Page 2 of 2 Court casts shadow over Rusal listing
By John Helmer
to suppose that Mr Cherney's claim could be prosecuted with any hope of success
without his giving oral evidence and he will not return there for three
reasons. Firstly, he fears for his life; secondly, he fears that he may be
arrested on what he claims would be trumped up charges; thirdly, he does not
believe that he will get a fair trial. I have, therefore, to consider what
significance if any, should attach to the fact that a trial in Russia will, in
all probability never take place. That must depend on the extent to which any
of Mr Cherney's fears are justified and whether, even if justified, they afford
any reason for having a trial not in Russia but in England.
"I am, as I have said, satisfied that, in this particular case, there
is a significant risk that Mr Cherney will not obtain in Russia a trial
unaffected by improper interference by state actors and that substantial
justice may not be done."
Less than a week after Clarke issued this stinging decision, Deripaska failed
in a bid to put his candidates on the board of directors of Norilsk Nickel, in
pursuit of his fallback option two. This is how Rusal reacted to the defeat
with this ad hominem attack:
Moscow, 8 July 2008 - UC RUSAL, the
world's largest aluminium and alumina producer and 25% shareholder in Norilsk
Nickel, is issuing the following statement in relation to the results of the
first meeting of the new Norilsk Nickel Board of Directors which was held on 7
July 2008. The decisions made at this meeting demonstrate that the Board is
controlled by Interros and does not represent the interests of all
shareholders.
The election of Sergey Batekhin, deputy CEO of
Interros [a Russian private investment company, whose main owners are Vladimir
Potanin and Mikhail Prokhorov], as the CEO of Norilsk Nickel was made without
any search being carried out to establish a shortlist and was not supervised by
a Nomination Committee. Indeed the candidacy of the new CEO was presented by
Interros at the meeting of the Board right after Vladimir Potanin, owner of
Interros, had been elected as the Chairman. Members of the Board were denied
the opportunity to have meetings with the candidate or study his biography and
professional track-record. Mr Batekhin has no meaningful experience in metals
and mining sector and has never served as the CEO of a public company.
Furthermore there was no proper discussion as to why Denis Morozov, the current
CEO who proved to be truly independent, was no longer suitable. It is thus not
surprising that the vote to appoint Mr Batekhin passed by a margin of one
director.
The election of Vladimir Potanin, owner of Interros, as Chairman of the Board,
contradicts the policy of the independent proxy advisory firm ISS, which
supports independent Chairman, and the specific recommendation of another major
proxy advisory firm, Glass Lewis, which specifically recommended that Norilsk
have an independent Board Chairman. Likewise, the UK Combined Code provides for
the election of an independent director as the Chairman of the Board ...
Moreover, we are deeply concerned that Guy de Selliers appears to be the only
truly independent director of the Board. The other two directors - Michael
Levitt and Heinz Schimmelbusch, referred to by Interros as independent, are not
independent. As it has been widely publicly reported in recent days, Michael
Levitt has substantial financial ties to Interros, and ISS identified him as
not independent. The status of Heinz Schimmelbusch as an independent director
is also questionable due to his affiliation with the Interros management and
his support of the decisions, initiated by Interros, to appoint Mr Potanin as
Chairman and an Interros employee as Norilsk CEO. Moreover, Mr. Schimmelbusch
was against the election of Guy de Selliers to chair the Board as an
independent director. In short, Rusal, controlled by
Deripaska, is saying - either you agree with us, and do what we want, or you
are not independent. A move is now expected to call an extraordinary general
meeting of shareholders (EGM) to vote again on the board, with four additional
seats added, according to the resolution of the AGM. The campaign for the
13-member board will last for 90 days.
Independent directors also take the position that their role as independents
precludes public comment on board matters outside the boardroom. Guy de
Selliers has not responded to attempts to ask him questions, and Rusal refuses
to respond to questions. There are uncorroborated reports that Rusal has put
particular pressure on Schimmelbusch to withdraw before the next round of board
voting. In reporting on the contention, the Financial Times was obliged on July
10 to publish a correction of several claims the newspaper had issued,
regarding Schimmelbusch and his corporate affiliations.
Rusal's tactics are not new; and they have not gone unanswered.
Rewind the tape to November 24, 2003, when Justice Jack of the Queens Bench
division of the UK High Court ruled in the case of Tekron Resources Ltd v
Guinea Investment Co Ltd. Because the latter was a wholly owned affiliate of
Rusal, this case was the first open court trial, outside Russia, of the
international business practices of Rusal. The judge also ruled on the veracity
and conduct of three high-ranking Rusal executives - Alexander Bulygin, chief
executive; Andrei Raikov, currently head of Rusal's raw materials group; and
Pavel Ovchinnikov, head of the alumina group.
Justice Jack ruled in favour of Tekron, a small company of consultants in the
Republic of Guinea, where Rusal operates the country's biggest bauxite mines
and only alumina refinery. The judge singled out Bulygin (spelling the name
Boulygine). Charging him with improper attacks on the Tekron consultants, he
concluded: "It is apparent from these matters that under threat of litigation
in London Rusal have done what they can to blacken the names of Tekron and its
principals in Guinea. On the evidence before me, they have not only failed but
have secured indirect evidence that the Government considers that Tekron have
behaved properly in its relations with the government."
Considerable doubt
Jack also singled out Raikov, a senior executive of Rusal, then and now, for
the quality of his testimony to the court. "The last is nonsense," Jack ruled,
"which must throw considerable doubt on the rest." The allegations from the
Rusal side, Jack ruled, "do not readily fit the facts". Regarding testimony
from Ovchinnikov, and the absence of documentary evidence to substantiate it,
the judge ruled: "For these reasons, and the reasons I have set out, I should
place little weight on the relevant passages in the statements."
Rusal lost its case, and was obliged to pay the Tekron claim.
Rusal next appeared in the UK High Court between 2005 and 2007, when it was
party to a suit between the Tajikistan Aluminium Plant, a smelter Rusal
controlled at the time, and a group of its former managers and traders. Charges
of fraud were alleged by both sides, and these have yet to be tested in trial.
However, following hearings, in which the judge was skeptical of Rusal's
veracity, jurisdiction was confirmed for Rusal, but denied for Deripaska and
Bulygin. In April 2007, Rusal then made an out of court settlement to withdraw
from the case. The Tajik smelter followed by suing Rusal in London, and then in
the British Virgin Islands, alleging fraud. The case was dismissed in London on
jurisdictional grounds; it is still pending in BVI.
The full text of the High Court judgement on July 3 is
here.
Currently, the financial implications are being studied by the banks, who must
decide if they put serious constraints on Rusal's and Deripaska's capacity to
borrow fresh funds in its challenge to take control of Norilsk Nickel from the
alliance led by Potanin and his Interros holding.
Judge Clarke also put an unprecedented spotlight on the PR tactics used by
Deripaska and Rusal against his adversaries and business rivals. In his ruling
on evidence regarding the engagement of an English PR firm called Mirepco,
Clarke accepted that a campaign had been arranged to blacken Chernoy's public
reputation in the UK, making it difficult, or impossible, for him to pursue his
court case against Deripaska in London.
According to Clark's recital, "a Project Status Report of 14th September 2007
states, inter alia, that the 'desired end result is to ensure that the
litigation being undertaken in the UK has no detrimental effect on the
impending Initial Public Offering of Rusal in London. Preventing Cherney from
obtaining entry to the UK would obviously assist the case but may not be fatal
to his pursuit of it'." Clarke added: "Mr Stewart [barrister for Deripaska]
told me on instructions that Mr Deripaska never commissioned this report, and
knew nothing about it at all. But no evidence has been filed that offers any
explanation about it or about Mirepco's activities."
The Clarke ruling also acknowledged that reputational attacks have formed a
crucial part of the campaign to prevent Chernoy claiming his stake in Rusal. He
cited a Swiss appeals court ruling this past January, which exonerated Chernoy
of allegations that have stemmed, the Swiss judges said, from whispering
campaigns, not from verified police investigation. Chernoy is suing in an
Israeli court for defamation originating with Deripaska.
According to Clarke in the London court: "I have set out the evidence given in
relation to Mr Cherney's alleged criminality or the lack of it in some detail
because of the reliance that has been sought to be placed on it. I cannot, for
the purposes of this application, begin to determine where the truth lies. Mr
Cherney may be a gangster or the victim of Kompromat [the Russian term for
black propaganda]. Mr Deripaska may be a spreader of calumnies about Mr
Cherney, either true or false. The allegations against Mr Deripaska may be
true. For present purposes it is material to note (a) that Mr Cherney has never
been convicted of any crime anywhere; (b) that the highest Court in Switzerland
has required the Cantonal Court to enter a non suit in relation to the charges
against him; (c) that there is evidence in his favour of want of criminality on
his part from individuals in very senior positions; but (d) that he is
undoubtedly reputed to be a gangster in some of the public press in Russia and
that there is hearsay evidence that this view is taken by some security
personnel."
This is the first time an international court has ruled against Deripaska's
credibility.
Prosecution risk
Clarke also ruled that Deripaska was powerful enough in Russia to influence the
courts against his rivals. "It seems to me that there is a significant
likelihood of Mr Cherney being prosecuted if he returns and a real possibility
that Mr Deripaska might use his influence, or his ability to orchestrate
feeling against Mr Cherney, to encourage the authorities to take that course."
Deripaska has responded publicly, accusing Clarke of improperly insulting the
Russian judicial system. But Clarke's focus was on Deripaska's capacity to
influence the system: "Given the closeness of the link between the Russian
State and Mr Deripaska, the alignment of his interests with those of the State,
and the size and importance of Rusal, it seems to me," Clarke ruled, "that the
Russian State may well regard the question as to who was beneficially entitled
to 20% of Rusal and is beneficially entitled to a 13.2% interest in UCR (even
if the interest is held on trust for sale), as sufficiently important to
justify encouraging the courts to see their way to rejecting Mr Cherney’s
claims, if he were to present them in a Russian Court."
Clarke added: "I am not deciding that a fair trial can never be obtained in the
Russian arbitrazh [Russian term for the commercial court] system. On the
contrary I do not doubt that there are many honest and good judges in the
system at every level, who conscientiously seek to do justice according to the
relevant legal principles and procedures, who are developing the arbitrazh
system to relate to the commerce of the new Russia, and who do so without
improper interference ... I do however regard there as being a significant risk
of improper government interference if Mr Cherney were to bring the present
claims in Russia, where they would be very high profile proceedings indeed,
such that substantial justice may not be done to him if he is required to
proceed there."
The board directors at Norilsk Nickel are already facing what Clarke warned
might happen to Chernoy if he took his case to Moscow. In the three months that
now lie ahead in the battle Rusal is waging for control of the Norilsk Nickel
board, the UK court rulings are likely to play an unprecedented role in
determining the outcome for Russia's most important mining company.
Their echo is already being heard in Hong Kong.
Rusal and Deripaska's spokesman were given, but declined, the opportunity to
comment on a pre-publication draft of this article. On July 21, Justice Clarke
granted Deripaska leave to appeal against his earlier ruling. A statement has
followed from Deripaska's PR agency Portman. "We believe that [Clarke's]
earlier jurisdictional judgment was wrong, as it effectively amounted to an
allegation that the Russian Federation is unable to exercise its sovereignty by
administering justice. We look forward to putting our case to the Appeal Court.
On the substance of Mr Cherney's claims, Mr Deripaska continues to believe that
they are vexatious and utterly without merit. He will continue to defend
himself vigorously against these claims."
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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