (i) the credibility of the parties; (ii) whether the 1995 and 1996 agreements concerning Sibneft had been made; (iii) whether the 1995 and 1999 agreements had given the claimant an interest in the pre-merger aluminium assets; (iv) whether the 1995 and 1999 agreements had given the claimant a share in RusAl and provided that the parties could not sell their interest in the merged business without the consent of the others. The application would be dismissed.
(1) On analysis of the entirety of the evidence, the claimant had been an unimpressive and inherently unreliable witness who had regarded truth as a transitory, flexible concept, which could be moulded to suit his instant purposes. Accordingly, he could not be accepted as a reliable and truthful witness. The court found the defendant to be a truthful, and on the whole, reliable witness (see ,  of the judgment).
(2) There was no agreement of the nature and terms alleged to constitute the 1995 agreement, nor was any agreement reached in the terms of the 1996 agreement. There had been no agreement that the claimant (or the claimant and P) would be rewarded for his (or their) role in the creation and privatisation of Sibneft by receiving an interest in Sibneft shares, or an entitlement to require the transfer of Sibneft shares. Further, there had been no agreement that he (or they) would be rewarded by an entitlement to receive payment of 50% (or some other proportionate entitlement) of Sibneft profits and/or those generated by the defendant’s trading companies as a result of his acquisition of control of, or involvement with, Sibneft, to be held jointly with P.
On the contrary, the evidence had established that the arrangement between the parties had been that the defendant would provide payments towards the claimant’s (and subsequently P’s) expenses, generally, in exchange for the claimant’s assistance, protection or krysha, and subsequently that of P (see , ,  of the judgment).
(3) No agreement had been made between the defendant and the claimant either in 1995 or in 1999, with the effect that the claimant would have an interest in the pre-merger aluminium assets. The claimant did not have, or acquire, any interest in any pre-merger aluminium assets prior to the hotel meeting, as a result of any agreement with the defendant. There had been no agreement that any interest in the pre-merger aluminium assets should be paid for out of the claimant’s entitlement to Sibneft or Sibneft related profits, and no contribution had in fact been made by the claimant to the cost of the acquisition.
The defendant’s evidence would be accepted that he alone had purchased the aluminium assets pursuant to the terms of the master agreement and the individual sale and purchase agreements (see ,  of the judgment).
(4) No agreement had been made at the hotel meeting that the claimant and P would have a share in the aluminium business created by the merger of the pre-merger aluminium assets with D’s aluminium interests. There had been no agreement made at the hotel meeting (or indeed at any other time) involving the claimant, that he, P, the defendant and D would pool their assets in the Russian aluminium industry. In particular, no agreement had been made by the defendant or the defendant and D, with the claimant and P that: (i) the defendant would hold 50% of his interest in the merged business on trust for the claimant and P; (ii) none of the parties would sell their interest in RusAl without the prior agreement of the others; or (iii) the defendant would assume fiduciary obligations in relation to the claimant and P. The evidence relating to the issue had supported the conclusion that the relationship between the claimant and the defendant had been based upon a protection, or krysha, type relationship and not on any contractually binding agreement between them.
Further, no agreement to the effect that D, the defendant, the claimant or P would not be entitled to sell their interest in the merged business without the consent of the others had been concluded at the hotel meeting (see , , ,  of the judgment).
Laurence Rabinowitz QC, Richard Gillis QC, Roger Masefield, Simon Colton, Henry Forbes-Smith, Sebastian Isaac, Alexander Milner and Nehali Shah (instructed by Addleshaw Goddard) for the claimant; Jonathan Sumption QC, Helen Davies QC, Daniel Jowell QC, Andrew Henshaw, Richard Eschwege, Edward Harrison and Craig Morrison (instructed by Skadden Arps Slate Meagher & Flom (UK)) for the defendant.