Appeal Hearing. Day 2

Tuesday, 3 March 2020
(10.38 am)
Mr Stroilov.
Submissions by MR STROILOV (continued)
MR STROILOV:  Good morning, my Lords.  I must begin today
with a correction and apology for something I said
yesterday.  You will recall I said I can’t recall any
submissions being made to the judge on the issue of the
standard of proof.  I have been proven wrong overnight
by the respondents’ legal team who have provided I think
what is now tab 14 in the supplementary bundle.
you’ve been provided?
MR STROILOV:  I have been provided and the court has been
provided with what is now tab 14 of the supplementary
bundle, which is the transcript of what is actually the
beginning of my oral closing submissions where I start
from that very point.  I do apologise, it was almost
four years ago and I forgot all about it.
Perhaps for completeness, it will help if I briefly
take your Lordships through this.
sure it would help.  We’ve had your submissions now.  If
Mr Lord wants to say you’re saying something
inconsistent or inappropriate, no doubt he will.  You’ve
made your correction and, as far as I’m concerned
anyway, subject to my Lords, I can’t see any point in
spending a lot of time looking at what you said below.
No, Mr Stroilov, you carry on with your submissions.
I did however want to ask you something.  I’ve done
some work overnight on the misdirections that you allege
in relation to the judge and I wanted to give you a list
of paragraph numbers which hopefully you or somebody can
take down, because overnight or at some other suitable
time I’d like you to tell me whether there are any other
paragraphs in the judgment which you allege evidences
the same kind of misdirection.
MR STROILOV:  Yes, my Lord.  That will be of course helpful.
been through your submissions from yesterday and also
the skeleton and so on and my own work, but I just want
to make sure that I haven’t missed out on any
allegations you suggest or any contentions where you
suggest the judge has — or rather the judge’s approach
is reflected in other paragraphs too.  Do you
MR STROILOV:  Yes, my Lord.
paragraphs I’ve got down, I won’t deal with the
contents, are 1634 which is the first major point, 942,
958 to 960, 1044 sub (4) to sub (6), 1111 to 1112, 1124,
1133, 1138, 1140, 1241, 1265, 1346 to 1349, 1366 to 1367
and 1525 sub (5).
MR STROILOV:  Yes, my Lord, I will come back to you on this.
you very much.  If it’s substantial, it might be helpful
for you to do it in writing, particularly if you finish
today, so that Mr Lord can see.  But it would just be
a list of paragraphs with maybe the quotations.
MR STROILOV:  Indeed, my Lord, I don’t see a need for it to
be longer than one page.
page is lovely, Mr Stroilov, that’s the way we like to
have submissions here.  Thank you.
MR STROILOV:  My Lord, it may be I — where I left my
submissions yesterday was I started to take you through
points made in paragraph 17 of my skeleton argument,
namely the facts we say support the inference of
looked at that again overnight, yes.
MR STROILOV:  Perhaps before I come back to this, it may be
helpful if I now take you through the earlier part of
the pleadings which I haven’t taken you through
yesterday, hopefully at a brisk pace, simply to give you
an idea of what our case was, because in this part of my
submissions I will rely on all «versions» of the
conspiracy with different alternative dates.
If we can go to the core bundle at tab 10 and start
at page 500.  You see you have the heading
«Counterclaim» at 499.
LORD JUSTICE PATTEN:  Sorry, which page?
MR STROILOV:  It’s page 500, my Lord.
factual background»?
MR STROILOV:  Yes, well, just above «factual background»
there is an introductory paragraph just identifying the
conspiracy to defraud the appellants of two valuable
businesses.  The factual background is quite
straightforward.  Over the page you have the events of
December 2008 and here for present purposes of course
the court will need to go through these pleadings with
a blue pencil crossing out the bits which are no longer
supported by the judge’s findings.  Things like the
six-months moratorium no longer apply.  But there are
things which nevertheless remain and are consistent with
the judge’s findings so I would like to identify those.
Meetings with Mr Savelyev, the judge found there was
one, and basically paragraphs 114 through to 118 are all
premised on the moratorium and no longer apply.
Starting at paragraph 119, we come to the terms of the
memorandum and the repo agreement and those still apply.
Those are dealt with in paragraphs 120 through to 125
and in fact further in paragraph 126.  Then 127 is
basically premised on the moratorium so that won’t
apply.  Starting at paragraph 129, the onward sale of
Scan shares to subsequent purchasers still applies
despite the fact it’s also a moratorium.  Then starting
at paragraph 133, it deals with the replacement of
management in the two companies, that still applies.
Then through to paragraph 141.
Then you have «Wrongful enforcement of the loans by
the Bank» and that does not apply any more because the
judge found there was no moratorium and there were
guarantees(?).  And then starting at paragraph 150 you
have subsequent dissipation of assets, I have taken you
through this yesterday.
So those are the events we still rely on.  Some of
them have fallen out but not all of them.
Then after the auctions bit, there is a section
starting at page 524, paragraph 165, headed «Persecution
by Russian authorities», then over the page, 525, there
are particulars.  If you scan-read through them, I would
submit that most of them are not inconsistent with the
judge’s findings, so those still apply.  That continues
through to paragraph 172 and then there is pleading as
to various parallel claims which we are not particularly
concerned with.
Then starting at page 531, just under
paragraph 173A, you’ve got the final or the concluding
pleadings as to «Claim for causing harm: The Scheme».
That opens with paragraph 174 over the page which reads:
«It is apparent from the events set out above that
the purpose of the transactions which the
Bank/Mr Savelyev required the Group to undertake (namely
the sale of Western Terminal and Scan) was not to
provide the Bank with temporary additional security, but
instead to allow the Bank and/or the other relevant
persons to seize ownership and control of Western
Terminal and Scan, and/or the assets owned by them,
without paying a full and proper consideration.»
Then we say we would rely on similar fact evidence
but in fact we didn’t.
We then explain at 176 that this gives rise to an
inference of conspiracy.
In 177 we particularise who we say were parties to
the conspiracy and what their roles were.  It’s probably
unnecessary to read anything other than subparagraph (a)
of that paragraph.  The point I’m making is that the
burden of that subparagraph is not contradicted by any
of the findings made by the judge.  I’m simply trying to
emphasise the limited significance of the findings on
the moratorium for the counterclaim as a whole.
So that paragraph goes on for quite a while and
I think that it’s unnecessary to read this in much
detail because you will be aware of all those details
from the judgment.
Then in paragraphs 178, 179 and 179(a), you’ve got
the three alternative versions of the conspiracy but the
thing which is different about these three versions is
the date.  In substance it is the same.
That is the background which I hope will be helpful
in assessing the findings the judge actually made and
what that means for the counterclaim.
the alleged parties to the conspiracy apart from
Mrs Malysheva and Mr Savelyev and the Bank?
MR STROILOV:  My Lord, that is pleaded in paragraph 177 and
the reason — I don’t think there is any — it wouldn’t
necessarily be appropriate and in any event I don’t
think there is any need for us to try and modify this.
The Bank, Mr Savelyev, Mrs Malysheva, other senior
employees of the Bank including Ms Mironova, Mr Balandin
now who is no longer particularly important, he played
no part really in the findings by the Bank, and then
various companies in Renord Group and/or controlled by
Mr Sklyarevsky which are all listed in subparagraphs
(e), (f), (g) and (h) of paragraph 177.  And they sound
like a lot of companies but by now the judge has found
they were under common control so that makes it a little
simpler.  So it is Renord and SKIF effectively.
Then corrupt officials in Russian law enforcement
agencies in St Petersburg and Mrs Matvienko, well, they
are of peripheral importance.  We’ve pleaded that they
are part of the conspiracy but whether or not they were,
that does not change the substance of the counterclaim
very much.
only two parties to the action were the Bank and
Mr Savelyev.  So the counterclaim is only against those
had succeeded, you would only have succeeded in getting
a judgment against those two.
MR STROILOV:  That’s right, my Lord, but that does not
preclude us from pleading a wider conspiracy.  In a way,
this is a procedural incident that we only claim —
counterclaim against the Bank and Mr Savelyev because
they were the ones who brought the claim and if we
sought to add other parties, we would have to get
permission to serve out of jurisdiction, with various
procedural complexities which are difficult for
litigants in person.  So that’s incidental but that does
not affect the claim against these particular two
So, my Lords, may I now come back to paragraph 17 of
my skeleton.  Basically it’s not strictly necessary to
look at it.  If you would like to follow my lengthy
submissions in summary form, this is where you need to
look but I will be simply taking you through the
findings in the judgment.
I think where I left it yesterday, I was still on
the details of the actual repo deal.  The part of the
judgment I would ask you to look at starts at
paragraph 952 of the judgment.
we’re on (b) effectively of your paragraph 17?
MR STROILOV:  We are on (b).
At paragraph 952, the learned judge records his
request for the Bank’s case on what the explanation is
and what they intended to do with any potential surplus
recovery given that they thought they were more than
adequately covered, they were covered probably twice
over or more than that.
In paragraph 954 he records the answer given on
behalf of the claimants, which is basically «We didn’t
think about it but alternatively we would have probably
repaid it».
Then in paragraph 955, the judge comments:
«I have found this difficult to accept; and the
inconsistency and equivocation in the explanations
offered reinforced rather than mitigated my concerns.
Even if (and the evidence was scant) the Bank had little
or no expectation of surplus, notwithstanding the
considerable margin of pledged assets over indebtedness
according to the Lair valuations, I find it difficult to
accept that the Bank simply gave no thought as to where
any surplus would go: there is no suggestion in the
evidence that as at December 2008 or until mid-2009 it
had serious doubts about the Lair valuations, although
it is fair to suppose that the general economic
conditions would have justified the supposition of
material erosion.  I suppose it is possible (as Mr Birt
seemed to me to be suggesting) that its focus on
stymieing manoeuvring by the borrower blinded it to the
true effect of the arrangements: but that seems to me as
a general matter unlikely, and the more so on my
particular view of the Bank and its personnel.»
Then similarly in 956, he rules out, I would read
this as ruling out, he says there is no basis in the
evidence for finding that the Bank intended to repay the
surplus to the appellants.
Then in 957 he says:
«… it was an egregious feature of the repo
arrangements that upon default and the exclusion of the
repurchase right, the value of the businesses would
enure to the purchasers, subject only to an obligation
to apply sums realised for pledged assets in repayment
or reduction of indebtedness.»
And then in 958, however, he says he counterbalances
this by saying, well, this does not necessarily mean
My Lords, to recap on that, he finds the Bank
thought the assets were a lot more valuable than the
total debts.  He rejects the suggestion that they didn’t
think what would happen with the surplus.  He rejects
the suggestion that the Bank intended to repay the
surplus to the appellants, and the only remaining
logical possibility is that the Bank intended to
appropriate the surplus value for itself or for its
associates, Renord, whoever was involved, but that the
surplus would have been appropriated and that was the
intention.  And even though I insist that the right way
to analyse this is to ask this question in the end, but
provisionally at this point I would comment that it is
difficult to see how the conspiracy is not proven at
this stage simply by those findings.
Moving on now to something which I think is not in
my paragraph 17, the events of March 2009, when the Bank
call in a default.  On the judge’s findings, there is no
doubt that the Bank was contractually entitled to call
a default.  There was no moratorium he found, at least
no binding moratorium.  That means that the repayment
date was on 5 March 2009, but of course in the context
of an alleged fraud, that is not the end of the matter.
You have to look at the Bank’s reason for making this
decision.  After all, this is a choice the banks make
very often, to extend time or to call a default, that’s
the routine of their life.  Indeed in one sense, when
the deadline comes and the borrower cannot pay, the
routine response from the Bank is to give them a little
more time.  Calling a default is a rather dramatic
decision, and what the judge had to focus on are the
Bank’s reasons for that decision and whether the reasons
were honest or dishonest.
In that sense, it’s important background that early
March 2009 was the first opportunity after the repo
agreement in late December 2009.  This was the first
opportunity for the Bank to call a default.  That was
the first — that was where, in March 2009, maturity
dates came for a number of big loans.  Prior to that it
was only interest.  So to that extent, the fact that the
Bank called a default at the first opportunity is
consistent with our case that the intention was to steal
the assets.
The judge’s analysis —
LORD JUSTICE PATTEN:  But can I just be clear, Mr Stroilov?
I’m looking at your paragraph 17.  (a) — I know we
haven’t got to those paragraphs but I think your
argument on this is essentially that all these points
you’re now making about why did they call it in at the
first available opportunity have to be looked at against
the background that the Bank throughout this period,
until much later in 2009, believed that it was fully
MR STROILOV:  Precisely, my Lord.  More than fully secured.
It was a unique situation in that they believed, on the
basis of valuations they had, that the assets were
significantly more valuable than the loans.  So if the
intention was, well, this is a good opportunity for us
to forget about the debts and we’ll just take the
assets, well, in my submission, that’s dishonest and
that is the end of the matter.
The judge’s analysis of the reasons for the Bank’s
decision to call a default starts at paragraph 1010.
There is some interesting discussion prior to that of
the evidence about decisions of various committees.
I don’t propose to take you through this in detail,
I think simply to remind you the point is there were two
lower-level committees which recommended to give an
extension, but then the management board of the Bank
overruled them and decided to call a default.
Then the analysis of reasons starts really at
paragraph 1010 at page 257.  In 1010 the judge once
again emphasises that the bank — at that point in time,
there is no evidence that the Bank doubted the Lair
valuations.  Now, then there are comments on that.
In 1011 you can see it recorded:
«Mr Stroilov put questions to this effect to
Mr Savelyev.  Mr Savelyev’s answers were an unsettling
mixture of condescension and evasiveness.  His main
theme, so far as discernible, appeared to me to be that
although the Bank did indeed have no reason to doubt the
Lair valuations, either at the dates of loans, or at the
date of the repo arrangements, or at the date of the
refusal to extend the PetroLes and Vyborg Shipping
loans, since those valuations subsequently turned out to
be wrong (on the Bank’s case) the Bank had been
justified in taking the steps it did.
«This will not do.»
And then the judge explains why this will not do.
Then in 1013:
«Coupling this evasiveness to the virtually complete
absence of any documentary evidence to explain the
Bank’s thought process in calling a default in
March 2009…»
Then he records the case I put to Mr Savelyev in
cross-examination.  Then there are comments on that at
1014.  Then at 1015, he once again emphasises:
«But there is a real difference between, on the one
hand, a detectable shiftiness as to whether the Bank
ever really had the borrower’s interests in mind or
simply had lost confidence and wanted out, without
regard to the consequences for the borrower, or even
other potential strategies, and on the other hand, proof
of a dishonest intention to effect a ‘raid’.»
Then the conclusion in paragraph 1016:
«In my judgment, there is every sign that by
March 2009 the Claimants had determined to act in their
own interests, without any real consideration as to the
possibility of being able to assist the OMG companies to
trade through and overcome their difficulties, and safe
in the knowledge (as it then seemed) of well-adequate
If you can just read through to the end of
paragraph 1016.  Then perhaps paragraph 1017, my Lords,
where he criticises me.
seems to be somewhat inconsistent with 1010 to 1015.
I mean, is that what you say?
MR STROILOV:  It is inconsistent and it seems that the judge
was not very clear about the question he had to ask
himself.  Because of course I — well, I shouldn’t say
«of course» but I did not suggest such a thing.  I did
not suggest the Bank had to look after the borrower.
All I said and all I say now is that the Bank was
obliged to act honestly.  So if, as the judge says — so
the judge’s discussion in 1015 and 1016 rather avoids
the real question.  If the Bank lost confidence and
wanted out of the arrangements and by the way wanted out
of the arrangements together with the assets which did
not belong to it, they wanted to walk away and take the
appellants’ assets with them, well, that is dishonest.
That is the conspiracy we alleged.  The fact that they
may have had good reasons or understandable reasons to
stop work and business with Arkhangelsky and rather to
walk away with his assets is irrelevant.  The motive for
dishonesty is not relevant.  What is relevant is honesty
or dishonesty.
There is, if I may put it this way, a parallel
analysis of the same events in different context, rather
in the context of going through the facts for the first
time starting at paragraph 419.  If you can look at this
briefly for completeness.  It’s page 118.  So in 419 he
records my question to Ms Volodina who was one of the
members of the management board.  I put to her the
allegation that Mr Savelyev and Mrs Malysheva intended
to appropriate the assets.  She answered interestingly:
«I don’t have information in this matter, and it’s
unlikely that Mr Savelyev could have made such
a decision…».
So it’s not even a denial, even though she was
a member of the management board.  She says «I don’t
know about this, in my opinion that’s unlikely».
Then it is recorded at 420 that I put the same
question to Mr Savelyev and then his denial.  Then you
will see the judge, in my submission correctly, notes
«The reference to ‘toxic assets’ [in Mr Savelyev’s
answer] is intriguing…»
Because as he says they aren’t considered toxic at
the time.  Then he says in 421, at the end:
«To my mind, that reference smacks, at best, of
Then, well, his bottom line is in paragraph 423
where he says:
«… I gained the impression that the Management
Board did have a rather different perspective and agenda
than had the MKK and the BKK [those are the two
committees that recommend an extension]: the one was
looking for reasons to work a cross-default, the others
did not wish to precipitate anything so major.»
So, my Lords, there is a finding that the management
board was looking for reasons to work a cross-default
and that is consistent with our case on conspiracy,
given his findings on Lair valuations and what the Bank
thought at the time.
I now move on to my subparagraph 17(c) concerning
the replacement of management in Western Terminal and
Scan.  The judge deals with this starting at
paragraph 511 at page 135.  At 511 he records the Bank’s
case that the reason why the Bank decided to replace the
management in the two companies was that Mr Arkhangelsky
took out a loan in another Bank on Western Terminal
under the management of Mr Arkhangelsky and — well,
under the management of Mr Vinarsky, I beg your pardon,
under the ultimate control of Mr Arkhangelsky, took out
a loan in another Bank.  He records that they rely on
this as the reason for a number of decisions.
At 5 — he also records the fact that we disagree
and at 512 he records that this dispute:
«… bears both on the credibility of the Bank’s
witnesses (and especially Mr Sklyarevsky) [and] the
reasons for the transfers to the Subsequent Purchasers,
and the real objectives of changing the management of
Scan and Western Terminal…»
Then at 513 he records Mr Sklyarevsky’s evidence
that «both decisions were taken in early April in
response to the Morskoy Bank loan».  When he refers to
«both decisions», he refers to the decisions to replace
the management in the two companies and the decision to
transfer the Scan shares to subsequent purchasers.
Then at 514, the judge resolves the dispute as to
the date of the decision:
«The date on which Sevzapalians [that’s a Renord
company now controlling Western Terminal] first
determined to set in motion the process for the removal
of the then Directors-General in Western Terminal and
Scan is of some importance… but the evidence is really
all one way, and the date revealed is 10 March 2009.»
It is most important here to emphasise that 10 March
is five days after the first default of the first
company in Oslo Marine Group.  The other companies are
not even in default at this stage, it’s only one
company, PetroLes, on a relatively small loan.  This is
before any notices to demand repayment of OMG loans have
even been sent out.  That’s before any court
proceedings, well before any legal moves from the
appellants’ side that the Bank moved to take the steps
and that is of considerable forensic importance.
Then there is some — at 516 he reiterates his
conclusion that this had nothing to do with the
Morskoy Bank loan because the dates don’t match.  Then
at paragraph 519, the judge makes another important
finding as to what was the understanding of
Mr Arkhangelsky at the time.  He finds that on the basis
of those events, in the last sentence of paragraph 519,
he finds:
«I accept that it was his perception that the steps
taken to remove both him and Mr Vinarsky were all part,
and lurid examples, of the same ‘raiding’ tactics.»
So in paragraph 519 he finds that Mr Arkhangelsky
genuinely thought that there was a raid.  That is
a factual finding of the judge.  That’s important in
later context to see — to shed some light on the steps
he has taken, but also — well, what is missing from
here is, well, if the appellants thought it was a raid
on the basis of those facts, well, what does the learned
judge think and why does he — what was the mistake of
the appellants in thinking there was a raid?
Then in paragraph 521, he finds or reiterates his
finding once again that this decision was part of the
overall strategy to take control of all the OMG assets,
and it was not the Morskoy Bank loan.
My Lords, apart from the excuse which the learned
judge has positively found to have been false, no
innocent explanation for this decision has been offered.
It is of course consistent with our case on conspiracy
and that’s what we relied on.
Turning to the transfer of shares to subsequent
purchasers, I have taken you earlier to paragraph —
MR STROILOV:  That’s 17(d), my Lord.
sorry to tell you I’m going to have to rise for a few
seconds.  Unfortunately we have a new computer system
here which closes down unless you give it an
authentication code and, unfortunately, the
authentication code comes through on your mobile phone
which I need to go and get, otherwise I can’t continue
accessing ejudiciary.  So just two minutes if you don’t
(11.20 am)
(A short break)
(11.25 am)
for that, Mr Stroilov.
MR STROILOV:  My Lord, that’s quite all right.
MR STROILOV:  17(d).  Unfortunately there isn’t much in
terms of analysis of the reasons for that specific
event.  I think I had taken you earlier to the passages
which indicate that the reason is likely to have been
the same as for the replacement of management.  In
relation to the transfer of shares specifically, all he
says in paragraph — the discussion starts at
paragraph 1019 on page 259, 1019 to 1025.  Then he
records in paragraph 1021 the respondents’ evidence —
the evidence of Mr Sklyarevsky:
«The transfer of the shares… was an attempt to
make it more difficult for Mr Arkhangelsky to unwind the
Then they suggested that Mr Zelyenov didn’t want to
be involved anymore.  Then Mr Smirnov’s evidence is
recorded, then what I put to Mr Sklyarevsky.  Then he
«Whilst the explanation is neither very clear nor
entirely compelling…»
His comment, in 1025, that the transfer shows the:
«… influence of Mrs Malysheva and Mr Sklyarevsky
and their determination to bring all the Bank’s planning
under their control.  The transfers directed by them
also confirm the direct control of the Bank over the
Renord companies concerned.»
But there is no actual general analysis of why the
transfers were necessary.  I suggest that taken together
with paragraphs 512, where he records that the issue of
Morskoy Bank bears on that, and then further on the
evidence was that the decisions were for the same
reason.  Then also consistently with the evidence of
Mr Sklyarevsky recorded at 1021, that basically these
findings should be read as meaning that the reason for
the transfer and for the replacement of management were
the same and they were to bring the companies and assets
under the Bank’s control or rather to fortify the
control more strongly against any potential challenge.
Of course that is entirely consistent with our case on
conspiracy.  We have no quarrel with that.
The next point I make in the skeleton at 17(e) is
more of a forensic point but which was explored at the
trial in some detail, namely that is to say the
appellants’ case was that Mr Arkhangelsky kept trying in
that period to meet with Mr Savelyev and talk with him
about what’s happening and try to sort this out.
Mr Savelyev evaded him.  Whereas the Bank’s case was the
reverse, that it was impossible to get hold of
Mr Arkhangelsky and discuss with him how he would repay
his debts.
In the judgment, the discussion of that starts at
paragraph 492 at page 131.  There he sets out the
competing evidence about Mr Sklyarevsky’s alleged
efforts to contact Mr Arkhangelsky and then at
paragraph 498 he records the dispute about why no
meeting between Mr Arkhangelsky and Mr Savelyev took
place.  There is some record of the evidence in 498, 499
and then 500 and 501 shows you how the evidence
Then he kind of leaves this issue for the time being
and comes back to it in paragraph 1036.
So you see that he records our case in
paragraph 1036, what we’ve said about those matters.
And his comment in that paragraph is — he records that
when letters from Dr Arkhangelsky were put to
Mr Savelyev for cross-examination, Mr Savelyev was
constrained to accept those letters did appear to make
clear that Dr Arkhangelsky had repeatedly sought
a meeting.
«Mr Savelyev’s later evidence that he had not seen
the letters and would have left such matters to deputies
did not carry conviction, in my view.»
Then finally, my punchline was, well, Mr Savelyev,
that was because you were in the process of committing
a fraud against him, and he denies it.
The finding of the learned judge at paragraph 1037
«… Mr Savelyev and his managers did avoid having
a meeting; and it is clear that the Bank (through
Mrs Malysheva, her team and Mr Savelyev) had no wish to
negotiate with Dr Arkhangelsky.»
Then there is an assessment in 1038 of what this
means for the conspiracy.  But at any rate the finding
of fact is that it was the Bank who avoided the meeting
and then was not particularly frank about this in its
In my submission, this is a point of some
considerable significance because basically you’ve got
a situation which is not uncommon in cases of alleged
fraud.  You’ve got two parties working together for some
time and then the relationship breaks down, they walk
different directions, then both accuse each other of
walking away with the other party’s assets, in our case,
or money in their case.  In this situation, you would
expect the innocent party to run after the other party
and exclaiming, «Come on, wait a second, wait a second,
you’ve got my assets, you’ve got my money, how are we
going to sort this out?» and then the fraudster would be
evading the meeting.  That is, in my submission, quite
a typical pattern in situations of this kind in life.
Of course there is another possibility and the
Bank’s witnesses could have said that, well, we had by
this time come to the conclusion that Mr Arkhangelsky is
completely untrustworthy and there is no point in having
a meeting with him because all that would result on, he
would later claim that we agreed to give him another
moratorium or something and it’s better to stay away
from him.  They could have said that.  But the fact is
they did not.  They lied, said they wanted to talk to
him and he didn’t want to talk to them and the
conclusion, in terms of drawing inferences from
findings, in my submission, the likeliest conclusion is
that they lied because they appreciated that this kind
of behaviour is typical of a fraudster.
I turn now to subparagraphs (f) and (g) of my
skeleton argument, of paragraph 17 in my skeleton
argument.  You will see the quotation there — well, it
is perhaps helpful to put it in context so if I can ask
you to look at paragraph 566.  Basically in 566 he says
the context which explains that this was:
«… in the context of OMG’s proceedings in the
Russian courts … [on the Bank’s case], in which for
a time OMG appeared to be successful, that the Bank
considered again how best to protect its security
interests in the OMG assets.»
Then Mr Sklyarevsky’s evidence and then there is his
finding in paragraphs 567 and 568, basically firstly to
the effect that the Bank was determined, starting at
least from the summer of 2009, to:
«… take any steps available to them, deploying
such state connections as they could call on, to make
quite sure that Dr Arkhangelsky’s exclusion from OMG and
the Bank’s means of appropriating its assets could not
be undone.»
Then he rejects in paragraph 568 the Bank’s protests
that it acted only within the law.  He finds they
included actions of an intimidating kind.
Then of course from that he moves on to discuss the
riot police seizure of the physical Western Terminal.
I think it’s worthwhile to look through those few
paragraphs.  He explains that there is video footage.
In paragraph 571 he records that:
«… the Claimants sought to justify the
And dismissing our complaints as melodramatic.  His
comment is:
«Both justification and characterisation were glibly
stated and I did not find them convincing.»
Then at paragraph 572, if you can just read 572.
May I ask you to read through 572, 573 and 574.
My Lords, that deals with my skeleton
paragraph 17(f) and 17(g).  Now paragraph 17(i), the
Gunard Lease.  You will see that without really — you
don’t need to go very far, he deals with it under the
heading «Other legal manoeuvres» starting at
paragraph 575.  There is an introduction there and then
you have a particular — well, description of the
details of the Gunard Lease at paragraph 579.  He
«Its terms were plainly uncommercial: US$20,000 rent
per month, with the entire rent payable at the end of
the term (49 years, later reduced to 30 years on
Renord-Invest’s request…).  The time would begin to
run after the state registration of the lease, which
apparently never took place.  Gunard was entitled to
take control of the assets three days after the lease
agreement was signed…»
He obviously accepts that these provisions were
extraordinary and he records our comments on that at
If we can now — as he indicates, he returns to this
at 1050, and this is where I invite your Lordships to
go.  Paragraph 1050.  Starting at 1050 through to 1054
he records what various witnesses said about this and
there were different explanations offered.  The most
consistent of them, collaborated by several witnesses,
seems to be that the Bank — there was another means of
protecting the assets, as they put it, in case the
appellants won in the Russian courts and the repo would
be invalidated.
You can see at paragraph 1053 the record of the
evidence of Mr Guz:
«Q: So that was for the further protection of the
pledge —
«A: Yes.
«Q: — from any possible action taken by OMG or
Mr Arkhangelsky in Russian courts; is that what you’re
«A:  By them or by other creditors, because Bank of
St Petersburg was not the only one creditor of
Mr Arkhangelsky.»
Then at 1054, Mrs Volodina conveys hearsay evidence
that Mrs Malysheva said that the transaction was carried
out in order to protect the asset.  And it also I think
is suggested that Mrs Volodina for her part was
originally worried about this uncommercial transaction
but Mrs Malysheva explained to her what the purpose was.
Then at 1056, similarly Mr Sklyarevsky’s evidence,
the intention was to protect the asset.  And then over
the page at 1057, specifically on Gunard Lease:
«… Mr Sklyarevsky sought to explain the rationale
as follows.»
And then if I may ask you to read through this
quotation from the evidence of Mr Sklyarevsky.
MR STROILOV:   1057.
Then, my Lords, there are very short paragraphs.
«Ms Mironova said the purpose was to protect the
assets from a possible claim by Morskoy Bank; but agreed
that Mr Sklyarevsky’s explanation might be another
The judge’s comment is:
«… none of this can either excuse or disguise the
extraordinarily disadvantageous nature of the Gunard
Lease… nor its obvious adaptability and effect…»
My Lords, pausing here, to say none of this can
either excuse or disguise the extraordinary nature of
the lease is putting it rather mildly.  What is
extraordinary here is that you’ve got a number of
witnesses telling the court, practically in so many
words, that basically what we’ve created is a sham
transaction between ostensibly independent companies in
order to protect the asset against Russian court’s
judgment against us because we thought we were going to
lose, or potentially from a claim by another creditor of
Mr Arkhangelsky.  So we were just removing the assets
from within the reach of the Russian court.
Well, what about the honesty of such an action?  And
the extraordinary fact is that these witnesses did not
seem to regard this kind of behaviour as reprehensible.
Their logic seems to be, well, it’s war and all is fair
in love and war.  With the greatest respect, while
I don’t really see the learned judge —
suppose your point is that what’s the point of engaging
in such an action if it’s not to support unlawful
activity because you are actually — the judge has found
that you’re doing something that is completely
commercially unjustifiable.
it’s commercially unjustifiable, what other action can
there be other than that it’s to further a dishonest
MR STROILOV:  Quite, my Lord.  And of course the point made
later that it was not actually deployed in the end to
reduce the price of the assets, well, that is a valid
point as far as it goes but nonetheless what does this
behaviour tell you about the claimants’ intentions and
honesty at the time?
your point is they lied about it and the judge found
they lied about it?
MR STROILOV:  No, I don’t think so.  That’s not quite so.
They told the truth.  They said, no, we — in substance,
what these witnesses are saying, well, we had to
fabricate this transaction to protect the assets from
a decision of the court and that to say this does not
quite excuse it is a bit of an understatement in my
Then some of the findings the learned judge makes on
the substance of the purpose of Gunard Lease are firstly
in paragraph 1061, where he says — where he agrees with
us that:
«… the terms are … so extreme as to be likely
entirely to destroy the value of the pledged asset to
third parties for so long as they were in place and
enforceable.  Only to those with the ability to
discharge or dissolve the terms of the lease or the
lease itself would the pledged asset realistically have
any value.»
Then at 1064 and 1065, there are some conclusions
about the pattern and intentions which he draws from
that lease.
An important point in paragraph 1065, it’s not
simply a reiteration of what he found earlier:
«… there seems to be little doubt that
Mrs Malysheva… in combination with Mr Smirnov … and
Mr Sklyarevsky … were concerned and took all necessary
steps to ensure that the assets within Western Terminal
and Scan, whether pledged or not, should be insulated or
put beyond the reach not only of Dr Arkhangelsky and
OMGP but also of any creditors… which might seek to
enforce against them.»
Once again I stop and ask rhetorically, how is that
honest?  All right, the purpose of repo was originally
to protect the pledges, so you say, but now the
intention on the judge’s findings is also to protect and
pledge the assets and the questions are on what basis
and what is the intent to do this then?  Of course
that’s completely consistent with the conspiracy and the
raid and I would submit not quite consistent with the
Bank’s case.  They were simply protecting their
Then for completeness, I think in paragraph 1066
there is a reference to further analysis of Gunard
Lease, starting at paragraph 1316, and I propose to
follow that.  That is obviously the discussion in the
context of discussion of auctions and whether the value
was reduced by artificial encumbrances on assets.
I think there is a reference at 1319 and discussion at
1320 of some documentary evidence which is basically
that there is note somewhere in the Bank’s papers
suggesting that they were aware that this encumbrance
will of course reduce the value.
Then it is described as a «risk» and they submitted
that it «betrays or confirms an intention to introduce
it and benefit from it».  He rejects it.
Then at 1321 he says, well, in the end it was not
deployed.  1321, 1322.
At 1322 he also mentions the possibility that the
lease was:
«… put in place and held in abeyance in case it
was needed to depress demand and reduce the market value
of the assets, and simply never was so: but I do not
think the evidence or inference is sufficient to warrant
such a finding.»
However, as I said before, this is only part of the
analysis on any view.  What does this lease tell you
about the intentions of the Bank and then how does it
affect the interpretations of the Bank’s other actions
in 2009 or later?  I’m not sure it is mentioned in my —
well, I think it connects to my paragraph 17(j).  You
see the quotation I give there from paragraph 1064.
I think we’ve actually just looked at it so I don’t
propose to look at the context.
There are similar questions in relation to another
abortive transaction proposed at that time which is
recorded at paragraph 1048 of the judgment.  Well, it
starts at 1045.  You see the heading «Mrs Malysheva’s
extraordinary proposals …» and so on.  You see that in
there the Gunard Lease was not quite an odd man out.
There were several proposals.  One was a proposal in
June 2009, I’m reading from paragraph 1046:
«(a) a proposal in June 2009 … apparently never
actioned to transfer, subject to the Bank’s pledge, the
pledged assets of Western Terminal to SKIF…»
Then at 1048, he records our case:
«They also sought to rely on the fact that the
relevant Management Board resolutions were not disclosed
until an order for specific disclosure was made in
September 2015; and that the record of the decision
relating to the transfer of Western Terminal assets to
SKIF was sought to be deleted by the substitution by
Ms Blinova of many dozens of documents — the entire
sequence of Investrbank’s weekly ‘bad debt reports’ —
solely to delete the one entry referring to that
I hope this paragraph records clearly what happened
because it was quite an interesting moment during the
trial.  So you’ve got a chronological sequence of
reports produced weekly, each recording the chronology
of what happened in relation to a particular debt.  This
way they accumulate and then they ask you what they need
for doing(?) this one is dozens of reports.
Then in different places of disclosure we discover
duplicates of all those reports with — and when you put
together a sequence, there is one difference, one entry
in one of the versions in each report one entry is
missing, the decision of the management board to approve
this deal, and both versions are signed by the same
person.  And I have her in the witness box and
cross-examined her on that and at first she says
«I don’t remember why this happened» and later she says
«Well, I think I recall I’ve been instructed by
Ms Mironova’s department there has been a mistake and
I must substitute the whole sequence of the reports and
I don’t know why».
Then later on I asked Ms Mironova about that, she
claims not to remember anything about that.  But that
suggests something very extraordinary and a very uneasy
attitude to this particular proposed transaction.
My Lords, my paragraph 17(h) deals with the false
evidence in Morskoy Bank criminal case.  I, subject to
any indication from the court, I believe I’ve dealt with
this sufficiently yesterday.
MR STROILOV:  You know what the findings were and you know
what inferences I sought from that.
Then another big issue at the trial and an important
one is the findings made in relation to what Renord is
and the connections between Renord-Invest and the Bank.
These are my subparagraphs (l), (m), (n) and (o) in my
paragraph 17.  I think I will deal with them together
because it probably makes sense to take you through
various findings about Renord in different parts of the
judgment.  I propose to start at paragraph 459, which is
basically — if you very quickly look at the preceding
section starting at paragraph 451, you see that a number
of individuals involved both on the Bank’s side and on
Renord’s side and also Mr Sklyarevsky, they all knew
each other from a long history.  There was a company
called AVK and they all came from there.  There were
some allegations of corruption in connection with that
and — which the learned judge did not find convincing,
which is fair enough.
However, the interesting finding that appears at the
end of paragraph 458 and then in paragraph 459, he finds
«… the association between Mrs Malysheva [this is
the person in charge of dealing with this default on
behalf of the Bank and these repos as well], Mr Smirnov
[the director of Renord], Mr Sklyarevsky [in control of
SKIF] and Mrs Yatvetsky [that was the witness from
Renord who came from the trial] was and (it seems)
remains exceptionally close…»
Then he says:
«These interests and association may not signify
anything untoward… but they do seem to me to invite
enquiry, not least because as matters developed conflict
of interest opened up between the Bank as Banker on the
one hand and, on the other hand, Renord-Invest Group and
those beneficially interested in the companies within
that group.  Put another way, events as they developed
demonstrate a community of interest between the old
friends from their days at AVK separate from, and in the
end inconsistent with, the interests of the Bank in its
role as lender obliged to seek to recover as much as
possible from pledged assets in order to apply as much
as possible in diminution of loans it had made.»
You see then some discussion of details of
connection between those people and companies, various
companies at paragraphs 460 to 466.  Then there is once
again — well, you will see that at 465, you see
«… Mr Sklyarevsky and Mr Smirnov, and also
Mr Savelyev and Mrs Malysheva, rejected any suggestion
that SKIF, Renord-Invest and the Bank and its associated
companies… were in effect run together as constituent
elements of a single business, ultimately beneficially
owned by Mr Savelyev and his ‘loyal friends’.
«I did not find their denials persuasive.  I return
to the issue later.»
Then he explains the relevance of the associations
to the later events.  So he explains in paragraphs 467
to 472, he sets out some of the further links, personal
links by different companies.  Then he turns to the
analysis of those matters and their significance at
a later point in paragraph 1156.
Perhaps it is better to start at paragraph — well,
I think it’s probably best to start at paragraph 1155.
It starts as a discussion on «Business and constitution
of the Renord-Invest Group».  Then at paragraph 1156,
the learned judge seems to identify the key companies
involved in the events which relate to this case.
I have taken you before but it deserves another look,
subparagraph (6) of this paragraph, so that’s 1156
subparagraph (6), it’s discussion in relation to the
company called Solo which is one of the Renord companies
and the one which acquired — which purportedly
purchased the assets of part of the Onega Terminal, I
think about half of the Onega Terminal, at one of the
There is a finding here at subparagraph (6) that
this company, despite — well, that this company was
beneficially owned by the Bank or Mr Savelyev and he
also finds that Mr Savelyev’s evidence on that was
confused and contradictory.
Then at 1157 there is a general finding:
«It seems to me to be clear that the Bank used the
Renord companies, and in the context those specifically
identified above, as and when it required them for such
undertakings, business operations or investments as
appeared to it expedient at the time.  It does not seem
to me to be possible to characterise the business of
Renord Group more exactly: its diversity is itself
confirmatory of the Bank’s needs, and the facility with
which the companies were made available to it to service
Then he discusses Kiperort for a little while.  Then
at 1159 he says:
«The fact that the Renord entities deployed by the
Bank were not de jure subsidiaries no doubt was of
utility: it enabled their operations to be kept off the
Bank’s balance sheet.  But de facto, as it appears to
me, certainly those expressly identified above were
used, or made available for use, by the Bank in the
context of these proceedings.  In my judgment, their
involvement in the auctions and transactions referred to
above was not as independent third parties.»
Then there is again an interesting forensic point,
if I may.  One of the points we relied on in support of
our case, which was hotly disputed, then the Bank and
Renord are all the same, was the coincidence of the
physical address of one of the Bank’s officers and
a number of Renord companies.  So you see that recorded
at 1160 subparagraph (1) and at 1161 the learned judge
records that:
«The Bank again demonstrated troubling
I should probably ask you, my Lords, to read through
paragraphs 1162 to 1171.  I apologise it’s a long
extract but, in my submission, it’s important.
MR STROILOV:  My Lords.  I think the point I’m making, and
I’m sorry in a way to have drawn you in forensic detail,
but the point I am making is it is important not only to
find that we are right in saying that the Bank and
Renord is all the same, but also to ask yourself why
would the Bank go to such extraordinary efforts and
falsehoods to deny the connection?
LORD JUSTICE PATTEN:  Well, you make the point that this for
a Bank, say, operating in this jurisdiction would be
simply extraordinary.
MR STROILOV:  Yes, my Lord.
LORD JUSTICE PATTEN:  It doesn’t accord with any established
principles by which a Bank should properly conduct its
MR STROILOV:  Indeed, my Lord.
My Lords, then there is further discussion of
relationship between Renord Group, SKIF and the Bank.
A number of further companies analysed.  The important
general finding is at paragraph is 1176 where the
learned judge says:
«I consider that the likeliest explanation is that
both Renord-Invest and its group… and SKIF provided
a store of SPVs at the Bank’s disposal, often with
offices at either Olymp [and then the address of the
Bank’s head office] … which were then controlled and
beneficially owned through nominees according to the
nature of the project and its participants.»
LORD JUSTICE PATTEN:  Isn’t the conclusion — I don’t want
to stop you, you show us whatever you want, but the
conclusion of all this is in 1176, isn’t it?
MR STROILOV:  Yes, that’s right, my Lord.  That is the
conclusion and an important one, my Lord.  Now, one
again I don’t want to — I won’t take you through —
my Lord has said, in this jurisdiction, the regulators,
the Banking regulators, the Prudential Regulation
Authority and the Bank of England would be down on any
Bank that took activity of this kind, against whom such
findings were made, within seconds.  Was there any
evidence about Banking regulation in Russia?
MR STROILOV:  Well, there was, my Lord, to the effect that
basically — I hope it is a fair summary of the Bank’s
case and Mr Lord will address you in due course, the
evidence was that we had to use this scheme and use
Renord companies in order effectively to bypass the
regulations because if we took the assets — if we take
various assets on our own books, well, that creates all
sorts of regulatory difficulties.  So —
LORD JUSTICE PATTEN:  Do you mean the evidence was that
these steps were in part a deliberate attempt to avoid
the Russian regulators?
MR STROILOV:  Well, it was, my Lord, to that effect and that
was something that our Banking expert addressed in —
I think both Banking experts addressed in their reports.
The learned judge I think simply says he does not have
to — he fortunately, as he puts it, does not have to
resolve whether there has been any breach of regulatory
practice.  I can find the reference if that assists, if
I just have a moment.
It is I think at paragraph 941.  You have some
discussion before that.  Yes, I think 942 to be more
precise.  Basically he refers to the issue about
compliance with Central Bank regulations.  Basically he
acknowledges its existence but says it’s not necessary
for him to decide.
where he says «seems … plausible», is that the judge
accepting that that’s the motivation for it, namely to
avoid regulatory difficulties?
MR STROILOV:  He seems to and I think I addressed you on
that yesterday, that that may result from
a misapplication of this standard of proof.
LORD JUSTICE MALES:  Is the position that he accepts that
they took the shares on to the original purchasers’
books rather than their own in order to avoid regulatory
difficulties but he doesn’t go on to find whether that
was a legitimate way of avoiding regulatory
MR STROILOV:  That’s right, my Lord, he doesn’t.  And
basically he expressly says «Fortunately I don’t have to
decide that».  Yes, and of course we don’t have to
demonstrate that because it’s really, well, we are not
the Central Bank claiming against the Bank for breach of
regulatory difficulties.
your point is if that was being done, it supports your
case that the reason it was being done was an improper
motivation, was dishonest and contrary to the
MR STROILOV:  Yes, my Lord, it does.
say this is all grist to your mill effectively?
MR STROILOV:  We do, my Lord.
I will have another look over the luncheon
adjournment.  If I find something relevant I will come
back to this point.
say, you ask why the Bank would go to such efforts to
deny the connection —
MR STROILOV:  Indeed, my Lord.
they had nothing to hide.
MR STROILOV:  I beg your pardon, in the search I slightly
lost the place in my notes I was on.
do we go now?
LORD JUSTICE PATTEN:  We were on 1176 which is the judge’s
summary of his conclusions on this — the relationship
between the Bank and these companies.
MR STROILOV:  Yes, my Lord, I am grateful.
I think the further passage I would like to show
you, it is at paragraph 1195.  I don’t propose to take
you through every forensic point.  There is further
interesting discussion of evidence just before that at
paragraphs 1186 to 1194.  Basically there was
a spreadsheet which we said listed the companies which
were secretly under the Bank’s control.  I just give it
to you for reference, it’s discussed in the judgment but
I don’t propose to take you through every forensic
Conclusions start at 1195 and the judge says at 1195
he finds or he considers it is not necessary to decide
whether Renord-Invest was owned or controlled by the
Bank, Mr Savelyev or their associates or «loyal
friends».  But he does accept our description of the
Renord Group as a store of SPVs at the Bank’s disposal.
He holds at 1196:
«… that the Bank was able to and did, commandeer
companies from the Renord Group for its own use, and in
the case of those companies, during the period of its
use of them, the Bank did own and control their
businesses, usually through nominees as above described,
and in particular [a number of individuals].»
He then says:
«… I appreciate that the claimants throughout
denied that any of those four acted as nominees… but
I cannot accept that.»
Then he explains why.  Then there is a further
conclusion at 1198.
Then he comes to similar conclusions about SKIF.
Probably the point to make at this stage is even though
he concluded here in this part of the judgment that it
isn’t necessary for him to decide whether Renord was
ultimately owned or controlled by the Bank, at the end
of the judgment where he stops to give his list of
misgivings at paragraph 1635 and explains why he’s
refusing the Bank’s claim for declarations, he puts the
matter rather differently.
At paragraph 1635, subparagraph (2), he refers to:
«The fact, and more concerning still, the Claimants’
continuing denial of the fact, that at least most of the
Renord-Invest Group companies were in reality almost
certainly owned or controlled by the Claimants…»
So here he goes further from what he says there,
it’s unnecessary to decide that, it’s enough to
establish control in relation to particular events.
Here he says they were almost certainly owned or
controlled by the claimants.  Then he says:
«… and even if Mr Smirnov ultimately owned
Baltic Fuel, he too is a close friend and ally of the
Claimants and his evidence could, in his absence, not be
My Lords, we looked yesterday at various paragraphs
where I sought to persuade you that he poses the
question what all these connections between the Bank and
Renord, what they mean in terms of propriety of auctions
and never, we say, adequately answers that question.
But having considered those findings in relation to
Renord, I would like to interpose, if I may, my Ground 4
where we challenge a specific finding of fact in
relation to Baltic Fuel Company.  Those findings are
in — the discussion of Kontur and Baltic Fuel starts at
paragraph 1226.  He sets out the background:
«Kontur’s Director-General was Mr Korneev…»
He explains who the shareholders were.  And then you
see there is some discussion of the evidence.  At 1230,
the learned judge finds:
«I have concluded, therefore, and find, that Timus
and Nefte-Oil, all being entities within the
Renord-Invest Group, and Mr Korneev being a nominee of
Renord-Invest in this context, held their shareholdings
in Kontur for Renord-Invest, and that Kontur was and is
a Renord-Invest company accordingly.»
Of course Kontur was the purchaser of
Western Terminal assets at the purported public auction,
realisation of pledges.
And then he moves on to a different company, Baltic
Fuel Company, which seems to be part of the same group
and which we don’t — as he records, we don’t know in
what way but ultimately ended up owning and operating
the Western Terminal.  He records the evidence of
different witnesses and then at 1235 he records his
«… I do not accept Mrs Yatvetsky’s evidence if and
insofar as it might be taken to suggest that Baltic Fuel
was not and is not a Renord-Invest company: I find that
it was and is.  But, as previously indicated, that does
not conclude the necessary enquiry.»
Then at 1236 he seems to — I think to be fair,
because I am — probably the best thing I can do is just
to ask you to read through to paragraph 1242.
MR STROILOV:  Yes.  My Lords, I would submit that this
particular finding is confused and I respectfully submit
perverse.  Given all his wider findings —
MR STROILOV:  I say perverse in the sense it satisfies the
test of perversity.
first of all that the standard of proof he’s applying
about displacing the possibility is not the right
MR STROILOV:  I do.  In alternative to that, I do say that
no reasonable judge could have made such a finding
anyway in this context because in the context of all the
Renord findings and the demonstrated untruthfulness of
the Bank and Renord in denying this connection, and the
fact that he says «It’s unnecessary for me to find that
the Bank owns Renord or Mr Savelyev owns Renord» but
then in a different place he indicates that, if it is
relevant, actually they do almost certainly.  What is
then the reason to carve Baltic Fuel out of these
general findings about Renord and to treat Baltic Fuel
differently from every other Renord company involved in
this case?  He has not identified any rational or
evidential reason to treat it in this way.
Baltic Fuel was included in his treatment of the
Renord Group, had he done so, how would it have affected
his approach to the overall findings?  Because he says
it’s really important.
MR STROILOV:  Well, he does, and frankly I’m not sure
I entirely understand why it is so important but he says
in several places words to the effect that, well, if
only they could show that Mr Savelyev owns Baltic Fuel,
that would have been different or that would have strong
support for the counterclaim.
I’m not sure that’s right.  Of course, in the
alternative to my submissions that this finding should
be overturned, I do submit that if this finding must
stand, it doesn’t matter very much because we have
proven that Mr Savelyev and Mr Smirnov were in this
together.  They were implementing this strategy together
and if we are right to say that it was a dishonest
conspiracy, it’s no more than a forensic curiosity to
determine which of them ultimately benefit from
particular assets.  Either way, it’s entirely consistent
with our case on conspiracy.  That is if you are not
persuaded that these findings should be overturned,
that’s my alternative submission on how you should
approach it in the ultimate analysis of the evidence —
LORD JUSTICE PATTEN:  The judge says in 1231 that if it is,
as he puts it, owned directly or indirectly by the Bank
and Mr Savelyev and their associates, it would be
a powerful piece of evidence of collusion.
MR STROILOV:  Yes, my Lord.
LORD JUSTICE PATTEN:  What does he mean by that?  What’s
that a reference to, «collusion»?
MR STROILOV:  Well, I presume that he means the conspiracy,
frankly, but I am in as good a position to guess as your
Lordship is.
LORD JUSTICE PATTEN:  No, I just wondered —
LORD JUSTICE MALES:  I had wondered whether what the judge
is thinking is if Baltic Fuel is, as it were, outside
the Bank’s control, then at least some of the assets end
up away from the Bank and that that tends against the
conspiracy theory.  Whereas if Baltic Fuel is owned
directly or indirectly by the Bank or their associates,
then all of the assets end up in the Bank’s ownership
and that’s, he says, a powerful piece of evidence of
collusion.  I’m not entirely sure whether that’s the
right insight into what the judge is thinking.
MR STROILOV:  It may be so but then of course he’s asking
all the wrong questions in my respectful submission.
Because what matters is not what happened to the assets
after the pledges were realised but how they were
realised and whether proper credit was given.  So it is
only of forensic interest whether Mr Savelyev was
interested in the assets because he is doing an oil
transportation business himself, or alternatively
whether he wanted to sell them to someone who is doing
an oil business.
And how does it matter?  The point is whether the
assets were stolen from the appellants.  So that’s the
wrong question.  But of course we say on his analysis of
the Renord Bank connection and how Renord works and that
coupled with all the denials of the Renord connection by
the Bank and by Renord which have been found to be
false, well, how can he attach any weight to similar
denials of the connection with Baltic Fuel?
found Mr Savelyev to have been dishonest in a number of
aspects of his evidence, he then relies on it in this
area for no explicable reason, as far as I can see.
MR STROILOV:  He does and not only in other areas but in
a very similar area.  I think he points out at one
point, at 1234, that:
«Mr Savelyev’s evidence (in his second witness
statement for trial) was that:
«‘Save for the fact that Baltic Fuel Company is
a customer of the Bank, I have no other links or
interest in [it]’.
«It is relevant to note that he was not challenged
on that evidence in cross-examination.»
Of course he was, I told him Renord is your
business, isn’t it, and he now finds that Baltic Fuel is
part of Renord and then he criticises me for not putting
this particular company expressly.  But at the time, at
the time of the trial, well, it seemed — the difficulty
seemed to be in establishing that Renord is the same
thing as the Bank but it seemed to be obvious and agreed
that Baltic Fuel is part of Renord.
LORD JUSTICE PATTEN:  This is what I was going to ask you.
As I understand it, as the judge has found in 1231, it
was accepted by Mr Smirnov in his witness statement that
in 2008, the Baltic Fuel Group was in fact controlled by
LORD JUSTICE PATTEN:  He says «both directly and indirectly»
but no matter.
LORD JUSTICE PATTEN:  So in terms of the corporate structure
there was actual control.  So the difference between
this and the other Renord companies is what?  Simply who
is running them?  I’ve not quite understood what the
distinction is between — I mean, bearing in mind, as
you’ve said, that the judge has made a general finding
in 1198 that the Renord-Invest Group as a whole and the
Bank were, as he puts it, in close personal pervasive
et cetera et cetera, it didn’t really matter, he says
there, what the precise corporate structures were,
bearing in mind that the corporate structures of Renord
included Baltic, what’s the distinction that the judge
is actually making here?
MR STROILOV:  My Lord, that is my point.  There is no —
that’s why it is so puzzling —
there is a distinction which he tries to make which is
that Renord contained a large number of SPVs and that it
wasn’t necessarily the case that each SPV was held for
the Bank and so it could have been some separate part of
Renord and Smirnov’s empire that Baltic Fuel related to.
So although he says it’s owned in the way that my Lord
has pointed out, he doesn’t go so far as to say it was
basically all part of the Bank’s empire but I quite
understand your submission that there isn’t any real
basis for that, it’s just the way he seems to come out
in the end.  You say that there’s just no logic for
MR STROILOV:  Quite.  There is no logical or evidential
basis for this distinction.  That is my submission on
this point.
I move on back to auctions and I hope I can be
reasonably brief in that because we’ve covered a lot of
ground yesterday.  That is in terms of my paragraph 17,
it’s paragraphs (p), (q), (r) and (s).  I think it’s —
on marketing, I think we spent enough time yesterday,
the judge has found that:
«… no more was done to advertise and market the
relevant assets than the basic minimum required, And the
claimants didn’t press for more.»
That’s in paragraphs 1344, I’m reading from my
skeleton argument, 17 subparagraph (p).  He dismissed
Ms Mironova’s evidence.
Then I once again emphasise the finding I took you
to yesterday and which is quoted in my subparagraph
17(r) about:
«… the claimants and/or their associates had
determined to retain the assets within their circle,
with a view … to realising their potential by
substantial investment of which they have been starved:
they were not interested so much in maximising
recoveries and diminution of the loans, but in
maximising benefit for themselves and their associates,
subject only to formal compliance with the Russian law
and practice.»
But then perhaps it’s worthwhile to go to the next
paragraph which is paragraph 1348.
LORD JUSTICE PATTEN:  Just before we do that, can I be
clear, 1347 on the face of it seems to be an actual
finding by the judge that by that time at least the
claimants, as he puts, and their associates had decided
to keep the assets within the circle, rather than — by
what they were doing and how they were organising the
auction et cetera, rather than trying to get the maximum
value with a view to paying off the indebtedness.  So
the judge has made that finding.
MR STROILOV:  Yes, my Lord.  And we say then, well, if that
is the case, what else do you need?  That’s precisely
the conspiracy we allege, at least in the third version
of the conspiracy, that what we are saying simply is
this was intentional.  You wanted the assets.  You did
not want to realise security and maximise the recovery.
Of course a further question then is, well, if that
was their intention by 2012, well, at what point and why
was there any change of focus in their motivation?  At
the time they realised Onega assets in 2009 at a similar
auction between — where all participants were Renord,
does the same conclusion apply?  And that would mean
that they also had the same intention in 2009, and then
what are the inferences for even earlier actions, for
the repo itself in the first place?  Perhaps they had
this intention from the start.
And we say that there is no evidential basis for
saying that at any point the strategy changed.  So
a proper analysis of the circumstantial case should
really include asking yourself, well, if this — by now,
by the time you get to auctions, paragraph 1347 is the
only explanation.  Well, we would submit it applies to
all events, starting from late —
I didn’t understand when I read these passages is that
he says what he says at 1347 and then he says «I have
now got to go on to see if the auction organisers were
I don’t understand is why that is the crucial element in
determining whether your allegations are made out
because — I mean, they might be, they might not,
obviously — but having already found that they had the
intention of maximising benefit for themselves, whether
they did it with a complicit auctioneer or without
a complicit auctioneer seems to me to be of no
importance.  Do you understand why he thought it was so
MR STROILOV:  Yes.  Well, I agree, my Lord.  To be fair to
the learned judge, it was a pleaded point in our case
that we say that complicity of the auction organisers
can also be inferred from all those events and therefore
we included auction organisers in our list of alleged
conspirators.  However, this said, of course this is of
at best peripheral significance for a claim against
these respondents and, as my Lord said, well, having
found what he finds in paragraph 1347, that is contrary
to what he says, that is the end of the central enquiry
in relation to these claimants.  That was the intention.
Now, the way he continues his flow in paragraph 1348
«… it was not incumbent on the claimants to do
anything more than what was required by the relevant
Russian law and practice.  Provided the requirements
were fulfilled to the satisfaction of the auction
organisers they were, as I see it, entitled to pursue
their own interests as they perceived them.»
Of course that is plainly wrong.  It was for the
learned judge, not for the auction organisers, to come
to the conclusions about honesty or dishonesty of the
claimants’ reasons and motives and actions.  Part of
that reason is because he did not know how much the
auction organisers knew about Renord —
he seems to have thought that the exculpation for the
Bank, the excuse for the Bank was that it was protecting
its own interests so that just saying it was going to
maximise profit under the repo arrangements to which the
appellants had agreed was not enough.
it was then doing was, according to Russian law,
protecting itself.  It was entitled to sell the assets,
it was entitled to take the profit; all it had to do was
comply with Russian law on auctions.  So I suppose
that’s his rationale for ultimately rejecting the
MR STROILOV:  Yes, my Lord, but that of course ignores the
requirement of good faith in the Russian law.  Not only
do you have to comply with formal rules but on the
Russian law experts’ evidence, which he accepts, you
must not abuse the right, you cannot act dishonestly
in —
the problem.  It’s a slightly chicken and egg problem
but the judge never comes back to Article 1064 and never
asks himself the questions of whether the requirements
of that article are satisfied or not here.
MR STROILOV:  Yes, my Lord.  Again to be fair to him, well,
he does not because he identifies at the beginning,
rightly, that if we prove the conspiracy which we have
alleged, there is no dispute that the requirements of
1064 are satisfied.  But then as this becomes more
complicated and especially at the point when he
essentially says «I can’t make the ultimate findings,
I have to decide on the burden of proof», well, the
Article 1064 and its relevance had been forgotten more
or less.  And of course maybe if you feel you cannot
interfere, you cannot properly interfere with the
judge’s conclusions, and I can’t persuade you that the
only possible inference from those facts is to find such
conspiracy as we’ve alleged, well, then the question
of — and therefore you accept the judge’s conclusions
that he must decide on the burden of proof, and then
there is the question of where the burden lies and that
depends on the concept of harm under Article 1064.
I will get there, I think probably in the afternoon,
and I will address you on that in a more structured way,
having thought about this overnight.
run ahead a bit, it’s pretty obvious, isn’t it?  If you
get over the hurdle on harm which is what I hope you’re
going to come back to this afternoon —
the burden of proof on honesty shifts?
MR STROILOV:  It is on them.  Yes, well, the burden on the
lawfulness and that includes honesty, quite, and it is
then on the respondents.  Precisely.
Good.  Well, we see all that.
LORD JUSTICE PATTEN:  Just to pick up the point that my Lord
was asking you about a moment ago, I’m just still trying
to sort of bottom out whether the judge thought — the
judge takes the point or mentions the point in his
judgment that if one had brought proceedings in Russia
simply to set aside the auction as having been, I don’t
know, properly conducted in accordance with whatever the
relevant requirements, it would have been
statute-barred.  There was a limitation problem.
LORD JUSTICE PATTEN:  But what I’m not clear is whether the
judge thought the fact that you wouldn’t be able to
bring that sort of proceeding was relevant to the claim
or the counterclaim that this court is concerned with,
which is looking to whether or not there was a dishonest
arrangement, conspiracy or whatever, to cause the
defendants harm.
Now, your case, if I’ve understood it right, is that
you’re not — in advancing the case we’re concerned with
and the judge had to try, we’re not constrained by what
would have been the procedural position in Russia in
relation to that.  Nor, as my Lord has put to you, is it
relevant whether or not the auctioneers and their
officials and so on were in any sense involved in all
this.  It would be enough, if I’ve understood your case
rightly, that having set up this web of companies that
were supposed to be bidders but in fact were all
connected, there was an intention to keep the assets
within their circle.  That was, you say, a dishonest
intention to cause you harm involving, as it did, not
a true market, you would say probably not a true
auction, and the fact that there was no technical
breach — I don’t know whether there was or wasn’t — of
some Russian auction rule is neither here nor there.
MR STROILOV:  It is irrelevant, my Lord, I agree, and it
seems that the learned judge, he seems to be analysing
the point about the law on auctions and whether it has
been complied with by way of background, and there is
nothing wrong with that.  But —
LORD JUSTICE PATTEN:  And the judge at various points
elsewhere in his judgment seems to accept, I think, the
point that I’ve been putting to you although he doesn’t
quite sort of take it to any conclusion.  You refer in
your skeleton to 1635, sub (6), this is part of the
judge’s list of what caused him to have misgivings.  He
«The extraordinary fact not a single independent
person participated in any of the auctions, leaving the
only participants as entities subject to common control,
so that but for a limitation period the auctions would
likely have been held invalid.»
So the judge himself seems to have taken the view
that, but for this limitation point, there weren’t in
fact proper auctions.
MR STROILOV:  That’s quite right and of course —
LORD JUSTICE PATTEN:  This has got nothing to do with
whether the auctioneers are complicit or anything like
that, but there just simply wasn’t a true auction of the
relevant assets because of the connection between all
the bidding parties.
MR STROILOV:  Quite, my Lord.  The way I read his findings
in relation to auctions is basically he doesn’t say it
in so many words but he seems to accept that the actions
of the claimants were dishonest in relation to auctions.
The problem which he sees is the problem of causation
and that’s where he gets confused, because really you
can’t say that — I think as I submitted yesterday —
well, you can’t really say that the cause is not
bid-rigging.  If you find the fact of bid-rigging, you
can’t say that the absence of third parties is a cause
of loss in causation terms.
LORD JUSTICE MALES:  Is he saying anything about causation
in paragraph 1346, just before the ones we’ve been
looking at.  He says:
«All these factors — separate sales of assets
flawed by fragmentation after inadequate marketing and
advertisement — are obviously likely to have had some
MR STROILOV:  Exactly, my Lord.  Basically you can take it
as obvious and safe to assume that if there had been
proper marketing, then the asset is likely to fetch
a higher price —
LORD JUSTICE MALES:  I suppose «likely» is sometimes used in
a sense which is less than more likely than not, if you
see what I mean.  But I’m not sure what he’s saying
MR STROILOV:  Less than more likely?  Yes, my Lord.
LORD JUSTICE MALES:  Sometimes people say something is
likely when they don’t mean it is more likely than not.
MR STROILOV:  My Lord, I think it is common sense to assume
that in ordinary commercial life, well, you sell things
better if you market.  It is a difficulty for a sale if
there is no marketing.  And, similarly, if the assets
are parceled out in unattractive packages so that you
can’t realise their real — the buyer can’t realise
their real synergistic value without taking the risk of
ending up with half of a seaport terminal which you
can’t really use, that also reduces the market value.
You can take it as an obvious fact of commercial life
that this tends to reduce the pool of potential buyers
and, accordingly, the price.
LORD JUSTICE PATTEN:  Are you going to take us at some point
to the judge’s conclusions on the auction sales,
starting at 1524?
MR STROILOV:  Yes, my Lord, I will.
LORD JUSTICE PATTEN:  The point I’ve just been putting to
you does — sorry, I was looking for where he said what
I said he said.  If you look at page 360 — 384 in the
bundle — at sub (8) he’s dealt with this question of
dishonesty and he says:
«In such circumstances, and in the absence of proof
of dishonest collusion, any claim in respect of the
auction processes is barred under Russian law.»
But of course that’s subject to that premise.
MR STROILOV:  That is, my Lord, with respect, a red herring.
We are not bringing a claim to set aside an auction sale
LORD JUSTICE PATTEN:  I understand that.  Anyway, you’ll
come back to this.  I’m just trying at the moment to
actually understand what the judge’s process of
reasoning is on this part of your case.
MR STROILOV:  Well, indeed, my Lord.  I think I have dealt
with this partly yesterday and I submit this results
from an erroneous piecemeal analysis but I will come
back to this.
LORD JUSTICE PATTEN:  All right, thank you.
MR STROILOV:  My Lords, it’s 1 o’clock.  Should I carry on
absolutely not.  Quite unusually for me, Mr Stroilov,
I’d become so engaged in it that I forgot it was
1 o’clock.  Let’s adjourn until 2 o’clock.
(1.01 pm)
(The short adjournment)
(2.04 pm)
Mr Stroilov.
MR STROILOV:  My Lords, if I may continue to point out the
findings I rely on in relation to auctions, may I ask
you to look at paragraph 1370 on page 342.  That is the
judge’s summary of the complex process of various
transactions in relation to Western Terminal pledge.
And the answer he sets out that, further down, the
original pledge, the initial selling price was set and
there is a pledge agreement of 1.2 billion roubles.
Then the Bank did not enforce the security but
rather there was an auction where the assets were sold
subject to the pledge to Nefte-Oil which was a Renord
company.  Then they were resold by Nefte-Oil to
Vektor-Invest, again subject to the pledge.  Then the
Bank sued Vektor-Invest to enforce its continuing
security and then a settlement agreement was made
between the Bank and Vektor-Invest which the court
blessed under this umbrella of the court proceedings.
Then under (e):
«Under the settlement agreement, Vektor-Invest
agreed to pay the Bank the full price … within 7 days,
failing which the assets would be offered at auction at
a reserve price (free of the Bank’s pledge) of RUB670
million, barely half the previously agreed ‘initial
selling price’; (f) Vektor-Invest failed to pay within
the stipulated period; (g) the pledged assets were sold
at auction together with other assets which the Bank had
obtained at Western Terminal, to Kontur; and (h)
arrangements were made thereafter (but were never
disclosed) for Baltic Fuel to acquire the assets of from
Then there is some analysis of the overall effect in
paragraph 1371.
Then at 1372 the judge makes a finding I think to
the effect that:
«I think it is difficult to regard this careful
sequence of steps as anything other than contrived.»
And he explains why in subparagraphs to this
paragraph with references to the witnesses’ evidence.
Then the ultimate conclusions are at paragraphs 1373
and 1374:
«Once the fact that all the actors apart from the
Bank were Renord companies is known, the reality is
obvious; and the claimants took the course of confessing
and avoiding in this court.  Whether the matter was so
clear when the Russian court was invited to approve the
settlement agreement and the revised starting price is
a different matter.  It is right to note that the
Russian court would probably not have been aware of the
fact that, apart from the Bank itself, the actors in the
play were all Renord companies; and that accordingly, it
may have been misled as to the true nature of the
settlement agreement.»
Then at 1374, the judge emphasises the seriousness
of misleading the court and also the implications for
reliability of the claimants.
Then, however, it’s only fair to mention
paragraph 1375 as well where he questions the
counterfactual.  However, in my submission,
paragraph 1375 is rather speculative.  The fact is that
the claimants had the assets under their control and
even though it may have been presented to the world at
the time in a different light, but in fact all these
transactions were between entities subject to common
control and it is really inappropriate, in my
submission, to speculate what would have happened if
there was a proper effort to sell these assets on the
market.  It’s really difficult.
Basically you have to consider, on the balance of
probabilities, what the usual effect is of dealing with
assets in this way, ie with no proper marketing, in
unattractive parcels, at auctions subject where — at
many of the auctions they are sold subject to the pledge
and therefore very unattractive or in unattractive
parts, and ultimately sold at bogus auctions where all
the participants are connected parties.
This connects, my Lord, to the question of causation
and loss because of course I accept that on the judge’s
findings we have not proven the quantum of loss but I do
submit that we have proven the fact of loss and
causation, because frankly the suggestion that the
absence of marketing has no effect on the price would be
extraordinary, extraordinarily improbable.  The same
applies to sales in unattractive parcels.
At the very least there has been, inevitably on the
factual findings by the judge, there has been loss of
chance on the part of the appellants in that OMG and
Dr Arkhangelsky have been excluded by removing the
management of Western Terminal and taking the complete
control of the two companies, they have been excluded
from the process of realisation of pledges.  Had they
not been so excluded, they would have a chance to
participate in the marketing, or to press for marketing
of the assets, and therefore achieve a higher price.
But the Bank’s actions deprived them of this chance.
LORD JUSTICE MALES:  Will you be coming to the question of
what we should do if we were to accept your submissions
including what you’ve just said, which is that you have
not proved the quantum but you have proved the fact of
LORD JUSTICE MALES:  You’re coming to that later this
afternoon, are you?
MR STROILOV:  I am coming to that, yes, I think I will come
to that when we come to that.
LORD JUSTICE MALES:  Take it all in one go when you get
MR STROILOV:  I’m grateful, my Lord.
To round up on the issue of loss, I think obviously
you have read quite a lengthy discussion in the judgment
about the expert valuation evidence where the judge
rejected both sides’ valuation expert evidence.  On one
view, he declines to arrive at any figure, even
approximate figure, but I think it is fair to read the
discussion as an indication that the real market value
of the assets was considerably lower than what our
expert said, but considerably higher than what the
respondents’ expert said.
If that is the factual finding of the judge, then
obviously in terms of analysing the auctions and
analysing loss, the latter part of it is a lot more
material.  If the real value was considerably higher
than what the evidence of the respondents’ expert
suggests, it follows that there has been undervalue even
though you can’t — at least in relation to
Western Terminal, perhaps I should clarify.  There has
been a sale at undervalue even though you can’t be sure
of the extent of that undervalue.
Now, if I may come to the judge’s conclusions on the
auction sales at paragraph 1525, page 383.  To
reiterate, this list, in my submission, rather loses
focus on what are we say the key findings he has made,
namely the fact of bid-rigging at auctions and the
finding he made about the intention of the Bank and
Renord by that time to — basically finding that their
priority at that time was to realise the potential of
the assets rather than maximise recovery.  These are not
mentioned in the list of subparagraphs to paragraph 1525
in any meaningful way.
Apart from that, just going through the list, in
subparagraph (2) — subparagraphs (1) and (2) he notes
the extraordinary fact there are no independent third
parties, but then he says this is not enough to infer
dishonesty.  We say this is an example of piecemeal
analysis and erroneous.  Subparagraph (3):
«The values achieved for the assets as sold were
low; but they are not so inconsistent with credible
expert evidence as to demonstrate dishonesty.»
About that, I would say what he means by referring
to credible expert evidence is an appraisal obtained by
the Bank at the time from GVA Sawyer which suggested
that the appropriate starting price for Western Terminal
would be in the region of 670 million roubles or
whatever it was.
This is not credible expert evidence in the sense of
having an expert here in court, his evidence tested in
court.  In that sense there is no credible expert
valuation evidence in this case because both reports
which were tested at the trial were both found to be
unreliable.  It’s hardly appropriate on that basis to
look at the various historic valuation reports which
have not been tested in court and assume that those
reports must be right.  That’s not how it works.
LORD JUSTICE MALES:  What does he mean by saying that the
values were low?  Low compared with what?  One might
think it was their true value, but on the other hand he
has declined to make a finding about their true value so
I’m not quite sure what his reference point is.  Can you
help about that?
MR STROILOV:  I’m not sure, my Lord.  Perhaps Mr Lord will
have a theory.  I don’t really know what he means.
MR STROILOV:  Then in relation to subparagraph (4) he refers
to Gunard Lease and then I think indicates that this was
not the only fact which suggests imposition of
encumbrances.  He then says:
«… the primary purpose was protection of the
assets concerned rather than their extraction at
a reduced price for the benefit of the Bank…»
Well, with respect, that is erroneous analysis
because the primary — it’s not the primary purpose that
he needs to identify.  What he needs to identify is how
consistent these facts are with various alternative
theories which can explain the whole sequence of facts
in any meaningful way.  Of course this is consistent
with our case and it does not sit very well with the
Bank’s case that they were interested in maximising the
LORD JUSTICE PATTEN:  But in relation to the auction, there
were two issues which the judge had to consider, weren’t
there?  One was whether the way in which the auction was
organised and the identity of the bidders meant that it
wasn’t calculated to achieve what you might regard as
the true market value of the assets.
LORD JUSTICE PATTEN:  And the other question, which is
whether that, the way it was all done, is indicative of
dishonest conspiracy, which could be either the third
version or even the last bit of the first or second
versions of your allegation of conspiracy.  In sub (5)
of this paragraph, the judge seems to accept — this is
why the judgment is a bit puzzling in places — the
judge seems to accept, he says halfway through:
«The way that the assets at Western Terminal and
Onega Terminal were packaged for sale and the sequence
in which they were sold does not seem likely to
encourage third party interest nor to maximise the
amounts applicable …»
Then he says:
«The Counterclaimants’ fundamental allegation that
this was a stratagem designed to reduce the amounts
realised for payment down of indebtedness whilst
maximising the benefit for the Claimants and their
associates has throughout the case struck me as
So the judge almost seems to be saying that he
accepts that the arrangements did have a depressing
effect on value, although he doesn’t put any figures on
it.  So the only, from your point of view, the only part
of your case which, on one view of his judgment, was
really rejected was that those self-same points were
indicative of your allegation of dishonesty which he
then goes on to deal with at the end of (5) by saying it
didn’t meet, as he calls it, the «heavy onus of proof».
MR STROILOV:  Yes, my Lord.  I think he is, with respect,
confused here as to why exactly he says our case fails,
because in some subparagraphs or in some parts of
piecemeal analysis he seems to indicate that this is
because we have not quite proven dishonesty.  And in
some others he suggests we have actually proven
causation but haven’t proven dishonesty.
LORD JUSTICE PATTEN:  Well, that’s why — well, haven’t
proven loss, I mean this is why it’s so confusing in
places, because reading the paragraph I’ve drawn your
attention to, it looks as if the judge is accepting, as
I’ve already said, that there was an effect on value and
really his final conclusion is that notwithstanding
that, it didn’t in his view justify the inference of
But if we adjust for the moment, majoring on the
question of whether the judge has found there was loss,
then on one reading of all this he has found there was
MR STROILOV:  My Lord, I obviously agree with this
interpretation and in any event I would submit that if
he didn’t find that, he had to find that because
basically it is extravagant to suggest that the absence
of marketing does not affect the price, and the
packaging of the assets in what he found to be
unattractive parcels does not affect the ultimate
Your Lordship is probably right in saying that he
has found that and this is simply a question of
inferring dishonesty as far as subparagraph (5) is
concerned.  But alternatively he had to find that
anyway, even if he didn’t, that is an inevitable
Then of course subparagraph (6), he seems to fall
into the same error because he keeps confusing the test
under Article 10 which is the test of honesty, to be
more precise good faith which we challenged on the
grounds of dishonesty, and the questions of formal
requirements to public auctions, he seems to confuse
that and ask himself the wrong question, whereas the
right question is: is this consistent with what they
said, that all these extraordinary efforts, repo and all
the steps taken to protect the assets quote unquote,
moving the assets between dozens of — probably dozens,
a large number of Renord companies, that was all in
order to protect them to maximise the recovery.  Then
when it comes to trying to recover, well, their actions
are just inconsistent with this purpose.
LORD JUSTICE PATTEN:  Yes.  You’re going on to deal with the
section where he deals specifically with loss, are you?
MR STROILOV:  Well, I will, my Lord, if only briefly when
I make submissions on the form of the order I am
inviting the court to make and whether you can rule on
LORD JUSTICE PATTEN:  Well, it’s just that while we’re —
speaking for myself, while we’ve been looking at the way
he’s — his sort of conclusions on the auction, it might
be helpful just to look at 1548 through to 1552 because
in a way it comes back there.  As you’ve already
submitted to us, he doesn’t reach any conclusion on the
valuation issues.  But 1552 is interesting.
MR STROILOV:  Yes, he basically says «I am agnostic on
quantum» and I would say that, well, insofar as you
reject my primary submissions that harm under the
Russian law is different from loss, well, if you
consider it is the same thing, well then, clearly he
could not say «Well, I don’t resolve this».  Because
whether there has been harm is the first thing he was
required to determine.
LORD JUSTICE PATTEN:  Yes, but the point I’m — why I think
it’s interesting, because it seems to suggest, 1552, not
only has he not been able to reach a view on the
valuation evidence but he hasn’t reached a conclusion,
contrary to what might be supposed from some of the
things he said earlier, that you hadn’t on the evidence
established, in regard to the way the auction took
place, you hadn’t on the evidence established a loss
because he talks about that matter needing to be
readdressed if he’s wrong on the dishonesty issue.
MR STROILOV:  The way I read it, my Lord, is what he means
is about if —
LORD JUSTICE PATTEN:  What does he mean where he says «were
actionably improper»:
«If my conclusion that the Counterclaimants have not
demonstrated that the auction processes were actionably
improper is overturned, then…» et cetera.
MR STROILOV:  It seems, my Lord, there is a confusion here
between the fact of loss and the quantum of loss.  The
way I read this section of the judgment is what he deals
with the proposed defence of no loss in the traditional
sense of English civil litigation, meaning zero quantum
of loss.  Basically rather than saying, well, that
I haven’t — «I decline to find whether there’s any loss
in fact».
it can be read two ways.  First of all he says:
«If my conclusion that the Counterclaimants have not
demonstrated that the auction processes were actionably
improper …»
But that wasn’t the action you brought so that’s not
the claim he was dealing with so that’s a confusion in
But he then says what he thinks is going to have to
happen if he’s overturned, which is that:
«… the issue of loss will have to be readdressed
in light of the factors supporting that reversal, and
their effect in terms of assessing value.»
So he seems to be speaking to us and saying: if you
overturn me (which you might) you should then order an
assessment of quantum on the basis that you find
contrary to what I’ve found.  So I think it’s quite
a significant passage, this, because like my Lord,
I read it as saying that there is no finding that there
was no loss.
MR STROILOV:  There is.  There is no finding that there was
no loss and as my Lord Lord Justice Patten has
indicated, I invite an interpretation of earlier
passages in the judgment as indicating that he found
there has been a fact of loss but that we haven’t proven
the quantum of loss.  But the fact of loss is not really
doubted in this —
would help me if at some point you could just put those
together on another one of your one side of a sheet of
paper, just to put together the paragraphs in which you
say he effectively must be taken to conclude that there
was a loss which he is not prepared to evaluate.
ly 1552 is central but there will be others.
LORD JUSTICE MALES:  He seems to think there are two
distinct aspects to your claim.  One is the claim
apparently based on asset values which he deals with at
1548 to 1552 under the heading of «No loss» and his
position there, as we’ve seen, is that he declines to
determine substitute asset values.  He then goes on to
say that there is no claim in any event for business
loss, which is what he deals with at 1553 and following
because nobody was ever going to lend any money to
enable that loss to be achieved at any rate by your
client.  And I’m not sure, I’m afraid, what the
distinction is that the judge is drawing there and what
the claim for business loss is, distinct from the claim
based on asset values and the auction sales being at an
undervalue.  Can you clarify that?
MR STROILOV:  Yes, my Lord.  We advance two alternative
claims.  It is historic now but we advance two
alternative claims in terms of calculating loss.
MR STROILOV:  And the primary claim was based on the
contention that we were likely to get refinancing before
there would have been a default —
LORD JUSTICE MALES:  That was all premised on the
moratorium, wasn’t it?
MR STROILOV:  Yes, it’s premised on the moratorium and it’s
premised on our ability to get refinancing.
LORD JUSTICE MALES:  I see.  So that’s the claim the judge
is saying would fail in any event.
MR STROILOV:  Yes, and this is now dead.  Our alternative
claim was based on accepting that default would have
happened and what should have happened after the
default, if the values were properly realised, and that
is the only claim which is —
LORD JUSTICE MALES:  Yes, so effectively the surplus value,
after discharge of the debts, gets paid back to you.
MR STROILOV:  Yes, indeed, my Lord.
MR STROILOV:  So basically I think he is dealing with that
at 1548 to 1552 and then the subsequent findings in
relation to business loss you don’t need to worry about
because we don’t challenge that.
LORD JUSTICE MALES:  Yes, thank you very much.
MR STROILOV:  Now, having dealt with the factual findings
which we say give rise to an irresistible inference of
conspiracy, if you are not persuaded that this inference
had to be drawn and perhaps has been inadvertently drawn
by the learned judge without realising it, then the
question of burden of proof arises.  This has largely
been addressed already in bits and pieces during my
submission for which I apologise.  I tried to have
another look at the Russian law expert evidence and at
some of the cases decided under Russian law.  I found no
focused discussion of the concept of harm.
My primary submission is that this indicates that
this is a straightforward, not controversial concept.
And, as I originally said, harm is different from loss.
Harm consists simply in the fact that the appellants
have lost the shareholding in these two companies.
Alternatively, that they have lost the assets as
a result of the Bank enforcing security.  Then the loss
and quantum of loss is a different matter because
a different interpretation would have effectively
negated the express rule of Russian law emphasised in
the authorities that it is for the defendant to prove
If you had to start by comparing the unlawful
causing of harm with a lawful counterfactual, you have
to start by proving unlawfulness and that’s contrary to
an established principle of Russian law.
Now, if you are not persuaded by that, then
alternatively, assuming that harm is the same thing as
loss, we say that the fact of loss has been established.
If you are persuaded by either of those, it follows that
the burden of proof has shifted on the respondents to
prove that their actions have been lawful and that
includes good faith and if the judge is unable to reach
factual findings ultimately on the conspiracy, that
means the question is have they discharged their burden
of proof, and they haven’t.
I think probably the next part of my submission
should be on the standards of review in relation to any
misdirections as to English law, Russian law and then
factual evaluation.  That I think links then logically
into the form of order we are asking the court to make.
Of course I have identified two misdirections on English
law of evidence and of course the standard there is
straightforward.  If you are persuaded that there has
been an error of law and it affected the outcome,
then —
put your two misdirections?  The first one is on the
standard of proof.
MR STROILOV:  On the standard of proof.
the second?
MR STROILOV:  The second one is piecemeal analysis of
circumstantial evidence.
al, okay.
MR STROILOV:  Then, my Lords, we also allege misdirections
on Russian law and I think it’s also two misdirections
on proper analysis.  One is the loss of focus on good
faith or honesty in a number of instances in the
judgment and that is a misapplication, a failure to
apply Article 10 of the Civil Code.  Another is
a misdirection as to the burden of proof.
Now, in terms of how the Court of Appeal should
approach an alleged misdirection as to foreign law, may
I ask you to look at the case of MCC Proceeds v
Bishopsgate Investment Trust which should be at tab 44
of the bundle of authorities.
LORD JUSTICE PATTEN:  Which of the bundles is it?
MR STROILOV:  That’s the third volume of the bundle of
authorities, tab 45.
only got 44.
MR STROILOV:  I apologise, my Lord.  It was a late addition
and I thought it would —
it called?
MR STROILOV:  It’s MCC Proceeds v Bishopsgate Investment
Trust Plc.  My Lord, I could perhaps email it to your
assistant knowing that your Lordship works
electronically, or perhaps my learned friends would —
but I would quite like to find it.  It may have got into
my supplemental bundle.  Does anybody have a copy of it
they could let me have?
MR STROILOV:  I’m afraid I don’t.
have two?
have yours.
I think I’m going to be handed one but if you could
email it to my assistant, that would be — my clerk.
MR STROILOV:  Yes, my Lord.  I’m not online here.
no.  Afterwards if you could, just so I’ve got it.
Thank you very much.
MR STROILOV:  So you will see that this is a decision of
this court and starting at paragraph 6, you see there
the discussion under the heading «Foreign law, the
correct approach [as read]».  Paragraphs 6 and 7 are
introduction into how this court deals with issues of
law and of fact.  Paragraph 8, reference to the
well-known authorities.  And then in paragraph 9 the
court says:
«We invited submissions, however, as to the correct
approach when an appeal is brought against a trial
judge’s findings on issues of foreign law.  These are
issues of fact for the purposes of the general
principles stated above but they are facts of a peculiar
kind [as read].»
Then the court says the liable(?) submissions made
about that.
Then in paragraph 10 there is discussion of how the
expert evidence informs the court and then the same at
paragraph 11.
Then at 12, they ask:
«We come to consider what the court’s approach
should be when the trial judge has heard expert evidence
as to foreign law and made findings which are challenged
on appeal [as read].»
Then at paragraph 13 they answer — their answer
varies according to the nature of the issue which arises
in the particular case and the kind of decision which
the trial judge, and now the Court of Appeal, is called
upon to make.  Sometimes the foreign law may involve
principles and concepts which are unfamiliar to an
English lawyer, and then in that case the English
judge — a strange(?) experience — can only make
a limited contribution.
On the other hand, there may be cases where the law
is more familiar to an English judge and then the judge
can make a contribution.
Then there is a reference to Parkasho v Singh where
the same issue was discussed, Dalmia v National Bank of
Pakistan, the review of authorities in Bumper
Development Corporation.
Effectively, in the end, and I’m not quite there,
but in paragraph 18 at any rate there is a reference to
an academic summary of the position.
say it is accurate.
MR STROILOV:  And they endorse it, yes.
does that get us?  Do you say Russian law is something
we can understand?
MR STROILOV:  I say yes because there have been so many
cases decided, well, quite a few cases decided under
Russian law in these courts in recent years and on that
basis I would submit that the collective experience of
this court in issues of Russian law is now quite
developed —
LORD JUSTICE PATTEN:  But what is the issue of Russian law
that these submissions go to?  Because I thought you
yesterday accepted that the formulation of the —
I can’t remember which the article is now but the
relevant article we’re concerned with, the state of the
law as set out by Mr Justice Andrew Smith in I think
Fiona Trust, which the judge recites in this case in his
judgment, was a correct statement of the law.
MR STROILOV:  That’s correct but then we say that the judge
in our case failed to apply this correctly.
LORD JUSTICE PATTEN:  Well, that’s a different question but
in terms of what the law is there’s not really an issue,
is there?
MR STROILOV:  There isn’t, my Lord, but simply what I’m
trying to establish now is that basically you should not
be worried about overruling the learned judge on how he
applied Russian law to the facts of this case because
this is not the same as simply challenging his factual
findings.  Foreign law has a somewhat special status in
terms of the standard of review which is intermediate,
I would submit, between the issues of law and of fact.
seems to me to be pretty simple, because you say he just
got the burden of proof wrong on who should have to
prove lawfulness —
under Article 1064 and maybe also under Article 10,
although at the moment I don’t fully understand that
submission.  And if he did, he did.  The only question
of Russian law that troubles me at the moment is the
concept of harm but you’ve made the submissions you’ve
made about that.
MR STROILOV:  Yes, my Lord.  Well, that is correct.
Simply to clarify our ground in relation to
Article 10, well, that relates to what we say was the
loss of focus on the question of honesty in a number of
passages in the judgment which I have taken you to where
he says, well, the Russian law does not require anything
than formal compliance with this requirement or that
requirement and the Bank was entitled to do this, that
and the other, without reference to the additional
requirement which applies to every action of a party to
Russian commercial dealings to act in good faith, which
is the requirement.
LORD JUSTICE MALES:  We’ve got in the supplementary bundle
the experts’ memorandum which sets out quite clearly at
page 43 the way in which Article 1064 is supposed to
work and the structure of it and what has to be proved
and who has the burden on various issues.  Although
there are points of detail where the experts didn’t
agree, they seem agreed on the overall thrust of it.
MR STROILOV:  Yes, my Lord, that is quite so.  It may be
that I’m pushing at an open door.  Basically all I’m
saying is that, in principle, if you are satisfied that
he misapplied Russian law as stated by the experts, you
should not hesitate to interfere.
come back to this in reply if Mr Lord makes headway on
the point.
MR STROILOV:  Yes, my Lord.
Next, I submit and it has been dealt with in our
skeletons, I submit it is clear on the authorities that
there is a difference between this court interfering
with the primary findings of fact or with factual
evaluation.  Basically I am entitled to submit in this
court that on the basis of the findings the judge has
made in this case, the only inevitable inference is
conspiracy because that’s the only theory of those
advanced which satisfactorily covers all the facts.
it’s all evaluation.
MR STROILOV:  Well, we say it’s all evaluation with the
exception of the Baltic Fuel Company point, in Ground 4.
Other than that it’s all evaluation and that is a lower
threshold than challenging factual findings.
Further, we say that the particular circumstances of
this case relax the standard and should make you more
willing to interfere in the judge’s factual evaluation,
and even findings, for a number of reasons.  Firstly, he
only made the ultimate decision on the burden of proof
which is unusual in a complex fraud case of this kind.
say he didn’t in their respondents’ notice.
MR STROILOV:  Well, they do.  Again that’s one of the points
on which it is probably best to hear from Mr Lord and
then —
except you’ve said several times that he made the
decision on the burden of proof but I haven’t — I don’t
know whether you’re referring to all the paragraphs that
I listed this morning or whether you’re just referring
to the bit at the end?
MR STROILOV:  Well, I am referring to both, my Lord.  That
is the consistent logic of the judgment and in every —
in relation to every particular allegation he says
«Well, this is not quite enough to infer the
conspiracy», and then in the end he says «And therefore
the counterclaimants have not proven their case», and
then when he comes to declarations sought by the
respondents, he said, «Well, actually, I am not
satisfied that you have proven your negative case on
that» and he makes the reference to In re B on the
burden of proof.  In my submission, there is simply no
other meaningful reading of the judgment except as
saying, well, ultimately I decided on burden of proof.
Why else, if you look at paragraph 1634 — 1633 and
1634, I think he’s been very clear here.  Why else would
he be quoting paragraph 2 of Lord Hoffmann if not to
indicate that he does not consider that our case is
wrong?  He considers that we’ve failed to prove it and
therefore he reaches the point where you have to decide
on the balance of probabilities.
That is also supported by paragraph 1635,
subparagraph (10) where he records his «recognition that
in a case such as this not all the truth may have been
revealed by the evidence, and that declarations such as
are sought may be deployed» in a way he thinks
But the first sentence of this is revealing.  That
suggests that he is not able to reach conclusions on
what the truth is.  All he’s saying is that we haven’t
proven what we had to prove but nor did they and that’s
why he’s not giving them the declarations.
LORD JUSTICE MALES:  In paragraph 1635, he says he’s made
his findings but he has misgivings and the findings have
been on the balance of probabilities, on the basis of
the available evidence having regard to the burden of
I wonder whether he really means the burden of proof
as distinct from the standard of proof, and he might be
referring there to what you say is his heightened
standard of proof.  If not, it’s difficult to see why
the burden of proof does come in if he has actually made
MR STROILOV:  My Lord, here he seems to be — just thinking
back on this judgment and all the passages I’ve taken
you to, you can see in relation to every issue his
bottom line typically is «And this is not enough to draw
the inferences sought by the counterclaimants».  It
rarely is «I find that the truth is such and such and
such».  So I would submit that mainly this is a decision
on the burden of proof.  There are exceptions of course
and of course it is understandable why he puts it this
way, because obviously there is a combination of
positive findings such as for instance that there was no
binding moratorium, he finds that as a fact and we don’t
dispute that.  But on many of the other points, he
simply says this is not enough and that obviously refers
to the burden of proof.
Then, my Lords, there is also a vivid record of the
judge’s equivocation and misgivings about the outcome.
Well, that’s the way I read it.  That also, in my
submission, invites perhaps a more interventionist
approach by this court simply because as a matter of
common sense you should not be more confident of the
judge’s conclusions than he was himself.  And of course
the delay between the trial and the judgment is a very
material factor.
In paragraphs 11 to 13 of my skeleton argument
I quote from the authorities of how the delay affects
this standard of review for this court.
for my part, Mr Stroilov, I don’t think you need to go
to those authorities.  Obviously Mr Lord will say what
he wants about them.  Unless you want them to be
rehearsed, we’re fairly familiar with them and for my
part I have read them again.  But I would be interested
to hear what you say about the delay, particularly if
there’s any factual issues that we might not be aware of
in relation to the delay.  So, for example, what did the
judge say when he reserved judgment and were there
exchanges with the judge in the period of 20 months that
we ought to be aware of?
MR STROILOV:  I don’t think so.  Again I find that the
respondents’ legal team’s recollection of events is
normally better than mine, but as far as I remember all
the exchanges — I think several times the message came
from the judge that he is very sorry for the delay and
he is doing his best to provide as soon as possible but
that was the extent of it.  I stand to be corrected if
I am missing something.
MR STROILOV:  I think it is important in assessing the
significance of the delay, it is important to bear in
mind what the judge says in paragraph 40 of his
judgment, so very near the beginning, where he explains
the process which led to his judgment being produced.
I think 40 and 41 in fairness.  Basically he explains
that he was going through written closing submissions
and followed each of 3,500 footnotes to documents.
you say about all that?
MR STROILOV:  Well, this is obviously a very unusual way of
producing a judgment and I suggest this is not certainly
a judgment which — a typical judgment which this court
should be reluctant to disturb.  This is not the process
which the existing system expects.  Of course if the
judge relied so heavily on written submissions as
opposed to what he heard at the trial, there are
a number of problems with that, one of which and an
obvious one is that this amplifies the inequality in the
size and quality of the written submissions by the
parties caused by the inequality of resources.
With respect, Mr Lord and his colleagues, they wrote
a book, I think it was almost — I think in my skeleton
I give the figure but it’s almost 700 pages.  As the
judge says, 1,500 documentary references and so on.  Of
course it was very — as you would expect, the quality
was as you would expect from my learned friends.
Whereas our submission was a lot more amateur, it was
only about 100 pages, only a few footnotes and it was
based on the assumption that the judge would remember
what had just happened.
LORD JUSTICE PATTEN:  Do you rely on the fact that the fact
that the judge had to apparently re-read every page of
the transcripts and all the footnotes and all the
documents strongly suggests that when he came to do the
job that he should have done at the start, he’d just —
when I say forgotten, I mean it’s inevitable.  His
memory wasn’t as stretched as it would have been if the
judgment had been produced within the three-month period
that’s normal.
MR STROILOV:  Of course, my Lord.  I’m not suggesting that
he forgot all about it but he forgot details, which is
precisely the advantage which the trial judge normally
has and which is the reason of why this court is often
reluctant to intervene, would have evaporated as his
memory evaporated.  He would only remember the starkest
points which are recorded in this judgment.  But the
nuances of impressions will be lost.
LORD JUSTICE PATTEN:  We’ve all been trial judges, some of
us still are, and one knows that after a number of weeks
and certainly after a number of months, your
recollection of anything, anything, dims.  Sometimes by
refreshing your memory from the relevant documents it’s
enough to bring it all back, it depends what we’re
talking about.
MR STROILOV:  Well, my Lord, I would suggest that reading
1,500 documents is rather indicative that the memories
were not so fresh as —
LORD JUSTICE PATTEN:  But you don’t seem, from my reading of
your skeleton, to suggest — this isn’t a case like
Goose, one of the reported cases you’ve referred to,
where it was evident from the judgment that the judge
had actually forgotten and didn’t have the wherewithal
to refresh his memory in relation to certain parts of
the evidence.  It’s just simply clear that it had been
lost both from his memory and from any form of record.
So clearly the judgment was unsound and couldn’t be
upheld.  It’s not that sort of case, is it?
MR STROILOV:  It is not but of course, my Lord — to take an
extreme example, supposing the judge forgot all about it
or God forbid he is ill, he can’t write the judgment.
You can’t really — you wouldn’t be able to appoint
a different judge who would read all of the transcripts,
look at the evidence, read the closing submissions and
reach a decision.  That’s not satisfactory.  You still
have to have the judge who presided over the trial and
formed all the right impressions.  We submit that in
this case, again in terms of — in measuring the impact
which the actual trial had and the subsequent re-reading
had, the impact of re-reading is just too heavy compared
to the impressions the judge would have formed at the
LORD JUSTICE MALES:  But you’re not saying, are you, that
there are facts which the judge forgot which ought to
have been included in the judgment, and apart from
Baltic Fuel I don’t think you’re saying that there are
primary facts which the judge got wrong.  And moreover,
he seems to have had a pretty clear and pretty
unfavourable recollection of the witnesses.  You’re just
saying that, having found the facts, he failed to draw
the correct conclusions from them, aren’t you?
MR STROILOV:  We do say that mainly but what I’m simply
saying is that you should not be reluctant to look — to
interfere with the factual valuations and, in the case
of Baltic Fuel, with the primary fact.
I think it is important to ask you to look, to
compare two parts of the judgment where he discusses
witnesses.  If you look at paragraph 76, you see the
section called «The Defendants/Counterclaimants and
their witnesses of fact» and there he goes through our
list of witnesses one by one.  There is a long
discussion of Mr Arkhangelsky and what the judge makes
of him, same thing for Mrs Arkhangelskaya,
Mr Bromley-Martin.  Each of the witnesses.  If you just
scan-read through these paragraphs up to paragraph 97,
perhaps even to paragraph 104.
irony of this case is none of his — the poor view he
took of your client really matters here.
MR STROILOV:  Quite.  That’s what I said.
ly if you were appealing the findings on the claim it
would matter very much, but the fact that he took a dim
view of your client in various ways we see set out here
doesn’t really matter at all.
MR STROILOV:  It doesn’t, my Lord, but the point I’m trying
to make, I’m simply drawing your attention to this part
of the judgment as the comparator to what he says about
the claimants’ witnesses starting at paragraph 55.
Well, if you can read through just these two pages, you
will see that there is no focused evaluation of the
reliability of the claimants’ witnesses.  Nothing
similar to what he — to the way he assesses our
Of course, my Lords, that would be important in
a case such as this and I have drawn your attention
earlier to inconsistencies.  Basically in one place the
judge says, well, these particular witnesses were
untruthful and then in another place he says about the
same witnesses, well, there is nothing to contradict
their evidence, therefore it must be true.  Obviously it
would be helpful if you had his view on each particular
witness and their credibility —
other parts of the judgment, he does say, when he’s
evaluating the evidence of various people from the Bank,
what he thinks, doesn’t he?  He does say that’s plainly
not right or dishonest or a pack of lies, in one place.
MR STROILOV:  Yes, he does, my Lord.  But still this is an
illustration of —
a way you don’t need any of this.  If you’re right as to
the burden of proof and you’re right in your submission
number 1, your first ground of appeal, leaving
Baltic Fuel on the side for a moment, you don’t need
this.  And if you’re wrong about those submissions, it
would be quite difficult to succeed if we were entirely
satisfied that this was a coherent, rational but late
decision.  So whilst I entirely accept what you’re
saying, that the delay has obviously had some effect —
you it’s a makeweight.
MR STROILOV:  I agree, it is a makeweight and we would
have —
is why we’re coming to it at 3.10, coming towards the
end of your submissions I suspect.
MR STROILOV:  Yes, my Lord, hopefully we are.
I probably should address you briefly on the form of
the order we are inviting —
you definitely should.  But perhaps before you come to
that you should tell us whether you really put any
weight on the lack of equality of arms because I was
going to encourage you not to.  Having heard what I may
say have been submissions that many barristers called to
the English Bar would have been extremely proud of in
the last two days —
MR STROILOV:  That’s very kind, my Lord.
I don’t know whether we feel very sympathetic to the
idea that the appellants have been badly served.  But
you will make whatever submissions you want.
MR STROILOV:  Well, this is very kind of you to say that,
my Lord.
not kind.  Judges are not kind, Mr Stroilov.  I’m just
saying what is the fact.  You have put your client’s
case, if I may say so, with great skill.
MR STROILOV:  I am grateful for this, my Lord.  However,
what I would invite — I think in assessing the fairness
of the trial under Article 6 and especially if this kind
of unfairness is alleged, the unfairness in the sense
that the case was too complex to be litigated without
legal representation, the way you should look at this,
my Lords, in my submission, is this: you should put
yourselves in the shoes of a party or a legal adviser of
the party before the trial and ask yourselves what is
the minimum you need to ensure the case is effectively
presented at the trial, how large the team should be,
how experienced the lawyers should be on that team, how
long to prepare.  However complimentary you may be about
me, I was alone.
were alone throughout the trial but you did have counsel
advising at times, didn’t you, according to the
respondents’ skeleton argument?
MR STROILOV:  That is right.  Of course on discrete points
of the expert evidence on Russian law and valuation
there was counsel coming to assist.
does this submission, Mr Stroilov, get you?  Because
we’re here now.  It would be unthinkable, if we rejected
all your other grounds of appeal, that we would allow
the appeal solely on the sixth ground and send it back
for another trial because then you still wouldn’t have
representation, legal representation.  So I just don’t
really see — it’s a bit like the point before.  If you
are right about your Grounds 3 and 1, you’re going to
win this case.  If you are wrong about them, you’re
probably not.  And this doesn’t really even amount to
a makeweight.
MR STROILOV:  My Lord, no, I would respectfully disagree
with this.  If you reject Grounds 1, 2, 3 and 4,
nevertheless I would submit that you must remit this
based on Ground 6.
what to happen?
MR STROILOV:  Well, that is a separate question.  Of course
that creates — any remittal of this case creates a lot
of difficulty for all those concerned but that is not
something you can take into consideration at this stage.
MR STROILOV:  The question for you is whether or not there
has been a breach of Article 6 and if there has been an
unfair trial by reason of inequality of arms, there has
been and you can’t allow this result to stand.
LORD JUSTICE PATTEN:  But I don’t think you’re really, with
respect, focusing on what lies behind my Lord’s
question.  The point is you, plus counsel as you’ve
described and so on, have presented the case for the
defendant in the counterclaim.  The claimants are going
to say that actually the defendant could have had more
extensive professional representation because although
he says he doesn’t have the money, he does.  Let me make
it absolutely clear, we aren’t in a position to resolve
that dispute but there is a dispute about that because
it surfaced as recently as when we were considering
whether you should be permitted to represent him on this
appeal.  So that’s an ongoing issue.
But taking your client’s, if I can call him that,
position at face value, if it goes back to another
trial, presumably your case, the defendant’s case, is
going to be presented in exactly the same way?
MR STROILOV:  Well, again, without accepting that in
principle — you should not approach this as a case
management issue.  It’s a stark European Convention
issue whether or not there has been a breach of
Convention rights —
LORD JUSTICE PATTEN:  But what are we going to do?  You’ve
failed on the claim.  There’s a judgment against you on
the claim.  There’s no appeal against the claim.  The
only answer to the claim is the counterclaim.  So if we
don’t do anything about the counterclaim, even if we
were to remit it but somehow it disappeared, then that
leaves the defendants with a judgment against them which
will be enforced.  So I just don’t understand where this
is going.
MR STROILOV:  My Lord, that is precisely the difference.  We
say that our Ground 6, alone or taken together with 5,
gives you proper grounds to set aside not only the
judgment on counterclaim but the judgment on the claim
as well.
LORD JUSTICE PATTEN:  But there’s no dispute that the money
is owed.  What, you mean even the judge’s rejection of
the allegation of forgery?
MR STROILOV:  I would submit yes, my Lord, because basically
this is a difficult — it was a difficult forensic
enquiry and of course, well, if you’ve got should I say
a very, very small team of people working on this,
namely effectively for most of the time just me, it is
inevitable that I would have, in going through documents
looking for forensic points, I would give the priority
to the counterclaim and therefore I would not be able to
fight on forgeries.
LORD JUSTICE MALES:  You say that but Mr Lord makes the
point that even if you do not have resources now, which
he does not accept but assuming that to be the case, you
did have resources and you chose to spend them on
handwriting experts.
Radley, who this court knows pretty well, acted for you
and is a very effective forensic expert.
MR STROILOV:  Yes.  My Lord, obviously our position was,
which I think the judge accepted, was simply that the
expert evidence ultimately failed to resolve this
dispute and it has to be resolved by reference to
surrounding circumstantial evidence.  On that basis, the
judge held that obviously — he made a finding that
obviously there was no forgery and he did sign the
guarantees and —
anyway, Mr Stroilov, we have very clearly your
submission that Grounds 5 and 6 are freestanding and we
will deal with them.  But unless you want to press it
any further, can I suggest that you deal with the
question that I think is quite important which is what
you submit we should do if we were to allow the appeal
on the other grounds.
MR STROILOV:  I am grateful, my Lord.
Well, I start by saying, in my submission, you can
and should on the basis of the findings of fact which
the judge made, you should rule now that the liability
under the counterclaim has been established.  The only
meaningful explanation of the facts is the conspiracy
which has been alleged by the counterclaimants, that is
the inevitable inference from the factual findings he
has made.  Therefore liability has been established.
Then if that is so, the question is what you should
do about quantum.  There are obviously, as usual, two
things you can do.  You can rule on that yourselves or
you can send it down again.  I would submit that it may
be possible for you, on the basis of the judge’s
comments on valuation evidence, it may be possible for
you to try and work out the approximate correct figure.
Basically the analysis would go as follows.  In
relation at least to the two terminals, the judge
basically finds that the respondents’ expert was using
a fundamentally mistaken method and to that extent
basically comparing the port terminals with industrial
land and he finds that’s not legitimate.  So you can’t
rely on that.
However, as far as our expert is concerned, he holds
the method was right, it’s a trade-related property, you
should use the income approach.  However, the factual
assumptions were unreliable.  So what you could try and
do is to — what the judge perhaps should have done is
to do what he criticised our expert for not doing, ie
the sensitivity analysis of the model and try to
substitute the figures he found to be realistic and the
formula and see what the result is.  I accept it is
difficult but then it is a difficult position where
you —
in your notice of appeal which I’m just looking at, you
asked the court to appeal, «vary the order which I’m
appealing and substitute the following order, namely
allow the counterclaim and direct a retrial of the claim
and/or counterclaim [as read].»
That’s not very clear but I think what that means is
that you are asking us to enter judgment on the
counterclaim for damages to be assessed.
MR STROILOV:  Yes, my Lord, I do.  Obviously the
alternative — if you feel you are unable to arrive at
any realistic figure in terms of the quantum of loss —
wouldn’t be fair to the Bank to do that because the Bank
has not had notice that you were asking this court to
assess the quantum.
MR STROILOV:  I take the point, my Lord.  In that case my
primary submission is you should enter the judgment on
liability and remit this for a trial on quantum.  That
would probably be —
you say about the judge who should hear that or the
Tribunal that should hear that?
MR STROILOV:  It should, my Lord, be the High Court.
I think I see no reason why not.  And I say nothing
about —
ly it would be the High Court but would you be
submitting that it should not be Mr Justice Hildyard?
MR STROILOV:  No, I would stay neutral on that, my Lord.  We
are not suggesting that the judge was in any sense
biased and that I think would be — as far as I can see,
that’s the only basis on which I could ask for a — ask
you to direct that there should be a different judge.
Different considerations as of case management, well,
I would leave it to your Lordships.
LORD JUSTICE MALES:  Should it be a complete retrial with
new evidence or should it be before the same judge with
the evidence which he’s already heard and if the former,
that is to say if with new evidence, why, given that
your evidence was not accepted first time around, should
you have a second bite?
MR STROILOV:  Well, my Lord, frankly because given the
passage of time and given that both our valuation
experts have been severely criticised, because that is
the only realistic way of establishing the quantum which
is something the court has to do, it may be you might
well think that the learned judge was wrong not to go
further and do — and make such conclusions as he can on
the evidence as to the correct figure but the fact is he
didn’t.  He said basically, «Well, I can’t rule on that.
If I am overruled on liability, there will have to be
a further enquiry».
but a further enquiry might be, as my Lord says,
a further enquiry by him on the basis of the directions
which he envisaged in that passage of his judgment by
this court.  So there’s nothing in the judge’s judgment
that indicates that he would be unable or unwilling to
reach conclusions on the evidence he’s heard.  He just
said it wasn’t necessary to do so because of the
conclusions he reached.
So one analysis is that this has occupied these
courts for a very long time at huge expense to the state
and everybody else, and that we should try and find
a way of disposing of this case as quickly as possible
and the quickest way would almost certainly be to rely
upon the evidence that has already been heard and send
it back to the same judge.
MR STROILOV:  My Lord, that may be so.  Thinking on what the
judge has said about the valuation, I am frankly unable
to say whether this permits any meaningful analysis
which leads to an actual figure.  So simply for
pragmatic reasons —
could give him discretion.  We could send it back to him
or another judge, giving the judge discretion to decide
if it was absolutely necessary to admit new evidence.
But generally I’m suggesting it would be undesirable
when, as I understand it, this was a trial of quantum
and liability.  I mean, this was a trial of liability
and quantum.  It wasn’t a trial with a split between
liability and quantum.
MR STROILOV:  It was not split.  The judge kind of reserved
the position as to whether any further separate trial
may be necessary in relation to the claim for — to
quantum of the claim for business loss.  That’s fair to
gone away now.
MR STROILOV:  That has gone away.
only question is the valuation question as to how much
these assets were worth and I would have thought that
all the evidence is there in probably experts’ reports
and I expect the experts are still going somewhere and
could be recalled if absolutely necessary.
MR STROILOV:  Yes.  My Lord, I would urge you not to close
the door at this stage to the possibility for the trial
judge, any new trial judge or the same trial judge who
becomes the new trial judge of exercising his discretion
to permit some additional expert evidence.
understand that and that seems sensible because we don’t
want to tie the hands of anybody who has to look at this
again.  But you’re not saying, are you, that you want
this to go back on the basis that even the quantum is
completely a clean sheet?
MR STROILOV:  No, I don’t think I can say that.  It may be
a pragmatic solution given that the judge, basically he
quite strongly rejected both sides’ expert valuation
evidence and it may be a pragmatic solution and the most
effective pragmatic solution to give both sides another
bite of the same cherry even though it may be —
I understand the problems this causes in principle and
also in terms of… but I would suggest you should
simply give discretion to the new trial judge, whoever
he is, to deal with this in the most fair and efficient
way he considers the best.
Of course alternatively, if you are not persuaded
that you can rule on liability now, well, the only
alternative is to send this back for a retrial, for
a full retrial and that causes lots of problems to
everyone concerned.  But if you have to, you have to.
If you are satisfied that some of my grounds must
succeed and at the same time you are not able to reach
your own conclusions on liability, there has to be
a retrial and then people would have to be told(?) and
the other problems which arise as and when they arise.
LORD JUSTICE PATTEN:  Would it have to be — when you talk
about a retrial, are you talking about a retrial of the
MR STROILOV:  Well, obviously, my Lord, if you allow this
appeal on Ground 6, whether alone or together with
Ground 5 —
LORD JUSTICE PATTEN:  Yes, we’ve got that point.  But if we
don’t allow it on Ground 6 and we just simply reverse
the judge on the counterclaim on whatever basis?
MR STROILOV:  Then the judgment on the claim stays —
MR STROILOV:  — and the counterclaim has to be retried.
LORD JUSTICE PATTEN:  Would it be every aspect of the
counterclaim?  For example, to give you the most
concrete example I can think of off the top of my head,
should it be a retrial of all the issues including, for
example, whether there was an agreement for
a moratorium?  Or was that something that is in a way
unaffected by your criticisms of the judge and therefore
should be allowed to stand as a factual finding for the
purposes of any retrial?
MR STROILOV:  Well, my Lord, obviously there is a danger in
trying to define the issues for retrial too strictly.
I think as my primary submission, I would urge you, if
you are minded to order a retrial rather than rule on
liability yourselves, I would urge you simply to order
a retrial of the counterclaim without trying to slice
off any issues.  Alternatively, I take your point, it is
a legitimate way of dealing with it but I just highlight
the danger of tying the hands of the trial judge and all
the parties.
seems to me anyway, just speaking for myself and at
first sight, that the issues decided on the claim,
including the moratorium, are res judicata once the
appeal on Grounds 5 and 6 fail, if they did, so they
couldn’t be retried, they are decided.  And you would be
only able to rely on what the judge had decided if it
helped you, which it probably doesn’t.
MR STROILOV:  I think partly — I think that requires
a slightly more detailed analysis.  Thinking back on my
grounds, for instance, if the court accepts my
submission about piecemeal analysis and the judge had
this error, well then one of the consequences of that is
the conclusions on the moratorium were potentially
premature and he had to look at this at the end of the
process and consider what is more likely.  So on that
basis, it may be that he is also wrong.
would depend on what we said about piecemeal analysis,
wouldn’t it?  I do accept your point, I think it’s, if
I may say so, a good point.  We could, on one analysis
of your argument, resolve the matter by saying he failed
to look at the matter piecemeal as he should have
done — he should have looked at it globally, parts of
his findings about the moratorium are suspect and that
goes to the counterclaim and that’s one way of dealing
with it and that would have the effect you’re
Another way of dealing with it is to say those are
obviously safe findings on a primary fact which we
wouldn’t interfere with, they have no bearing on the
other matters and then that would be a different
approach.  So it may be that finally this would have to
be argued out before we make an order based on our
judgments if there’s any doubt about it at that stage.
MR STROILOV:  Yes, my Lord, I am grateful.
Well, unless I can assist the court on any further
particular points?
Mr Stroilov, we are grateful to you.  We’re grateful to
you for your skill but we’re also grateful to you for
your balance, if I may say so, which assists the court
very greatly to have a McKenzie Friend who, I might say
it’s not always the common experience of this court, is
able to be balanced, to see points that are against them
as well as for them and you’re much to be congratulated
for that and I personally am very grateful to you and
I know that my colleagues are.
MR STROILOV:  I am much obliged, my Lord.
r the outcome of this appeal, the submissions have been
very helpful to the court.
MR STROILOV:  I am very grateful.
Submissions by MR LORD
MR LORD:  May it please your Lordship.  May I first from the
Bar endorse your Lordship’s comments about Mr Stroilov.
I’m going to deal with my submissions in the order
that we raised them in our skeleton argument, if I may.
In my respectful submission, it is important for
your Lordships to remind yourselves of some important
background in relation to this appeal which we’ve sought
to set out starting at paragraph 7 of our skeleton and
running over the page.
If I could just draw attention to one or two
important parts, your Lordship will recollect that the
counterclaim involved three different conspiracies.
It’s important to recollect in this case where there is
no appeal in relation to the judge’s primary findings
where that leaves these three different conspiracy cases
and whether it can possibly be said that the learned
trial judge could not reasonably have dismissed the
counterclaim in those circumstances.  I will develop
that submission but so your Lordship knows where that
will go, there is no appeal and couldn’t be in all
reality against the judge’s findings as to the forgery
of documents and contracts, as to the validity of the
repo arrangements and the entry into those arrangements.
The counterclaimants’ case was that they had been
tricked, coerced, deceived in and about all these
matters; further, that the Bank was dishonestly denying
that there was a six-month moratorium agreed at the end
of 2008, and the upshot of all of that was that that
reflected a conspiracy to raid Dr Arkhangelsky’s
valuable business empire which was forged, this
conspiracy, at the end of 2008, and then found
manifestation in the engineering of the calling of
default in March 2009 and the various steps that
happened thereafter.
If one takes a step back and reminds oneself of what
happened at this trial, rather than what Mr Stroilov has
very expertly emphasised in the last two days,
your Lordship should appreciate that a huge amount of
this dispute and the trial which the learned trial judge
heard comprised the matters that I have just adumbrated.
The counterclaimants’ case was always put, it was
often described as a «dishonest conspiracy to raid».
That was the phrase that was used over and over again in
the run-up to the trial, at pre-trial hearings and at
the three-month trial.  «Dishonest conspiracy to raid»
was ringing in all of our ears, including those of the
learned trial judge.  The reason for that was because
the essential foundations of that very serious
allegation were to be found in the first and second
iterations of the conspiracy case.  The judge decisively
rejected those underpinnings.
And the third version, the alternative version, so
not a further alternative but a third bite at the cherry
was essentially that there was some «conspiracy» in and
about the realisation by the Bank of its security from
the middle of 2009.  And that’s really where the
counterclaimants have come back to criticise the judge,
in my submission, not in any credible way in relation to
the first or second versions of the conspiracy.
But just pausing there, in circumstances where the
first and second versions of the conspiracy have been
plainly rightly dismissed, this court should be very,
very hesitant to go on to conclude that it is in
a position to overturn the trial judge’s finding in
relation to the third alternative version of the
Important parts of the background we set out
starting really in paragraphs 11, 12, 13, 14 and 15 and
I will just emphasise some important parts of the
background.  As I’ll show in relation to the Russian law
complaint, the crux of the counterclaimants’ case was
based upon dishonesty.  One can even see it in their
skeleton argument for your Lordship on this appeal.  If
one goes to paragraph 16 of Mr Stroilov’s excellent
skeleton argument, your Lordship will see what is there
«Not unusually, in this claim for ‘causing harm’
under Article 1064 of the Russian Civil Code, the
alleged dishonesty is the crux of the matter.»
So that was the crux, that’s the crux of the 1064
case claim and I’ll come back to causing harm and burden
of proof.  But it’s important to appreciate that even in
his skeleton, dishonesty is said to be the crux.  And
throughout the pleadings and the three-month trial, it
was never suggested on behalf of Dr Arkhangelsky that
there was some burden on my clients to prove their good
faith in some generalised way or to disprove dishonesty
or bad faith.  It was never suggested it was our burden
to effectively prove a negative like that.  That was all
accepted to be part of what the counterclaimants had to
prove to found their 1064 liability.
was that accepted when 1064(2) says something quite the
MR LORD:  My Lord, I’ll develop it when I come to the
Russian law if I may.  But in answer to your Lordship’s
point, it’s because of the point that your Lordship
taxed Mr Stroilov about yesterday, as my Lord
Lord Justice Males did, on harm.  It’s an absolutely key
point and it’s a complete answer to the case, for this
reason: that once you appreciate that the Bank was
lawfully entitled to call a default in the spring of
2009 and to exercise its contractual rights under
Russian law in relation to the loans, the guarantees,
the pledges and the repo arrangements, as the judge has
found and in relation to which, in my submission, there
can be no serious complaint now, once you have got to
that point in the story, then the question arises how
can there be a 1064 liability if the Bank is exercising
those contractual rights?
My Lord, your Lordship rightly taxes me about this
because there is a danger here in that Mr Stroilov trips
between different labels.  Sometimes it’s conspiracy,
sometimes it’s dishonesty, sometimes it’s bad faith,
sometimes it’s 1064 simpliciter, sometimes it’s
Article 10, a sort of will-o’-the-wisp quality to the
relevant Russian cause of action.  But if you look at
1064, it is a general law of tort.  Russian law doesn’t
have the nominate torts that English law has, it’s
a general tort liability for causing harm.
It’s plain with respect that that is not going to be
triggered by the lawful exercise of contractual rights.
Therefore that was why this trial was taken up with
Dr Arkhangelsky seeking to prove that there had been
a wrongful exercise of rights, dishonesty, trickery,
a breach of the Russian option law rules, in order to be
able to found the necessary harm at the anterior stage
of the analysis —
I just ask you, Mr Lord, I find that, if I may say so,
very understandable and also important that we
understand it when we’re considering the appellants’
case.  But just postulate this situation which I think
is what Mr Stroilov is really saying: yes, you had
a right to enforce the repo arrangements; yes, you had
a right to enforce the guarantees and the loans and all
that by the time you came to do so; but the way you did
it, namely removing the management, dishonestly giving
evidence in the Russian proceedings, arranging the
auctions so as to down-value the assets, et cetera, was
itself the cause of harm under 1064 to the appellants,
was undertaken dishonestly to benefit the Bank and its
friends, as the judge effectively found, and that
amounts to a conspiracy albeit, as you rightly say, not
the first two conspiracies or not simply the first two
conspiracies, but something closer to the third one.
Do you say, if that’s all right — I’m sure you
understand it full well — if that’s all right, do you
say that that cannot amount to a cause of action under
1064 because the Bank had a right to enforce lawfully,
honestly its rights?  Or do you say that the Bank was
entitled to give effect to its right in any manner, even
MR LORD:  No, my Lord, I don’t accept that.  I don’t —
what don’t you accept?  My question wasn’t easy to
answer yes or no.
MR LORD:  I wouldn’t dream of suggesting that.  I understand
full well what your Lordship was putting to me.  But one
has to take it very carefully in stages.  The mischief
on this appeal, and there is a mischief here, is that we
are eliding Article 1064 and Article 10 and the burden
of proof thereunder and the Russian law expert evidence
and the judge’s findings when this point wasn’t taken
before him.  One has to keep all those in mind when one
is going very carefully through the analysis because, in
stages, under 1064 — the very first stage is that the
judge found that we had various contractual rights as
a matter of Russian law.  So —
just take this a bit slowly because I’m interested in
the answer to the question I’ve asked.  So the first
stage is what?
MR LORD:  The first stage is the judge found that the Bank
had rights under various contracts, loans, guarantees,
pledges and the repo arrangements, that’s the
first-stage analysis.  At this point in the analysis my
clients have a series of contractual rights at their
disposal.  That’s the first stage of the analysis.
The next stage of the analysis is that the judge
found, and as part of that analysis the judge found that
those rights were valid and they were not vitiated on
the basis of dishonesty or trickery, coercion,
intimidation or the like.  So you have valid contractual
rights available to the Bank to — in effect as
creditor, as secured creditor and in and about those
matters so those are the rights that it had.
The judge then found that the Bank was entitled to
exercise those rights as a matter of contract.  In other
words, the Bank was lawfully entitled to call events of
default, to serve notices of default and to seek to
enforce its contractual security rights under the
various pledges and also to seek to implement the repo
arrangements which, as your Lordship knows, had involved
the transfer of the share ownership of Western Terminal
and Scan Insurance to companies that the judge found
were controlled by the Bank.
So that’s the next stage of the analysis.
Then what the counterclaimants say is, although
obviously they’ve denied all those earlier stages about
validity and so on but they’ve lost on all those stages,
what they then say is «Aha, the way you went about that
was in bad faith», picking up your Lordship’s point to
me now, «The way you went about that was in bad faith.
You were acting dishonestly in your own interests and
that founds some liability under 1064».
The proper analysis of that is as follows.  The
first point is that the counterclaimants have to
establish harm.  So you have to compare the
counterfactual, as your Lordship rightly said.  What
that involves, my Lord, is — the key question is: does
that mental element which Mr Stroilov relies upon in
paragraph 1347 of the judgment, does that vitiate the
lawfulness of the exercise of those suite of contractual
does the mental element in 1347 —
MR LORD:  1347, your Lordship will recollect, paragraph
1347 — would it be helpful to go to it to remind your
MR LORD:  I know Mr Stroilov places great weight on that.
In my submission, this goes to the absolute heart of
this appeal and it’s why the appeal should be dismissed.
It can be distilled really down to one or two very
simple points in and about the matter your Lordship has
raised with me.  This is the key point.  The key point
is does the, if you like, the motivation which the
learned judge finds or seems to find in 1347, does that
vitiate what would otherwise be the lawful exercise of
the series of contractual rights, most importantly the
realisation of the pledged assets?
We say it does not as a matter of Russian law, just
as in English law you wouldn’t have an English Bank, you
wouldn’t have their exercise of various security rights
impeached because of their motivation.  If objectively
what they had done was to comply with English law on the
realisation of their contractual security rights, the
court wouldn’t say «Well, what was on your mind?  What
was motivating you here?  Did you have an agenda?  Did
you think you might pick up the farm or the factory down
the line yourself and invest in it?»  The court wouldn’t
ask those questions and we say the court doesn’t in the
Russian law case.
that’s why the judge was so concerned to emphasise that
they’d gone as far as they needed to go to adhere to the
law of Russian auction practice, whatever it was, and
they’d done everything by the book but they were, if
I can put it pejoratively without meaning to offend
anybody, being quite dishonest in the process?
MR LORD:  My Lord, with respect, I don’t accept that they’ve
been dishonest — I don’t accept that they’ve been
dishonest in the process —
the process —
MR LORD:  I’m sorry, I really can’t accept that.
you’re going to say, and you’ll need to show it to us,
that the judge actually found they had played it by the
book.  That’s what you’re going to say.
MR LORD:  I am, my Lord, yes.
therefore we, as common lawyers in these courts, are
very keen to have a certain common law so that
commercial men know what they’re supposed to do and what
they’re not supposed to do and some commercial lawyers
militate against a doctrine of good faith that is
a rather airy-fairy concept that might be said to cut
across that certainty.
So I think what you’re saying is it may be the judge
found bad motives but it’s nothing to do with the 1064
and the Russian law of auctions and Article 10 which
allowed them to do what they did and that’s the end of
it because they had the contractual rights to enforce
their security.
MR LORD:  Exactly, my Lord.  And that explains why we get
this long analysis of the auction process because the
judge has, in long passages which are not really much in
issue any more, he’s dealt with the first version of the
conspiracy, the grand conspiracy, the state-sponsored
conspiracy to raid, that collapsed.  And he’s now
looking very meticulously and at some length as to how
these pledged assets were ultimately realised, including
the seemingly rather punctuated series of transactions
and so on.
He’s asking himself has that complied with Russian
law and he’s right to do that, he’s right to do it
because — and the evidence is in the judgment — it is
clear that a pledgee in the Bank’s position is obliged
to realise its pledged security through this process
that the judge has gone through and explained.  It’s not
open to the Bank to do things, if you like, off piste.
It’s got to do it in this way, either through a court
bailiff who will have an auction or a public sale, or
through a public auction house, in this case the Russian
auction house that is nothing to do with the Bank
St Petersburg.  Those were the two channels through
which Onega Terminal and/or Western Terminal as pledged
assets were realised.  They were put on to the conveyor
belt to be realised.
I put it another way.  Your submission is that the
unlawfulness at the stage of realisation of the assets
has to be shown to be something unconnected with simple
MR LORD:  My Lord, exactly right.  And what was always
suggested up until I think this appeal was that the
Article 10 bad faith in this context, my Lord, in our
context, required dishonesty.  That’s very important,
my Lord.  My learned friend Mr Stroilov’s skeleton in
paragraph 15 talks about dishonesty.  I think it’s 15.
I’m being helped by Mr Stroilov which is very kind of
It’s paragraph 15 is what I want.  Because this is
where we get the references to the complaints and it’s
important to appreciate that it was dishonesty in
relation to Article 10 that was said to be the
ingredient, not, I hasten to add, some different species
of mental state like motivation, like a plan perhaps to
see if you could exploit the asset at some future date.
So what Mr Stroilov is skillfully doing now —
dishonesty said to exist under Article 10?
MR LORD:  My Lord, the reason that this really falls down is
because the dishonesty that was alleged was really only
meaningfully to be understood in relation to the earlier
iterations of the conspiracy, because the conspiracy as
advanced throughout this trial was that there was
a state-sponsored raid on the counterclaimants’ valuable
businesses.  And —
on, don’t go too fast.
MR LORD:  I’m sorry, my Lord.  The reason is that the
language and the labels and the lexicon in the judgment
have to be remembered, have to be understood through the
prism of what the learned judge had to try at that point
in time.  Whereas now there has been a serious
distillation.  We’re now looking at the enforcement
process really.  That’s what we’re looking at now.  And
was that done scrupulously?  Mr Stroilov says that’s
still a conspiracy and one can argue back from that to
disinter his first and second conspiracies through some
evaluative process on appeal.  That’s the burden of his
understand all that, but let’s say that the true
position is that, as the judge found, the Bank was
entitled to enforce its rights and that whatever it may
have been motivated by at that stage, which might have
included a raid for all anybody knows, that doesn’t have
any effect on its entitlement to enforce as at
December 2008.
Now, the question I asked you a little while ago is
if then the Bank at that stage, accepting that it has
a legal right, also has a wish to take the assets for
itself through its loyal friends and take advantage of
the value of the assets which it thinks are
substantially greater than Messrs Lair said, do you say
that that cannot found liability under Article 1064 or
do you say, as I think you do, that it can only found
liability under Article 1064 if the unlawfulness
employed is in the process of realisation?
MR LORD:  Yes, my Lord.  The question is, as a matter of
Russian law, was the Bank entitled or even required to
sell the assets in the way that it sold them?  Because
if it was and it did, it’s hard to see the scope for the
good faith complaint.  Really, the way the good faith
complaint seems to find expression is that actually the
Bank had a duty to maximise the return on a whole host
of pledged assets — assets, pledged and unpledged,
owned by a series of different parties, to derive
synergistic value, to use Mr Stroilov’s phrase, as part
of the realisation process.
For example, he complains about the sale of
a particular parcel and he says why isn’t it all neatly
joined up?  There were good reasons why it couldn’t be
all neatly joined up for one.  Different people owned
it, different pledgees had rights and so on.  But in any
event there’s no warrant to find in Russian law, as in
English law, there’s an obligation on the pledgee bank
to scurry around to try to build, to recreate the
alleged empire in this way.
That’s essentially what’s being said here and that’s
a good example of how, if this point had been taken at
the trial, there would have been the chance for the
Russian law experts to be taxed about could these sorts
of things amount to bad faith under Article 10 when
a bank comes to enforce its security under a pledge so
as potentially to vitiate the lawful right defence under
Article 1064?
I take your Lordship’s point that in theory one can
see how that analysis would go.  We respectfully submit,
when you look at the Russian law evidence, there’s no
basis to find that that sort of mens rea would be enough
under Article 10 and/or Article 1064 on the gobbets that
we have in the bundle which we’ll come to tomorrow.
But in fairness to my client and the judge, this
wasn’t a point that was ever taken until this appeal.
So it can’t be said the judge is plainly wrong to reject
the third version of the conspiracy, the asset
realisation conspiracy in those circumstances.  He’s not
to be faulted for that.
And Dr Arkhangelsky, he had counsel from Fountain
Court on the Russian law matter, drafted the one version
of the pleadings, the second version, and tidied up the
Russian law and prosecuted the points at trial.
LORD JUSTICE PATTEN:  But why — help me on this then.
I see your argument that if they were entitled to
enforce their rights under the terms of the contract and
they were entitled to sell them under this Russian
procedure, and did so in accordance with the Russian
auction procedures, that the fact that they may have had
in the back of their mind an intention or desire to see
that at the end of that process the assets would find
their way into the circle may not be fatal to the
legality of what was done, but the judge at 1635(6),
this is page 389 of his judgment, 413 of the bundle,
seems to suggest there that he had formed the view that
the absence of any independent bidders might suggest
that, bar the limitation period having expired, the
auctions would likely have been held to have been
I’m not quite sure how this fits into your theory.
If the judge had adopted the argument which you’re now
advancing to us, I just can’t see why he wrote what he
did there.
MR LORD:  My Lord, it’s right that that comment in this
declaration section doesn’t really sit with his earlier
findings in relation to these matters, because he had at
some length earlier dealt with — I’ll come back in two
seconds to where he deals with it but here, my Lord,
what he’s dealing with, with respect, he’s really
emphasising the features of the case which excited
suspicion, in paragraph 1635.  It’s not clear, my Lord,
really whether he’s — he’s not really making findings
in 1635, there is a sort of miscellany of misgiving
points which he emphasises in 1635 to deprive my clients
of the discretionary remedy of a declaration,
LORD JUSTICE PATTEN:  Sorry to interrupt you, I didn’t mean
MR LORD:  It’s my fault.
LORD JUSTICE PATTEN:  I’m not expecting you necessarily to
come back now, this afternoon on this but just so I can
put them in your mind.  If you go to his conclusions on
the auction sales beginning at 1525, 383 of the bundle,
1524 is where it starts, I’m not going to read every
paragraph but he sets out that:
«… (as the Counterclaimants assert) the auction
sales were dishonestly orchestrated to yield hugely
discounted values …»
Then he goes through the elements of that that are
relied on, the particular aspects of what happened that
were relied on, the Gunard Lease which he says invites
a «dark interpretation».
Then in (5) he says the case against you is that
your people adopted a repeated tactic of presenting and
packaging the assets, sequencing the sales so as to
minimise rather than maximise interest.  Then he says:
«The way that the assets at Western Terminal… were
packaged for sale and the sequence in which they were
sold does not seem likely to encourage third party
interest nor to maximise the amounts applicable in
reduction of indebtedness.  The Counterclaimants’
fundamental allegation that this was a stratagem
[there’s motivation] designed to reduce the amounts
realised for payment down of indebtedness whilst
maximising the benefit for the claimants and their
associates has throughout the case struck me as
But then he goes on to say that because of the
justifications advanced by your people for doing what
they did, it’s not so implausible that they must be
rejected, bearing in mind what he says is the «heavy
onus of proof» for an allegation of dishonesty.
At the moment my reading of that is that he did see
that the facts were capable of being interpreted as what
I think is said to be a dishonest conspiracy even at the
third stage, because that’s really what he’s talking
about here, of reducing value and maximising the take-up
by the associates of the Bank.  Although he rejects the
inference that what was done was motivated by
a dishonest intent, because he says the other
justifications are possible, that’s the call he had to
In other words, he’s not saying — sorry, it’s
a rather long way round — he’s not saying because what
we’re looking at here is the exercise of contractual
rights, it doesn’t matter what intention they had.
MR LORD:  No, but, my Lord, isn’t he here saying that whilst
it was possibly the explanation that the way in which my
clients, if you like, presented these assets to the
auction houses was done in some conspiratorial way, in
theory the allegation, he could understand why that
could be the case, your Lordship is right, he makes the
call, he says he concludes, so his judgment is that the
Bank was entitled to present them as they did and
therefore he — and he accepts those explanations, in
other words the difficulties, the fact that these assets
were held by different parties, the sort of things that
he has gone through quite faithfully in earlier parts —
LORD JUSTICE PATTEN:  All the fishy things about it that he
has identified.
MR LORD:  He has, my Lord, but he’s gone through all that
carefully and he as the trial judge has concluded, in
the end he’s concluded that it wasn’t a dishonest
conspiracy.  A good example is the Gunard —
LORD JUSTICE MALES:  If you’re right, if all that matters is
the Bank has contractual rights and that their
motivation doesn’t matter and all that matters is that
they exercise them in accordance with the appropriate
procedures under Russian law, that’s an end of it,
isn’t it?  He doesn’t need to go into the question of
whether the motivation alleged is plausible and whether
he is going to make the finding that he’s asked to make
because it just doesn’t matter.
MR LORD:  My Lord, he was asked to find that the auction
process was part of a dishonest conspiracy to raid, so
he had to make some findings on that.  He couldn’t —
and that’s why one sees in different bits of the
judgment different findings because in this part he’s
rejecting the idea that the series of transactions and
the way in which the parcels, the pledged parcels were
ultimately realised, that that was as a result of
a conspiracy to raid, he’s rejecting that, we say
rightly and unimpeachably.  And in other parts of his
judgment, he’s dealing with the requirements to sell
assets.  So he’s —
LORD JUSTICE PATTEN:  But assume for a moment — I’m sorry,
but just assume — really the other side of the coin
that I was trying to put to you: assume that he had come
to the view that it wasn’t merely plausible but it was
the inevitable inference he should draw from all the
facts that he’d considered, namely that this was
a dishonest attempt to grab the assets for their
confederates at the expense of the other side by
arranging this auction, which might have seemed all
right on the face of it but was guaranteed to produce
the minimum sale price and the maximum benefit.  Let’s
assume he’d come to the opposite conclusion, that it was
all driven by a dishonest desire to get the assets into
the Bank’s circle.  Now, are you saying that, had that
been his conclusion, this case would still not have been
a breach of 1064?
MR LORD:  It could have been.
LORD JUSTICE PATTEN:  It could have been?
MR LORD:  My Lord —
LORD JUSTICE PATTEN:  So it doesn’t make any difference then
that you’re exercising contractual rights you’ve got, it
all comes down to how you exercise them and with what
MR LORD:  My Lord, it would depend on — you put a very
extreme case.
LORD JUSTICE PATTEN:  Well, this is an extreme case.
MR LORD:  Your Lordship says that but that, with the
greatest respect, that assumes — I know your Lordship
has… there are aspects of the architecture of this
case that do give one pause for thought, I acknowledge
LORD JUSTICE PATTEN:  I’m being unfair to you but it is on
one view an extreme case.  Banks don’t normally behave
like this, you know.
MR LORD:  With the greatest respect, I would invite
your Lordship to consult the Promontory, the Section 166
Report into the Global Recovery Group of the Royal Bank
of Scotland and the litigation that that has spawned.
LORD JUSTICE PATTEN:  That’s not a very good example.
before we get into the Royal Bank of Scotland at 16.14
on a Tuesday afternoon, we’re going to draw stumps and
we’re going to do that because I think we’ve had, if
I may say so, an excellent introduction to your case.
We’re going to need some detail and we’ll also be able
to take the opportunity between 4.15 this afternoon and
10.30 tomorrow just to consider the implications of the
submissions you’ve made.
MR LORD:  Can I just finish the harm point and answer
your Lordship’s point because I got slightly
wouldn’t want you to answer mine and not my Lord’s, I’ll
probably be attacked for that later.
MR LORD:  They go to both points really.
MR LORD:  Because if under Russian law — if the
counterfactual, if these pledged assets could lawfully
be exercised in the way that they were, even if they
could potentially have been exercised in a different way
but if the way they were exercised was lawful, then harm
has not been established and the reason that
Mr Stroilov’s beguiling submissions on that are wrong is
because this is not a case where the pledged assets were
owned by his clients without any encumbrance.  They were
already pledged.  So the value had transferred already
potentially to the pledgee and that’s why the burden was
always on him to show why this realisation process had
yielded a lower value ultimately to his client as the
pledgor than should fairly have been yielded.
It’s the fact that he didn’t discharge that burden
that means this appeal really should be dismissed and
it’s why he has very cleverly brought in Article 10 and
burden of proof, to try to bring up to the boil exactly
the point that my Lord and my Lord Lord Justice Patten
have raised with me this afternoon.
LORD JUSTICE PATTEN:  Then I think your answer to the
questions that my Lord Lord Justice Males and I have put
to you is that the enquiry which the judge has embarked
on in the subparagraphs was actually irrelevant.
MR LORD:  My Lord, but he was asked —
LORD JUSTICE PATTEN:  Never mind what he was asked.  It may
explain why he had to answer the question but your case,
I think, is he could have simply said «All this is
irrelevant.  On my finding that they were exercising
contractual rights that were open to them to exercise in
this way, none of that matters».
LORD JUSTICE MALES:  Perhaps you might look tomorrow morning
at paragraph 862 just to get the idea of what was in
play in the case before the judge.  I don’t want to do
that now but I would quite like to know what your
submission on that is.
MR LORD:  Yes, my Lord.
With that I think we will adjourn and we’ll resume at
10.30 tomorrow.
(4.17 pm)
(The hearing adjourned until
Wednesday, 4 March 2020 at 10.30 am)

Submissions by MR STROILOV ………………………1

Submissions by MR LORD ………………………..119