In what is shaping up as the most significant case againstthe Russian business oligarchy ever argued in an international court, OlegDeripaska, Russia's richest man, has told the UK High Court, in his defence,that he didn't have a business partnership with Michael Cherney (MikhailChernoy), but he did sign an agreement with him in London, and he did pay himabout $250 million.
Missed by newspapers and wire services, which failed to readthe transcripts and several thousand pages of evidence presented in the HighCourt during two days of hearings on April 30 and May 1, Deripaska's newdefence strategy is the ancient one of the pot calling the kettle black.
Deripaska is claiming that Cherney extorted his signature,plus the payoff, in return for protection. No evidence was presented to substantiatethis claim, except for references to a purported Russian gangster named AntonMalevsky. A parachute enthusiast, Malevsky was killed in a jumping accident in South Africa on November 6, 2001.
Mineweb has verified the cause of Malevsky's death, according to SA PoliceInspector H.J. van Wyk, and an Interpol telecopy from Pretoria: on approaching the landing site,the wind whirled the parachute out of control and caused the landing to befatal.
This was just seven months after Deripaska -- according tohis lawyer's presentation to the High Court -- claims he agreed withCherney, under pressure from Malevsky. Dead men don't tell tales, but inthis case their widows can. Malevsky's wife was reported in the High Courttestimony to have said that Malevsky was Deripaska's friend and associate aswell as Cherney's.
According to the High Court transcript of proceedings forApril 30, Geoffrey Vos QC, acting for Cherney, explained that, regardingMalevsky Deripaska said, 'I know this person only by name, I have seen hisname in the press'. Mr Cherney describes this as a blatant lie and hedoes so because of the evidence; apart from Mr Cherney's own knowledge thatthey were friends, that is Mr Malevsky and Mr Deripaska, because of the I wouldsay uncontradicted and uncontradictable evidence of Mrs Malevskaya, Malevsky'swidow, at tab 34, where she says they were friends, Mr Deripaska let him have ahouse in Moscow, they used to play pool together, they had lunches,dinners and social events and she saw Deripaska only recently at a birthdayparty in Moscow, and he sat down at the table for 20 minutes.
Readers with an interest in knowing exactly how closeDeripaska is to the Malevsky family, may read this:
As Cherney's advocate told Lord Clarke on the bench: Thewhole thing is extraordinary, and demonstrates that Mr Deripaska is not a manwho can easily be believed.
More categorical than Malevsky's windfall, however, is aruling on the evidence issued on January 9, this year, by a three-judge panelof the Federal Supreme Court of Switzerland. This judgement ends a 12-yearprocess of Swiss police, intelligence agency, and prosecutor investigation ofcriminal allegations against Cherney - and it ends with Cherney's exoneration.The link with Malevsky, which Deripaska is now alleging in his case againstCherney in the London court, is dismissed by theappellate panel in Geneva.
The origins of the criminal investigation by the Swiss goback to 1996, when Cherney was accused of being a member of a criminalorganization headed by Malevsky, and known in Moscow as the Izmailovo gang. Then three yearslater, in June 1999, the London based Trans World Metals group,owned by the Reuben brothers, asked the Swiss prosecutor to investigate theircharge that Deripaska, and two associates, Joseph Karam and Walter Niggli, wereengaged in fraud, mismanagement and breach of trust. Rulings by the Swissinvestigators that there was insufficient evidence to proceed with either anarrest or a criminal trial were appealed by the Geneva prosecutor's office, which kept thecase going over the decade.
A settlement between Deripaska and the Trans World group isreported in June of 2005, ending the Reuben claim with a sizeable payoutfrom Deripaska. But Cherney and Karam appealed, claiming they wanted the caseand allegations definitively quashed, and not merely dropped. Exoneration wasthen sought by the appeal to the federal Swiss court, comprising judgesSchneider, Wiprachtiger, and Ferrari.
Their ruling explains that the allegations of criminalityagainst Cherney originated in claims involving Malevsky and Iskander Makhmudov- a Russian copper oligarch - which first appeared in a Swiss police report,dated August 16, 1997. Subsequently, the Swiss judgesruled, the [Geneva] Appeal Court does not appear to have tried toestablish the existence of substantial signs that the group of companiescontrolled by the appellant [Cherney] did in itself constitute a criminalorganisation....
There is no real knowledge of the vague suspicionsmentioned in that document [court ruling of February 2007]. Reference is simplymade there to a previous report by the Federal Police Department, dated 16 August 1997,which does not provide any more specific details, and to future reports theultimate existence of which is unknown.... Referring to a fresh Swiss policereport of August 10, 2000, the judges dismiss its value.That report...cannot therefore, by referring to itself, back up those verysuspicions that are intended to be confirmed.
On such flimsy evidence - which do not provide any tangibleelement of proof to support the allegations made therein - now restsDeripaska's defence against Cherney's London claim for his trust stake in Rusal.According to the Swiss panel, the entire Swiss investigation of Cherneyinferred untenable conclusions [and] succumbed to arbitrariness. The Geneva ruling ends on a note ofvindication. Michael Cherney is successful. The court also awarded him costs.
An implication from the ruling is that, according toevidence reviewed by the Swiss courts and prosecutors regarding an aluminiumtrading company called Bluzwed, Deripaska used Malevsky as a businesspartner.
The full texts of the official French language and Englishtranslation of the Swiss court ruling can be read at:
With the current price of aluminium rising again to the$3,000 threshold, but Deripaska's prime asset United Company Rusal mired inuncertainty, the Cherney challenge is the first transparent due diligenceDeripaska has ever faced. The documents in evidence included lists of companynames; diagrams of cashflow schemes and tax minimization; even expert reportson Deripaska's pen and handwriting.
According to Vos, forCherney, Deripaska became an express and implied or an inferred trustee of 20per cent of Rusal for Cherney; Deripaska then converted the shares that he heldfor Mr Cherney in Rusal to shares in UCR [United Company Rusal], and as weplead, Deripaska therefore held 20 per cent of 66 per cent of UCR on trust forCherney, and that actually makes, if you do the maths, 13.2 per cent of UCRthat he held after March 2007 for Cherney.
Stewart, Deripaska'sadvocate, described the Cherney-Deripaska documents of agreement as ratherstrange. Responding, Justice Clarke said: They are rather strange on anyview, particularly strange on your client's [Deripaska's] explanation,which is that these are all -- your client's explanation as I understand it isthat it's simply a way of paying some protection money -- paying off someprotection money, it has nothing to do with Sibal or Rusal.
Stewart, forDeripaska, then told the judge: My Lord, so there is no mystery about it,my client's case in this respect is that we were never partners. Theallegation, the documents -- you will look in vain throughout the 18 files tosee a single rouble passing from Mr Cherney to Mr Deripaska.
The judge was apparentlyless than convinced: Wait a moment. Just sticking on what we were on, Imade the aside remark that the agreement was very odd from your client's pointof view as well because if this is a payment of protection money, why is itdressed up as a sale of shares which the defendant [Deripaska] didn't own tosomebody who was not bound to buy them?
Deripaska's defence,replied Stewart, is complicated: If it is the case that we are vulnerable toan accusation because we have been paying money to Mr Cherney for a period oftime, and although Mr Cherney can't produce a partnership deed and can't showthat he produced any money, he can produce some various documents showing thatvarious payments have passed through Liechtenstein and other places and we seekto pay him off, it's scarcely surprising in those circumstances that one shouldhave an agreement which looks a little odd.
I would submit, withrespect, that the existence of an odd agreement in those circumstances is farmore consistent with the true position than the existence of an agreement whereapparently there is a genuine partnership between partners but doesn't actuallyrefer to the right bits. I accept proposition that these agreements are odd,butI don't accept that they are any odder on my client's case than on my learnedfriend's case.
After listening to bothlawyers, Lord Clarke noted: Well, something happened. One may be left dealing with which is theleast improbable in order to decide which is much the better of the argumentout of two improbable stories. The Swiss appeals court judgement suggests theanswer.
Whatever the High Courtruling to come in a few weeks' time, Deripaska appears to have already lost akey test of credibility, on which depends the veracity of covenants relating toCherney which he has signed to the European Bank for Reconstruction andDevelopment; and of undertakings he would be obliged to sign, if the FinancialServices Authority (FSA), the London listing regulator, is to find him a fitperson to occupy a director's seat on a London Stock Exchange listed company.Moving a Rusal listing to Hong Kong, which has been intimated by some Rusal officials,compounds the credibility problem, without reinforcing the security of Rusal'sshareholding.
The outcome in London is now so uncertain for Deripaskathat he is reluctant to enter the UK personally to testify; although allhis former partners in the Rusal business - Cherney, Boris Berezovsky, RomanAbramovich - have no comparable qualms. Berezovsky is suing Abramovich inthe High Court for cheating him of a multi-billion dollar stake in the assetsthat were merged into Rusal in 2000.
Whether Deripaska appearsin person or not, Lord Clarke must now pore through the transcripts of lawyers'presentations, and the evidence, to determine whether an arguable case has beenmade that Deripaska made a contract in London on March 10, 2001, with Cherney,and now owes him proceeds amounting to at least $4 billion. The second part ofthe judge's task is to determine whether that contract, negotiated and writtendown in Russian, brings the two into the jurisdiction of UK law, and the UK courts.
The Financial Timesreport of the proceedings mentioned that Deripaska denies any obligation to MrCherney, and then spelled out the criminal allegation. Strangely, though ithad been explicitly referred to in the testimony, the FT's version omittedto report the Swiss court ruling of January 9.
Since then, this claim against Cherney becomes actionable.And so Cherney has issued writs for defamation. These name Deripaska and agroup of alleged associates, and they appear in a court claim, case no 1191/08,dated February 14, in the Tel Aviv court in Israel. Among Deripaska's allegedassociates, most of whom appear to be Israelis of Russian origin, there isAndrei Kalitin. He is a Moscow-based journalist, and author of a book recentlypublished in Russian, called Vremya Ch (Time of Ch[ernoy]).
The allegations in theIsraeli court documents are that Deripaska engaged a group of privatedetectives, PR men, lobbyists, and reporters to blacken Cherney's reputation;undermine his credibility before the UK High Court; and lobby the Israeligovernment to revoke Cherney's citizenship and residency. It is also alleged inthe court claim that the group arranged through Kalitin to penetrate computerfiles of a Cherney aide.
One of the defendants accused, an Israeli private detectivenamed Aviv Mor, admitted in his defence, submitted to the court on April 8,that he had been working for Deripaska. According to Mor's submission to thecourt, as a part [of] his professional and ethical commitment Defendant 5 [Mor]does not disclose the identity of his clients, the targets and the objects ofhis investigations or his work methods. However, since such information hadalready been disclosed during the aforesaid police investigation, the Defendant5 will state that he indeed carried out private investigation for the Defendant1 [Deripaska], although everything was done in compliance with the rules, thelicense and in the framework of law. The police did not prove otherwise and thepolice investigation did not bring any results.
Something strange then followed in Israel. Eight days after Mor signed hisdefence statement, on April 16 he sent a fresh statement to the court, claiminghe had made a mistake, and had not meant to implicate Deripaska. The Defendant5 is hereby honored to inform the Honorable Court that a clerical erroroccurred in clauses 16 and 19 of the Statement of Defense filed on his behalfin the above mentioned case on 08.04.2008. The error is as follows: in anyplace in the above clauses where the Defendant 1 is mentioned, Defendant 3 wasmeant. Defendant 1 is Deripaska; defendant 3 is Avigdor Eskin.
Lord Clarke isexpected to give judgement before the autumn.