Appeal Hearing. Day 3

Wednesday, 4 March 2020
(10.30 am)
Submissions by MR LORD (continued)
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes,
Mr Lord.  Thank you to both sides for the documentation
that’s been received overnight.
MR LORD:  Thank you, my Lord.  I was just going to check
that that was the case.
My Lord, I thought it might help if I completed my
submissions on Russian law this morning.  I was only
trying to give a sort of curtain raiser yesterday but it
may be better if I go through the Russian law points
this morning in order to clear that away before one gets
to look at the judge’s factual findings, so the relevant
Russian law benchmark is perhaps better understood.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes.
MR LORD:  If that would find favour with your Lordship.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  I think
that would be helpful.
MR LORD:  I was asked yesterday by my Lord
Lord Justice Patten and Lord Justice Males why the
lawful exercise of contractual rights would not be
a complete answer here and why the judge went on to make
the findings he did as to motivation.  The learned
judge, with respect, rightly understood the claimants’
case to involve their complaint that there had been
dishonesty on the part of the Bank in and about the
realisation of the pledged security and the learned
judge, with respect, correctly identified how the case
was being put on behalf of the counterclaimants and
correctly set out the law.  It may help, my Lord, if
I could show your Lordship Article 10, just so I can
start to orientate the court in this regard, it’s in
Mr Maggs’ report, it’s the supplemental bundle, behind
tab 2 at page 31.
LORD JUSTICE PATTEN:  Which bundle?
MR LORD:  It is the supplementary bundle, my Lord.
A further error on my part, it’s actually Dr Gladyshev,
it’s Dr Arkhangelsky’s Russian law expert.  Sorry, it’s
my fault.  It’s in paragraph 317 under the heading
«Abuse of rights».  Can your Lordships see what is there
set out?
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Sorry,
just give me one second.
MR LORD:  Certainly, my Lord.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  We’re
in tab 2 at page?
MR LORD:  31.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  This is
not Maggs, this is Gladyshev.
MR LORD:  It is, my Lord, it’s my fault, it’s Dr Gladyshev.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Article
10, yes.
MR LORD:  Your Lordship will see that the rubric is:
«Limits on the exercise of civil law rights [as
read].»
Then paragraph 1:
«Actions by citizens and legal persons carried out
solely with the intention of inflicting harm upon
another person as well as abuse of a legal right in any
form shall not be permitted [as read].»
Your Lordship can see what that there says.  I’ll
take your Lordship through what the Russian law expert
evidence is in relation to Article 10 and how it works
with Article 1064 to the extent that those matters were
covered below.
My Lord, going back to how Russian law works in this
case in relation to the pledge —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Is that
all we need of Article 10?
MR LORD:  Sorry, my Lord?
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Do we
need other parts of Article 10 or is it just
Article 10.1 or the first paragraph?
MR LORD:  I think it’s probably just the first paragraph.
I think so, my Lord.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You’ve
obviously considered it, so…
MR LORD:  I was just showing your Lordship what the Article
is in relation to which I think Ground 2 relates.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes.
MR LORD:  So, my Lord, to try to explain how Russian law
works, to show why, the way the counterclaimants put
their case was entirely in accordance with the Russian
law approach which is why the judge records it as he
does.  One needs to follow it in this way in the case of
a pledge: the pledgee has various rights.  Upon default
the pledgee is entitled to exercise those rights.  If
the pledgee exercises those lawfully, then there would
be no question of Article 1064 tort liability arising,
because in that situation there will not have been any
harm or loss caused; there will simply have been the
exercise of pledgee rights.  There is no relevant harm
here, if one picks up the counterfactual, because the
pledgor has already conferred those rights and that
economic value, potentially, on to the pledgee.
So for the pledgor to prove a 1064 harm, he is going
to have to establish that the exercise of the pledge
rights has yielded a lower value than he was otherwise
entitled to.
The burden of proving that is on the pledgor.  How
might a pledgor prove such loss or harm in this sort of
case?  Well, as the appellants sought to do below, in
two conjunctive ways: to show that the auction process
was dishonest, in other words that it had been
deliberately skewed; and, secondly, that that yielded
a value to the pledgee — sorry, to the pledgor, below
that which should have been yielded.  That’s why, with
respect, the appellants did not at trial suggest the
burden was other than on them in these respects and it
explains the judge’s approach and I’ll come to the
judgment shortly.
Then to pick up this point, what then is the
relevance of the presumption under Article 1064 and,
secondly, Article 10 of the Russian Civil Code, which
I’ve shown your Lordship just now.  The answer is little
relevance on the facts of the present case, hence the
way it was pleaded, for this reason: the relevance is as
follows.  Looking at the Article 1064 presumption, that
presumption is only engaged if, I stress if, the
counterclaimants here have proved causative harm.  In
other words they have to show capital H Harm before
there could be any question of the burden shifting to
the pledgee somehow to prove things were otherwise all
right.
And that that is the right approach can be seen from
the cases.  If your Lordship would be kind enough to
take up Fiona Trust at authorities bundle 2, divider 20,
and be kind enough to go to paragraphs 94 to 96,
your Lordship will see that this was the decision of
Mr Justice Andrew Smith.  In paragraph 93 the learned
judge sets out Article 1064 and then in paragraphs 94 to
95 he then sets out how he understands that to be
applied or rather interpreted.  So in 94 he identifies
the four ingredients: harm, causation, fault and
unlawfulness.  And he says:
«As a matter of Russian law, the burden is upon
a claimant to prove harm and causation of harm, and, if
he does so, the defendant has to show lack of fault or
that he acted lawfully in order to avoid liability.»
So it goes on.
Then in paragraph 95, your Lordships will see there:
«There is no significant issue about what
constitutes fault or unlawfulness for the purposes of
Article 1064.  The defendants pointed out, and I accept,
that while intentional actions that cause harm are
unlawful (unless permitted by a legal provision),
payments made in legitimate business transactions are
not unlawful, and a person cannot be said to be at fault
on that account.»
Then he says this:
«However, it is not disputed that the requirements
of fault and unlawfulness would be satisfied if the
claimants [underline that] succeeded in establishing
dishonesty, the sole basis upon which they pursue the
claims.»
One sees there the echo with the way the
counterclaimants have put their case here where that is
exactly how they put it.
For your Lordship’s note, I don’t think
your Lordship needs to turn it up, a similar approach
was adopted by Mr Justice Hamblen as he then was in the
VTB case which is at authorities bundle 3, divider 32,
paragraphs 48 to 50.  I don’t think your Lordship needs
to turn it up, it is really to like effect in terms of
how it works.
So we say, my Lord, that the reason that the
counterclaimants sought to prove dishonest conspiracy in
relation to the auctions and the pledge enforcement
process is because they rightly recognised that they had
to establish loss to show harm, those two things being
the same.  In other words, they have to show that things
were other than they should have been, given that they
had already conferred lawful pledge rights on the Bank.
Those are really two sides of the same coin, showing
some subversion of the auction process, for example, and
showing the loss thereby caused to the realisation of
the pledged assets.
LORD JUSTICE PATTEN:  Are you saying though that loss in the
conventional sense that you’re describing is the sole
component of harm in these sort of cases?
MR LORD:  I think that’s right, my Lord, but I think that
forensically you are going to have, in all likelihood,
to show the fact that — the interference with the
auction process, for example, the qualitative
interference in order to be able to show the loss.
Because as the judge recognised, you can’t simply go
from a low figure — what is said to be a low value at
an auction without more is not going to show harm.
LORD JUSTICE PATTEN:  No — yes, okay.
MR LORD:  I accept your Lordship’s point.
LORD JUSTICE PATTEN:  But what — I really had what maybe I
think is a slightly different point, which is that
I noticed that Mr Justice Andrew Smith at the start of
96 says:
«There is no dispute that ‘harm’ within the meaning
of Article 1064 includes both damage to property and
financial losses …»
And I just wonder whether that meant that it could
take into account a wider range of adverse factors than
merely the financial loss that you could calculate if
you were able to say, for example, that there was
a false market or that the property hadn’t been sold for
its full value or something of that kind.
MR LORD:  I see my Lord.  I don’t think that’s right.
I think Article 1064 starts really at the back end, as
we would view it.  It starts with the recoverable loss
which the tortfeasor is going to have to compensate the
victim for, so it starts with the recoverable loss.
LORD JUSTICE PATTEN:  Why I’m asking you these questions is
because if you’re right in your basic submission that
you’ve just made and the need or any burden thrown on
your clients to justify what you’ve done under 1064
depends on showing harm in that sense, in the loss
sense —
MR LORD:  On my client, sorry?
LORD JUSTICE PATTEN:  Yes.  One of the issues which I think
in part you’re addressing at the moment is the fact that
the statute, if you show harm, places the burden on your
clients, who has caused the harm, to justify if you like
the lawfulness or the reasonableness of what they’ve
done.  So it’s a sort of reverse burden on one view.
And the judge doesn’t really at any point in his
judgment deal with this.  He certainly doesn’t apply it.
One of the reasons I think he doesn’t apply it is
because he doesn’t actually anywhere in his judgment
come to a conclusion about whether there was loss in the
sense of a lower than proper value.
MR LORD:  He does come to that conclusion, my Lord.  I’m
afraid I don’t accept —
LORD JUSTICE PATTEN:  All right, you can take us to that.
LORD JUSTICE MALES:  Can I see if I can put it in my words
to see if I understand what you’re saying?  Are you
saying that on the facts of this case at any rate where
there is a pledge of assets and the rights that follow
from that, it is inherent in the need to prove harm to
prove that the Bank was acting dishonestly and therefore
the question of justification and who has the burden on
that will not arise because, if harm is proved, it
follows that there is dishonesty and therefore there can
be no justification so we don’t get there?
MR LORD:  Exactly, my Lord.  In the case of a pledge — if
you didn’t have that pledge there, Mr Stroilov might
have a point.  His client once had an asset and now it
doesn’t have the asset.  But the pledge changes things,
your Lordship is absolutely right.  That’s why the
burden stayed on him to show the dishonesty in order to
establish that there was harm.
The learned judge found two things.  He found that
there hadn’t been any dishonesty by the Bank in relation
to the realisation of the pledges, they hadn’t breached
the Russian law enforcement rules, nor had they done
anything dishonest in that regard.  That’s the first
problem for the appellants.  And, secondly, he found
that they had not established that they had had less
value from the realisation process than they would
otherwise have been entitled to and he did make those
findings and I’ll take — I will take your Lordship
through, unless your Lordship wants to see quickly where
they are.
LORD JUSTICE MALES:  Can I quickly ask one more question?
On that question of harm, do you accept that there is at
any rate potentially a distinction between proof of the
fact of harm and proof of the quantum of harm,
a distinction which Mr Stroilov drew yesterday?
MR LORD:  No, my Lord.  Because Article 1064 seems to work
from the end point to an English lawyer.  So it seems to
start from showing what we would understand as a loss,
in other words what the compensation should be, and if
that —
LORD JUSTICE MALES:  So when the judge deferred quantum in
1552, was that then failing to deal with an essential
element of the cause of action?
MR LORD:  No, my Lord, because, with respect, once one sees
the different parts of his judgment, by that stage of
the analysis he had already decided that there was not
harm, there was not a 1064 liability because, first, he
was satisfied that there had not been any dishonest
subversion of the sale process, number 1, and, secondly,
he was satisfied that that process had not yielded less
value than should otherwise have been yielded.
So once he made that finding, then the counterclaim
failed for either of those two findings.  What he was
dealing with at that section your Lordship taxes me
about is to go on — if he’s wrong about all that, what
could be the ambit of the loss, harm, consequential loss
that could be harm that was alleged by the
counterclaimants.  What he’s really saying is, if I’m
reversed on my — effectively there’s no 1064 liability,
I’ll have to come back to this.  One may say that’s not
what he should have done, he should have completed the
exercise.  But it’s clear with respect that what he was
doing there was saying I don’t need to resolve the
specific dispute as to the value of Western Terminal or
Onega per Simonova and Millard, who in different
respects I find to be unreliable, because, double
underline, that doesn’t arise because I am satisfied
that whoever is right and wrong, the value has not been
other — in other words there is no value deficit, if
you like.
LORD JUSTICE MALES:  I follow what you’re saying.
MR LORD:  If one goes to his judgment, one can see what he’s
doing.  I want to pick up my Lord Lord Justice Patten’s
point to me, I don’t want to leave any concerns
unaddressed.  If one goes to the judgment, that’s what
he’s doing, with respect.  I think it’s 1552 that
my Lord Lord Justice Patten — is it 1552, my Lord?
Maybe that’s what my Lord Lord Justice Males was asking
me about.
LORD JUSTICE MALES:  That’s the paragraph I asked about.
MR LORD:  I think it was, my Lord, but I think that’s also
what my Lord Lord Justice Patten asked me about
yesterday, I think, potentially.
LORD JUSTICE PATTEN:  Yes, I think that’s right.
MR LORD:  What we interpret this to mean is that, at the end
of a rather long judgment, the learned judge is
saying — 1552:
«In all the circumstances and given that the enquiry
is upon an hypothesis I have rejected, I decline… [as
read]»
And then he goes on to say, well, if that’s wrong,
then someone is going to have to resolve this question
of what are the specific asset values.  The reason he
doesn’t himself resolve it is because he finds the
competing expert accounts unreliable.  But that must
mean, we say, that given the burden of proof, that must
mean that the appellants failed at trial because they
did not persuade the judge, the burden being on them,
that there was a value to be accorded to
Western Terminal that should have been realised through
the auction process that derived a capital H harm for
them under 1064.  That’s what he’s saying there.
LORD JUSTICE PATTEN:  I’m still troubled by this because if
you look at 1548, perfectly consistently with what
you’re saying to us, the submission which the judge had
to deal with was that if the counterclaimants’, the
defendants’ challenge to the validity and propriety of
the sales was successful, they failed to establish
material loss.  And then you spell that out by saying
that the valuations were wrong and so on and so forth.
But the judge’s reference to validity and propriety
of the auctions has got nothing to do with values as
such.  It’s to do with the circumstances, surely, in
which the — it’s your submission, not mine, but I’m
just trying to make sense of what the judge is saying.
My reading of it was that what the judge is saying there
was that if you were submitting that even if they were
right that there weren’t any proper bidders and all the
other criticisms of the components of the way that the
properties were put up for auction is right, including
the motivation of your clients, it doesn’t get them
anywhere unless they can show that it actually caused
a loss.
MR LORD:  That’s right, my Lord.  We were submitting that
and that is the correct analysis.
LORD JUSTICE PATTEN:  Yes but then you have to read that
into 1552, haven’t you, where he says therefore that:
«The enquiry is upon a hypothesis I reject [as
read].»
And the hypothesis is that there was something wrong
about the validity and propriety of the sales.  He
hasn’t decided anything about value because of what he
says about the state of the valuation evidence.
MR LORD:  No, but he’s decided that there was nothing
improper about the auction sales so he’s rejected that
limb and in fact he has earlier made findings as to the
value.  I’ll pick it up now.
If one goes to 1376, for example, a bit earlier in
the judgment.  Your Lordship might want to start it at
1368.  Yes, 1368 is the right starting point.  It’s also
important to remind oneself when one is dipping into the
judgment or, as I’m going to submit, hopping to an
island or even a beach on an island, it is important
just to remind oneself where one is in the story.  It’s
important to remember here that the judge is here
looking at another, if you like, iteration of the
conspiracy complaint and that that is the pledge
securities had been, if you like, dishonestly and
conspiratorially dissipated.  That’s what he was dealing
with.
It’s important to remember, if you like, that sort
of process which involves really, in my submission, the
following stages.  The first is the Bank as pledgee, if
you like, invoking the enforcement process, including
taking steps to realise the assets.  So that involves an
enquiry, if you like, as to what the Bank is doing.
Then of course on Russian law, as your Lordship
knows, the mandatory way that a pledgee exercises its
enforcement rights is through a court or public auction
process.  Therefore, if you like, the pledged asset
moves from the pledgee into the hands of the seller, the
auctioneer or the bailiff, whichever it is, and then it
goes down that conveyor belt.  What he’s doing in a long
series, a long part of his judgment is walking through
that exercise, very scrupulously and, if I may say, very
open-mindedly seeing if there was any dishonesty on the
part of the Bank in the sense of actively seeking to
subvert that process, either in the way it presented the
asset or by reference to its interference with a sale
process in which it was not allowed to be involved.  One
has to have that, if you like, narrative in one’s mind
just to make sense of what the judge is doing because
otherwise one doesn’t quite see what he’s doing.
With that rather long preface, if we come to this,
when the judge is here asking «Is there evidence» — he
is here asking:
«Is there evidence to support the claim that the
starting prices were grossly deficient?»
What he’s there saying is he’s looking at the
allegation that there has been some rigging here, that
the sale process, the auction process has been
dishonestly subverted because the starting or reserve
price has been dishonestly suppressed.  That’s what he’s
asking himself here.
So he looks first at Western Terminal, he looks at
that and the process and how it came to be sold for the
price that it was sold ultimately, which he then picks
up at paragraph 1375.  He identifies the starting price
of 670 million roubles and he records that that price
was fixed in accordance with valuation advice.  At 1376
he says:
«In short, even though in my view there was
a pre-ordained series of steps calculated and intended
to establish a court-approved valuation and
a pre-packaged sale, that does not mean that the value
so established was false or deficient.»
Then in 1377 he says he can’t tell how the market
value was fixed because that comes out of the court
process, but he does point to two other contemporaneous
valuations which seem to provide some reassurance that
the 670 million rouble reserve price was not so far off
other like valuations.  It wasn’t significantly out of
kilter, as it were.  And he records the fact that the
Lair valuation, which was the much higher one at double
the price, that was four years ago, produced before the
financial crisis at the end of 2008 and based on
a development plan that had not been nearly completed,
indeed had been barely started.
So he is there saying that the court fixed the price
at 670 million roubles, not the Bank; it seems to be in
accordance with other valuations that the Bank had
available to them around about the time, 2012; and the
Lair valuation was from four years earlier and seriously
out of date.  Clearly what he’s there saying is it’s
likely to be much higher than the value in 2012.  So
these are all commonsensical and unimpeachable
reassurances for the judge forensically that nothing
sinister and dishonest has happened here.
Then in 1378 is the key finding:
«I cannot, in these circumstances, accept the
Counterclaimants’ punch-line that the steps taken were
part of a conspiracy which was intended to and did
result in a sale at a fraudulent undervalue.»
What he’s there finding, with respect, is that the
value — it was not a sale at a fraudulent undervalue.
Two components: no fraud, that’s the impropriety part,
and no undervalue.  That’s the section he’s just dealt
with.  So we can park Western Terminal because the judge
has made findings here.  These findings are not
challenged.  He has made findings of primary fact as to
the way in which Western Terminal was sold and as to the
sale price and the auction process: court-fixed and
court-endorsed.
He concludes then in 1379, he picks this up:
«As to their alleged participation in this aspect,
I do not think the Counterclaimants have provided
evidence of such knowledge of impropriety on the part of
the Russian Auction House or any of the auction
organisers.»
So it goes on.  It is important to remember that the
Russian auction house had no alleged connections with
Bank St Petersburg, it was an independent auction house,
a reputable auction house.
The judge goes on at the end of this paragraph to
refer to the imprimatur of the Russian court which had
been fixed on this.
We say absent the — there is no reason here to go
behind that primary factual finding which is a complete
answer to this appeal in relation to Western Terminal
because it means that Mr Stroilov’s 1064 cause of
action, however you run at it, has not been made out.
One doesn’t really have to worry about the burden of
proof here, that’s actually ultimately academic.
I don’t accept that it’s cast on me rather than him for
reasons I’ve explained, but it doesn’t actually matter
because the judge has made findings of fact which are
not challenged as to this specific process.
It is not a question of evaluation or inference now,
it’s actually a question of his actual primary factual
findings and that is the end of this counterclaim in
relation to Western Terminal.
I’ll come to Onega in two minutes.
What the judge then does scrupulously, meticulously,
is to look at whether there’s a case of bid-rigging.  So
what he’s then saying is he’s then saying — it shows
you just how far he strayed to squeeze any juice out of
Mr Stroilov’s conspiracy lemon, as it were, he solemnly
goes through each and every complaint very carefully.
So his next consideration is «Has a case of
bid-rigging causative of loss been demonstrated?»  So
what he’s there saying is, well, the sale price seems
all right but is there some other ingredient, has the
market been rigged, as it were?  Have bidders who would
have come in to bid more than 670 million, have they
been, if you like, dishonestly kept out?  And if so, who
has done it and how does that work in terms of potential
liability?  That’s what he’s doing here because he’s
asking himself in the context of 1064 whether there has
been some illicit or dishonest bid-rigging that
implicates the Bank as pledgee.
Then he deals with it meticulously.  He goes to
1064 — at the trial Mr Stroilov regularly used the
phrase «dishonest collusion».  There was collusion
alleged all over the place between state officials and
auction house and auctioneers and courts and lots and
lots of people, governors of St Petersburg and so on.
In this context the collusion was said to involve the
auction, the court, the bailiffs, the auction process.
What the judge was here looking for was had the
counterclaimants proved, as they had to under Russian
law, that there was some dishonest collusion, some sort
of dishonest bid-rigging to drive the price down that
was ultimately realised at the auction he has previously
made findings as to?  And he rejects that and he starts
at 1384 saying:
«But the difficulty for the Counterclaimants is that
they must show not only the fact of ‘bid-rigging’ but
also that, had it not taken place, the result of the
auction would have been different.  If the fact was that
no one in the outside world was interested in taking on
the assets, having regard to their poor condition, the
unattractive packages, the economic circumstances, and
the huge debts to which they were subject, it is that
which determined the result. The attendance of two
associated entities did not affect the price.»
So he is alive to Mr Stroilov’s complaint that the
two registered participants in the auction he’s just
described were associate entities.  So he hasn’t lost
sight of that but he’s saying, well, that allowed the
auction to take place but is there any evidence that
other bidders have been dishonestly prevented or
discouraged from coming to make a higher bid so as to
yield a lower final price?
1385 he says:
«Put another way, I accept that the mere fact of
bid-rigging does not suffice for liability because
a complainant still needs to ‘show causation from
bid-rigging’.»
He’s right about that because he’s there, with
respect, identified that under 1064 you’ve got to show
harm, ie loss, and therefore it’s still for the
counterclaimants to show that actually there has been
some harm or loss in this regard.
Over the page, after reciting some extract from
Professor Maggs, the judge makes this finding, and it’s
another primary factual finding which is not challenged
on appeal:
«If there was no other bidder prepared to pay more
than the winning bid — and there is no evidence that
there was any such bidder — then the Counterclaimants
have not suffered any loss from any ‘bid-rigging’.»
Full stop and double underline that sentence because
that sentence is another primary factual finding not
challenged on appeal which shows that the judge made
a finding that there was no 1064 harm — loss as he
described it but that’s how the counterclaimants put it
in their skeleton, they use harm and loss
interchangeably — from any bid-rigging.
So at this point in the story, the judge is
satisfied that the Western Terminal realisation price of
670 million roubles couldn’t be said to be an unfair
value and hasn’t been derived from any improper
subversion of the auction process, nor from any rigging
of the market in order to keep the bid at that level.
So that deals with Western Terminal.  The judge very
faithfully then goes on to deal with Onega because
Onega Terminal and its realisation raises a slightly
different point because one of the relevant value
generators was actually done by way of a private sale in
the series of transactions which ultimately led to the
enforcement of the Onega rights and that’s why the judge
has his next section, because he’s looking at the links
with the Bank in this regard.  Because he’s there going
on — and it could be more clearly headed, I accept
that, but he’s then going on and he says that because in
1386 he says, in the third line, I probably should have
gone on:
«Subject to the next issue [that’s the one in
parenthesis] (and whether in the case of Onega Terminal,
ROK No 1 Prichaly would or might have been a competitive
bidder, but was effectively bought off with a side
deal)…»
That’s what I was dealing with.  He’s parking that
for a moment but he comes to it about one inch down in
the judgment, parking that for a moment, the ROK issue
and Onega:
«… my finding that there is no sufficient evidence
of wrongful exclusion of any bidders thus leads to my
further conclusion that there is no alternative
sustainable claim in respect of ‘bid-rigging’: there is
no evidence of any loss in consequence unless there were
other bidders or higher bids shut out by the rigging.»
So at this point he has made primary factual
findings that dispose of the Western Terminal complaint.
In fact — and probably dispose of Onega but subject to
his next point which is, well, is there something that
affects that in the ROK No 1 Prichaly involvement.
So then he looks at the links with ultimate
purchasers and he’s looking at ultimate purchasers for
the reasons that Lord Justice Males raised with
Mr Stroilov yesterday, or maybe the first day.  He is
here looking to see, well, where did these pledged
assets ultimately end up?  In whose hands did they
ultimately end up?  Because the counterclaimants’
complaint was, well, the Renord-Invest groups have been
involved in the realisation process and they are the
Bank’s ciphers or vassals and that that leads you to
infer that there has been some dishonest conspiracy to
snaffle the assets.
The judge found the links, accepted the way in which
they’d been used in quite a complicated way, referable
to different asset parcels and different debts and so
on, accepted the Bank’s case on that, that it was
a knotty realisation process and didn’t find anything
sinister ultimately in those matters, which we say he
was perfectly entitled to do.
The reason the ultimate purchase is important is
because, as my Lord Lord Justice Males said yesterday to
me, this is the point about where the two sets of assets
ultimately ended up.  So he goes through the various
alleged links and then, in paragraph 1413 — sorry,
I just want to find one other reference to the
ROK Rrichaly.  Sorry, my Lord, I just want to find one
prior reference which I just mentioned.
Yes, before I go to this section, can I please go
back to paragraph 1243 because it’s important to pick
this up in this context because it’s relevant to
ROK No 1 Prichaly.  It’s very important when this court
is considering Mr Stroilov’s complaints about this
judgment to do justice to all the judgment and the
findings.
Your Lordship knows that the complaint is in
relation to in effect two chunks of pledged assets:
Western Terminal and Onega Terminal.  Western Terminal
ended up in the hands of Baltic Fuel and that’s the
appeal point that Mr Stroilov takes in relation to the
one factual finding he challenges on appeal.  But the
other half of the story, the other half of this
counterclaim relates to Onega Terminal and the
allegation that those pledged assets have themselves
been dishonestly misappropriated or raided.  Those ended
up in the hands of ROK No 1 Prichaly.  It’s important to
see what the learned judge finds in that regard.  He
deals with it quite shortly starting at 1243 and then
going over the page to 1249:
«Apart from the ‘inference’ case as described above,
I see no basis for the claim that ROK No 1 Prichaly was
owned or controlled by Renord-Invest, SKIF, the Bank or
Mr Smirnov.  There is no evidence that it was part of
either the Renord Group or the SKIF stable.»
It was plain, with respect, that this was an
entirely substantial independent business, ROK No 1
Prichaly.  The judge has made a finding, not challenged
on appeal, that one of the ultimate recipients of the
pledged assets from Dr Arkhangelsky’s business, ROK, had
nothing to do with the Bank.  So that would obviously be
relevant, it wouldn’t be decisive, but it would be
a very relevant factor that would reinforce the judge’s
other findings.
So when one comes back, and I apologise for that
digression, but when one comes back to paragraph 1413
where the judge is here considering whether or not, if
you like, there has been some sort of side deal with
ROK No 1 Prichaly that somehow renders dishonest the
realisation of the Onega pledged assets, one has to
remember that point about ROK.  But 1413 he says this:
«However, whilst sharing these concerns, and having
repeatedly wondered why the simple course of obtaining
evidence from ROK No 1 Prichaly itself was not adopted,
I have concluded that the punch-line urged by the
Counterclaimants, that ROK No 1 Prichaly was a party to
a dishonest conspiracy and acquired the Onega Terminal
land as assets at a gross and fraudulent undervalue, is
not substantiated by the available evidence or any
inferences to be drawn from its absence.  Speculation
may be understandable, suspicion inevitable: but it is
not proof.»
He refers to the spreadsheet but then in
paragraph 1415 to 1419 he makes some very important
findings which overwhelm the suspicion that he finds to
be understandable but in the end wrong.  He says this in
1415:
«Furthermore, the Counterclaimants’ fundamental
premise that the Claimants accounted for and applied in
diminution of the outstanding loans far less than the
true value of the Onega Terminal [we could insert
«pledged»] assets ignores key elements of the various
intermediate transactions which cast a different light.
In particular…»
Then he goes through carefully the process.  He goes
through that process of realisation and then over the
page at 1416 he notes at the top how little
Dr Arkhangelsky had spent on acquiring the land, he
notes that in passing, 2 million Russian roubles.  And
in 1416 and 1417 he records the fact that the Bank has
actually given more credit to Dr Arkhangelsky and OMG as
a result of this realisation aspect than the actual
values themselves of the collateral they got.  That is
essentially what he is reflecting there.  The Bank
forgave over 850 million roubles worth of loans.  That’s
about US$30 million.
«Consequently, Dr Arkhangelsky’s exposure was
reduced (and theoretically he benefited) by that
amount.»
Then 1417:
«Looked at overall, therefore, there is
substance —»
So he’s dealt with the realisation process.  He’s
established that he is happy that it seems to be all
right, the values and what has been done.  He tests
that, and the asset ends up in ROK No 1 Prichaly, which
is not anything to do with the Bank, and then he circles
back to find that through this enforcement process the
Bank has given more than the credit that it seems to
have to give.  So the idea that there’s something fishy
going on here or there’s some conspiracy to take value
out of Mr Arkhangelsky wrongly, the judge rejects.
The judge says at 1417:
«Looked at overall [so that’s the in the round
standing back that Mr Stroilov commends], therefore,
there is substance in the Claimants’ case that
Dr Arkhangelsky benefited from the ultimate result since
he and his companies were entirely released from further
liability in respect of the relevant loans, unless the
value of the Onega Terminal exceeded the full amounts
outstanding together with the interest and costs.  That
does, as it seems to me, spike the Counterclaimants’
guns in the context of any claim for recovery of loss in
respect of the transactions.»
Then he records at 1418 and 1419 some small profit
that Renord-Invest derived as a result of its part in
assisting in this realisation process, 55 million
roubles which is about $2 million but net about 5 to
10 million, so about a tenth of that so about $200,000
of net profit.
So at this point in the judgment, on his primary
findings, he has effectively excluded any 1064 liability
because he has dealt with the disposal of
Western Terminal and Onega Terminal assets through their
two respective channels and he’s found there was nothing
dishonest or untoward about that, nor that the prices
derived or the value accorded to the pledgor was less
than it should have been, and he’s also excluded any
bid-rigging effect on that process.
In those paragraphs, those paragraphs are sufficient
for my purpose for this appeal to be dismissed and don’t
involve any balance of burden of proof or any sort of
clever attempt by Mr Stroilov to bring in Article 10 to
somehow subvert the judge’s approach at the trial, an
approach that grappled with the case that the appellants
ran before him.
Then for completeness, the judge goes on at
paragraph 1420 under «Expert valuation evidence», so he
then goes on to, if you like, provide a further test,
a further forensic stress test, as it were, for these
findings, which findings are already enough for my
purposes, these aren’t challenged.  But he goes on to
check, because it was the heart of Mr Stroilov’s case
throughout the trial that the values that resulted from
the realisation were so low as to be only consistent
with fraud, dishonesty, conspiracy.  And it was put
repeatedly to Mr Stroilov — well I don’t think he ever
fully accepted it — that that was a circular argument.
That begged the question rather than answered the
question.  Were they low because of conspiracy or were
they low because nobody wanted them and they had no
value or not much value?  It was a circular argument,
it’s a bootstraps argument.
The judge at paragraph 1420 to 1423 in effect sums
that up.  In 1422 he says this.  He refers to the
circularity of the submission that you can infer fraud
simply from showing undervalue of an asset, in other
words you can assert the value and say that’s the
product of fraud.  You can’t do that.  He says this in
a pithy but helpful, insightful sentence in the fifth
line at paragraph 1422:
«In the real world, market value is the product of
demand: no demand, no market value.  The fact that not
a single third party attended any of the auctions
appears to demonstrate that there was no demand; and to
argue (as the Counterclaimants argue) that the true
market value of the assets demonstrates that the absence
of third parties is evidence of fraud is to argue in
a circle.  I cannot accept the Counterclaimants’
approach or their argument: having held that the
auctions were not improperly conducted [so that’s
a finding], and that ultimately the factual evidence
provides no basis for any other conclusion than that the
reason for there being no third parties bidders was
because there was no real and sustained demand for the
relevant assets, I cannot think it right, and I do not
propose, to reverse engineer a different conclusion on
the basis of a necessarily theoretical value analysis.»
So what he is recording here is that before we even
get to this assessment of Mr Stroilov’s circular value
contention, the judge has disposed of the case.  He has
found against the counterclaimants on their counterclaim
in substance at this point.  But he goes on for
completeness to look at the expert evidence and that is
why, with respect, he puts the matter as he does in the
loss section at the end, because he has already, in my
submission, quite confidently and unimpeachably held
that there is no counterclaim here in any event.
But he goes on to go through the expert evidence on
both sides and he finds as follows, relevantly for
present purposes.  In terms of the Western Terminal,
bearing in mind that the burden of proof was on the
appellants to show that these were fraudulent
undervalues, one picks up his findings at 1454 where he
says this in relation to the counterclaimants’ expert
value Ms Simonova:
«In summary, I cannot accept Ms Simonova’s evidence
on the value of the pledged assets at Western Terminal
as reliable.»
So he did not accept that that was reliable
valuation evidence.  So one can put a line through her
evidence, which means that the counterclaimants and the
appellants at this appeal derived — at the trial even
failed to make good their contention that the value of
Western Terminal was somehow under the market value.
They failed to establish that before the judge, the
burden being on them to make the running on 1064.
We don’t need this extra, if you like, nil return by
the appellants but it is a further nail in their coffin
in terms of this appeal.
Then he turns to Onega Terminal at paragraph 1456
and he concludes relevantly on Ms Simonova’s values at
1476:
«In summary, I cannot accept Ms Simonova’s valuation
of Onega Terminal…»
Then it runs on.  Your Lordship will read that
paragraph.
Then he deals with other values and it’s right to
note that in relation to other of the valued assets, the
ones that don’t really play much part on this appeal,
the judge generally prefers Mr Millard, which was the
Bank’s expert, and he doesn’t at any point I think
prefer Ms Simonova.  But I’m not sure that’s really that
relevant for present purposes because we’re looking at
Western Terminal and Onega Terminal.
That’s why, with respect, when the judge sets out
his conclusions at paragraph 1524 on the auction sales,
where he does, with respect, look at the matter overall
but where he is plainly only summarising his earlier
findings and not herein making those findings, he
concludes as he does and relevantly in
paragraph 1525(9):
«I have also and in the round not been persuaded by
the Counterclaimants’ overarching submission that the
values achieved for the assets sold at auction were so
low that only dishonesty can explain them.»
Pausing there, the counterclaimants had to show —
that’s what they had to prove.  And the judge has looked
at all the relevant parts.  He’s looked at the way the
assets were in fact sold and the complaints as to that
process and as to the values and he’s rejected the
counterclaimants’ case.  It’s not a question of burden
of proof here, he’s made findings that compel the
dismissal of the counterclaim.  It’s not a case where
this court is compelled to intervene.  The only finding,
the only outcome on these factual findings that are not
appealed is that the counterclaim, 1064 claim under
Russian law must fail.
So that’s why, with respect, when he comes to
paragraph 1552, which I won’t turn to again, he adverts
to the matter in the way that he does.
LORD JUSTICE PATTEN:  Can you just — perhaps you’re going
to.  You’ve dealt with opening prices and demand and so
on at the auction.  I’m just trying to tie up.  If you
look at 1525(1), this is all part of his conclusions, he
says:
«The extraordinary fact that no independent third
parties attended any of the public auctions… remains
arresting.»
Now, what does he mean by that, «remains arresting»?
MR LORD:  Well, it was a factor that he bore in mind when he
was coming to his earlier findings and conclusions.
LORD JUSTICE PATTEN:  But he’s dealt with whether that had
an impact, you say, on the realisation prices in the
passages you’ve already referred us to.
MR LORD:  Yes, my Lord.
LORD JUSTICE PATTEN:  Okay.  Well, I understand that so far.
So does it — I know I asked you this question yesterday
and I understand what your answer is going to be but
just so we’ve got it, 1635(6) then is a mistake?
MR LORD:  I don’t think so, my Lord.  No, my Lord, I don’t
think that is a mistake.  Because as I’ll show
your Lordship shortly, the judge has gone through in
another section of his judgment the Russian law on
auctions, on the realisation of pledges and on auctions.
LORD JUSTICE PATTEN:  Right.
MR LORD:  And he’s tied that carefully into 1064 and I’ll
show your Lordship that.  In a nutshell, my Lord, what
he found was that in order for there to be a 1064
liability in relation to a pledged asset auction sale,
Russian law required something more than an invalid
auction and that’s not appealed.  I’ll show
your Lordship that finding.  So as your Lordship will
appreciate, the auction process is conducted by the
auction house or the court bailiff, the two routes.
LORD JUSTICE PATTEN:  Yes.
MR LORD:  So what he is here holding is that there may have
been grounds to challenge the validity of the auction.
However, what he’s found earlier is the extra ingredient
the counterclaimants require, which is the dishonest
subversion of the auction process, whether valid or
invalid, has not been made out.  So he is recording in
a very comprehensive way, if you like, the matters that
gave him pause for thought as he was travelling through
his fact-finding journey but that’s what he’s saying
there.
LORD JUSTICE PATTEN:  So I just want to be absolutely clear
about this.  If the judge had come to the conclusion,
drawing all the inferences against your clients from the
sort of facts that he found about the way that the
auctions were put together, the way the properties were
marketed and all the much more outlying facts that we’ve
gone through, that there was a fraudulent intent on your
clients’ part to get the assets in, they weren’t
intending to breach any rules as such but that was the
scheme if you like, in that event is that still
irrelevant, having regard to the findings he’s made
about what actually happened at the auction?  This is
what I’m still not, I think, understanding about your
case.
MR LORD:  My Lord, the problem with, with respect, the way
your Lordship puts it is it’s rolling together too many
aspects of —
LORD JUSTICE PATTEN:  Maybe it is.
MR LORD:  It is, my Lord, because one has to take a step
back and walk through the counterclaimants’ case.  Their
case was there was a dishonest conspiracy to raid this
valuable business empire and the pledged assets.  It’s
very important, this, because otherwise one
telescopically collapses the enquiry in an unfair way.
That was the case.
The case was from the end of 2008, so the height of
the credit crisis, the Bank dishonestly set out to raid
these valuable assets.  That was the case.  And the
judge — and that was advanced on allegations that
a huge number of documents had been forged by a huge
number of Bank personnel to draw Mr Arkhangelsky
personally into some exposure that he didn’t otherwise
have, that’s the forgery case; that he was coerced,
intimidated or tricked, ie deceived, into entering into
the repo arrangements that involved the transfer of the
ownership of Scan and Western Terminal; that he was
tricked or intimidated or coerced into that, which the
judge rejected; that he was effectively tricked or
deceived about a six-month moratorium that was agreed
which was the premise for his entering into all these
repo arrangements which the Bank then dishonestly
denied.
And the judge rejected all that.  He was plainly
right to do all that because — I’ll come to these
points when we go through the merits, the Ground 1
point.  There was no basis, the judge found that the
forgery was dishonestly pursued.  Dr Arkhangelsky —
there were OMG internal debt schedules that actually
recorded the guarantees and loans that Dr Arkhangelsky
said had been forged by the Bank.
LORD JUSTICE PATTEN:  I understand all this.  I understand
why you say the judge was right to reject the
allegations of fraud but that’s not the question I’m
asking you.
MR LORD:  I understand, my Lord.  I am going to deal with
that because when one says the mischief with respect is
to say dishonest conspiracy to take assets, what does
that actually mean?  Because one has to look at the 1064
tort and say, well — the 1064 tort clearly would cover
unlawful means conspiracy.  So if you can prove deceit
or intimidation or coercion with a view to causing
damage, you’re going to be into 1064, to use the English
law analogy.
So what the counterclaimants were saying was that
this was the conspiracy.  This was the scheme to raid
the assets.  Now, the judge rejected all that.  And then
they said — that’s the first version.  Then they said,
really linked to that, the Bank dishonestly engineered
the calling of defaults in March 2009 and thereafter in
order to raid, to snatch our businesses.  They had no
right to.  The judge rejected that.  No serious
complaint can be made in that regard.
And then, with all those findings in play, it’s
important that that’s the premise, one then steps across
to the enforcement process that your Lordship is now
asking me about.  So the question there is what has the
Bank — on this hypothesis the Bank has lawfully and not
dishonestly and not conspiratorially got itself to
a point where it is entitled to enforce its security
including the repo arrangements, including the fact that
they own these companies and they’re entitled to
exercise their pledgee rights.
So that’s where we now are.  That’s the Bank’s
rights.  Then you have to ask yourself, what is the
dishonest conspiracy, totally unparticularised, no
direct evidence at all, what is that at its third
iteration stage?  What does that actually involve?  What
is actually said to be the conspiracy?
It seems to be to try opportunistically to grab
these assets at an undervalue, although by this stage in
the analysis the Bank had the right to exercise its
pledgee rights and more than that, there was
a prescribed Russian law mechanism which was mandatory
for the Bank to follow to realise those rights.
So when one says they’re dishonest, what does that
mean?  A dishonest exercise of a pledge right?  I’m
entitled to realise a pledge and I exercise it, does it
matter what’s on my mind?  I’m entitled to do that and
that’s what the judge found and that’s why it’s
a complete answer to Dr Arkhangelsky’s shrewdly cobbled
together tertiary conspiracy, because it’s a complete
answer to that, because the Bank has done nothing wrong
at that point.
What Dr Arkhangelsky then tries to say is the Bank
somehow had some duty proactively to box and cox its
realisation of his pledged property in order to yield
a greater value than actually eventuated.  There’s no
warrant in Russian law for that.  That wouldn’t be the
English law approach if an English bank came to realise
pledges on mortgages.  What the pledgee had to do was to
go through the gears and realise the pledged assets.
What the judge found was that the Bank could not
dishonestly drive the price down, as it were.  He found
that they could not, for example, break up pledged
assets, pledged under one pledge so as to sell them in
disparate, disunited but less valuable packages.  He
said that would be a breach.  But that was not what the
Bank did.  There was a miscellany of pledges scattered
across different companies, different borrowers, with
different guarantors, different third parties with
interests, and that is why there was this checkered
history of the Bank painstakingly trying to realise
these assets.  All along with Dr Arkhangelsky making no
secret that he would seek to thwart this process if he
possibly could.
So that’s the relevant background and that is why we
say that this rolled-up point is not fair to the judge
or to my clients because the judge found they did
nothing dishonest in that process.  They brought the
pledged assets to the pledge machinery and they pulled
that lever to say to the auction house or the bailiff,
«Sell these pledged assets for us».  That process then
unfolded and the values were the values.
The judge has held that there was no obligation
under Russian law for the Bank to have to, if you like,
choreograph that process so as to derive some extra
value, some synergy, to use Dr Arkhangelsky’s phrase, to
yield a higher value.  There was no obligation.  So the
failure to do that is not dishonest.
Whatever the Bank did or didn’t think might be the
ultimate outcome commercially, and that’s paragraph 1347
of the judgment, none of that is sufficient to found
a finding of «dishonesty» or «conspiracy» in and about
the realisation process.  That’s why I say to
your Lordship that this point doesn’t really arise.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Mr
Lord, you’ll no doubt deal with Mr Stroilov’s
submissions yesterday about the Russian law proceedings,
the dishonest evidence, the starting prices, the Gunard
Lease and the other areas where if the burden of
proof — his submissions on the burden of proof are
right, inferences of dishonesty and a conspiracy might
have been made.  It’s all very well to say what you’ve
said and you’ve made your submissions very clear and
I understand them, but I do think you have to address
the submissions made on the other side.
MR LORD:  I will deal with those but at the moment I’m
dealing with the Russian law.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  I think
you’ve strayed away from the Russian law in answer to
my Lord but I’m just making that — from my point of
view, it would help me if you were to deal with the
submissions Mr Stroilov made about the burden of proof
but, more importantly, the underlying point in my Lord’s
question which is, if the judge was applying the wrong
test and the inevitable inference in relation to the
various matters Mr Stroilov mentioned was of fraud, then
how does that square with the Russian law 1064
situation?
MR LORD:  I will go through that list but it is my
submission that none of those — those are challenges to
inferences or evaluations that the appellants seek this
court to substitute.  And it is important to distinguish
between the primary factual findings which I’ve gone
through this morning because they are primary factual
findings and not challenged, and try to tie those to the
Russian law that the judge was being asked to find.
I will deal —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  I think
we understand the difference between primary fact and
inferences but if there is an irresistible inference,
from something like the Gunard Lease, let’s take an
example, which was commercially inexplicable, that that
was evidence that there was fraud in the process of
realisation, then I think you would have accepted in
answer to my Lord that that could have founded a 1064
claim.
MR LORD:  Yes, to pick up the Gunard Lease specifically, the
judge found that the Gunard Lease was not deployed or
referred to in any of the marketing of Western Terminal.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  No,
I understand.  I’m just taking it as an example.
MR LORD:  But that’s another finding that he made.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  So that
point would be no harm.
MR LORD:  It wouldn’t, my Lord.  It’s not no harm.  It goes
to the sinister motivations or purpose attributed to my
clients.  It is said the Gunard Lease is a sign of
conspiracy to raid.  What you set out to do was to grab
Western Terminal at an undervalue.  That’s the case
that’s advanced.  That is the case that’s advanced.
Mr Stroilov points to a number of factors including the
Gunard Lease.  He says, well, the judge found that
seemed to be commercially inexplicable.  The judge
accepted on balance the Bank’s explanation that it was
to safeguard the asset and to keep it within its control
for fear of other people getting their hands on it.  The
judge accepted that but then the judge went on to find
that when you looked at the realisation of
Western Terminal and the allegation at this point that
there had been some conspiracy to steal
Western Terminal, it was obviously very important that
the Gunard Lease was not deployed.  It wasn’t actually
ever deployed so as to deter bidders or to encumber the
property.  It wasn’t registered, it was never registered
and it was never ever referred to in three years of the
Western Terminal disposal process.
So that reinforced the judge’s finding earlier that
there was nothing sinister about the Western — the
Gunard Lease, notwithstanding its puzzling features.
That’s a good example of your Lordship being taken
to part of the story on the Gunard Lease and not the
whole story.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  That’s
good then, you’re going to show us the whole story.
MR LORD:  I am.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Because
I would certainly benefit from being shown the whole
story as you’ve done in relation to the findings of
primary fact by reference to the judge’s judgment.  If
you say that there is no proper inference of dishonesty
to be drawn from the Gunard Lease, the lying in the
Morskoy Bank proceedings and so on, then you must show
us that.
MR LORD:  My Lord, I will come to that when I deal with
Ground 1 and I’ve set out my submissions on that in
summary form in paragraphs 24 and 25 of our skeleton.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes,
well, if you want to rely on that, that’s fine, yes.
MR LORD:  I will expand upon those but I’m trying to deal
with matters as efficiently as I can, my Lord.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Of
course.
MR LORD:  I’m going to complete the Russian law submissions
and show your Lordship the various passages and then
I’ll move to Ground 1.
Paragraph 24 and 25 involve our submissions in
relation to what the judge identified in paragraph 901
of his judgment.  Just so your Lordship knows, I am not
in any way ducking this point.  In paragraph 901 of the
judgment the judge set out the primary facts relied upon
as demonstrating conspiracy and collusion.
In paragraph 25 of our skeleton argument, we perhaps
should have made it clearer, we have gone through this
list of primary findings to make submissions as to what
the learned judge actually found in that regard.  So
these were the primary facts that the counterclaimants
say should have led to the inference of conspiracy.  And
we then contrasted this list of foundational findings,
as the counterclaimants would have it, with what in fact
was found by the judge, to conclude by saying not only
was he not — he was plainly right to reject the
conspiracy and he can’t be said to be plainly wrong.
LORD JUSTICE MALES:  I suppose one possible view of the
facts, not obviously a view that you would accept, is
that the Bank went to a great deal of trouble to subvert
the auction process and then lied about what they had
done but really they needn’t have bothered because there
were no other bidders out there anyway.  Is that really
what some of the judge’s findings on the latter point
may come to?
MR LORD:  I don’t accept that, my Lord.  I don’t accept
that.  There was a — taking those two components, there
was no basis to say that the Bank had subverted the
auction process.  The pledged assets were sold in their
pledged parcel form.
LORD JUSTICE MALES:  I appreciate that and you’ve made those
submissions and you’re going to come on and develop why
you say that.  But it seems rather odd if the correct
view of the facts were as Mr Stroilov says —
MR LORD:  They aren’t, my Lord.  They are not correct as he
says.
LORD JUSTICE MALES:  I know.  But if they were, then it
seems rather odd that actually it made no difference
anyway.
MR LORD:  No, my Lord.  To pick up the high point, the high
point of the complaint is the untruthfulness to the
criminal court about the Morskoy Bank loan, the
Morskoy Bank quorus(?) which the Chancellor raised with
me.
But the judge found that the Bank’s untruthfulness,
whilst to be deprecated, was not the result of trying to
cover up what it thought were fraudulent or
conspiratorial transactions.  Your Lordship had the
point, the judge found that the reason that the Bank
sought to involve — one of the reasons the Bank sought
to involve the original purchasers and subsequent
purchasers through the repo arrangement was to gain
control over the pledged security around the end of 2008
without taking these companies on to the Bank’s balance
sheet.  Your Lordship will recollect that there was an
exchange about the regulatory position.
I don’t accept there’s anything to be criticised in
that regard.  It was accepted that the repo arrangements
were not themselves unlawful, it’s accepted that there
is nothing intrinsically unlawful about that.  What the
Bank did was to enhance its security rights at a very
difficult time but do it through a mechanism that under
the Russian regulatory requirements did not require the
Bank to account for those two companies, those
distressed companies, Western Terminal and Scan
Insurance, as part of the Bank’s group.  There’s nothing
wrong with that.  There’s no suggestion that that’s
wrong.
The fact that there was — if they had taken
ownership themselves they would have had to fold them
into their accounts doesn’t mean the fact that they
didn’t do that is wrongful or in breach of the
regulatory requirements.  I don’t accept that.  There’s
no warrant for that.  It was a sensible mechanism to
improve their rights against the bidder — against
a debtor who had effectively declared war on them and
they did it in that way.
But that’s not the same thing to say that they set
out to steal his assets, in other words to get them at
an undervalue.  I will come back to that.  It’s
intrinsically implausible if you think about all the
other background matters that I will go through when
I go through Mr Stroilov’s points.
In terms of the Russian law, I think I can take it
reasonably quickly, it’s in the supplementary bundle,
I’ll just give your Lordships the — if I may, I’ll seek
to identify where the Russian law evidence is to be
found that your Lordships may wish to consult.  It’s in
the supplementary bundle, tab 1, page 3, paragraph 139,
Mr Maggs’ first report where he sets out 1064.  And then
at page 7, question 10:
«Is there any general duty of good faith on the
Bank? [as read]»
This is an important part of the story.
Paragraphs 237 and 238 are important, particularly 238:
«The Civil Code at the relevant time did not have
a requirement of good faith applicable to collection of
loans and realisation of security.  Thus the question
really is whether or not failure to grant an extension
on an overdue loan would be an abuse of right under
Article 10 of the Civil Code.  I know of no case
which… [as read]».
So it runs on.  Then over the page, page 8,
paragraph 240, «Realisation of security», which
Professor Maggs deals with in detail below:
«What are the obligations upon a pledgee under
Russian law in realising security?  [as read]»
He then sets that out.
Then at page 11, question 13:
«What are the rules to be followed in connection
with the sale of security by way of public auction?  [as
read]»
He then sets out the mandatory Russian rules on
auctions.  Then at page 13, question 14, paragraph 265,
he says:
«I know of no provision in Russian law that allows
a party dissatisfied with the value received for
a security realised at a public auction conducted in
compliance with Russian law to annul the auction sale or
to recover damages from the court bailiff or pledgee
that organised the auction [as read].»
Then if we go to Dr Gladyshev’s main report which is
behind divider 2, go to page 17, paragraphs 56 to 58, he
deals with 1064 and its components: harm, unlawfulness,
causation and culpability.
«Harm.  An injury to property including property
rights must be established [as read].»
That’s where he deals with harm at that point and
he’s then asked some questions later about it in
cross-examination.
Then at page 19, your Lordship will see
paragraph 72, he quotes at length from the Fiona Trust v
Privalov case of Mr Justice Andrew Smith.  And at
paragraph 73 on page 20 he says he agrees with this
reasoning insofar as it addresses principles of Russian
law.  I’ve taken you at page 31 to his paragraph 317
where he sets out Article 10, abuse of rights.
Then we go to the joint memorandum behind divider 3
which obviously follows those two main reports.  On
page 41, paragraphs 23 to 24, Professor Maggs accepted
that:
«If there was an abuse of right found, this would
negate the defence of legality under Article 1064 [as
read].»
So that wasn’t an issue.  Then page 43,
paragraphs 31 to 38, the experts addressed 1064 in more
detail including the presumption in paragraph — we’ve
gone to.  Paragraphs 37 and 38 are important, I won’t go
to it again now but 37 is important in terms of harm.
It’s the third line really:
«However, harm during the enforcement of legal
rights may on the facts attract both civil and criminal
liability if harm is caused beyond what is allowed by
law [as read].»
That’s where the effect of the pledge comes in, we
say.
«Thus taking property as a sanction with proper
judicial verification during lawful enforcement of tax
and customs law is not regarded as harm.
Misappropriation of property under the guise of
enforcement of spurious civil claims would be regarded
as harm [as read].»
So we would underline «misappropriation», «guise»
and «spurious» as important points on the journey to
deciding whether there has been harm or not in this
case.
Then Article 10, page 45, paragraphs 45 to 46, just
so your Lordship can see how the experts dealt with it
in this.  What Professor Maggs said at the end of
paragraph 46:
«However, the courts have not used abuse of rights
as the basis for preventing strict enforcement of the
terms of business-related contracts [as read].»
So that’s the point that we advance.  There was no
basis for the court — the judge to find otherwise,
bearing in mind it was always put to the judge that you
needed a dishonest conspiracy, in other words something
more was required than a simple enforcement by the Bank
of its security rights.
Then if we go, please, to page 54, abuse of rights
is picked up again at paragraphs 101 to 102.  It is
important to note in this context, in paragraph 102,
that Dr Gladyshev, who was the appellants’ Russian law
expert, said this in the last four lines:
«Even under the preceding version of the Civil Code
and Article 10, parties have an obligation not to act in
an abusive way, that is dishonestly, to the detriment of
another party [as read].»
So Article 10, abuse in this context is going to
require dishonesty and not some lesser ingredient.  Then
we go over the page —
LORD JUSTICE MALES:  It looks from at any rate
Professor Maggs’ approach that the focus on the abuse of
rights issue was on whether there was an obligation to
agree an extension to the loan rather than thinking
about what happened during the realisation process.
MR LORD:  Yes, my Lord, and that is the point your
Lordship — I’ve made this submission.  That is because
of the way the case was pleaded —
LORD JUSTICE MALES:  I’ve got that.  In other words version
1 and 2.
MR LORD:  No, throughout, my Lord, throughout all three
versions, the counterclaimants put their case that they
had to show dishonest conspiracy.  I’m simply showing
your Lordship what I might call such relevant Russian
law as we have in the bundles, lest your Lordship wishes
to see that, but bearing in mind the health warning that
the experts weren’t asked directly to deal with this
because it wasn’t the way the case was pleaded or put.
It was never suggested, it wasn’t pleaded or
suggested to the judge that Dr Arkhangelsky did not have
himself to prove the dishonest conspiracy in all its
forms, including the third version, which is why we say
it would be unfair to allow the Russian law Ground 2
appeal, because it involves criticising the judge for
findings of Russian law that he wasn’t invited to make
on a Russian law case that wasn’t advanced before him.
And to complete that submission, we would say the
way that the appellants pleaded and put their case in
front of the judge reflected Russian law.  They were
right to accept implicitly that the burden was on them
to prove dishonest conspiracy and that is why they
didn’t think to take the point about burden of proof or
Article 10, because those didn’t add anything in this
case.  That’s why they ran it in the way that they did.
They had counsel involved relevantly and Mr Stroilov, as
your Lordship has seen, is a more than able advocate and
a very skillful and —
LORD JUSTICE MALES:  Yes, I was really making the point that
it looks as if the abuse of rights question went to
something other than what we’re concerned with.
MR LORD:  My Lord, just going over the page, I think it runs
on.  Your Lordship’s point is right so far as it goes,
because of the way it was put.  Can your Lordship see at
the bottom «Question VG3»?  And there was some
consideration of Article 10 I think in that context.
Particularly 103 to 109.
Then over the page, really 110 onwards, 110 to 115,
110 to 112, the experts were asked to address questions
in relation to the auction process and the differing
views were set out there.  Then in 113-115, probably not
relevant for these purposes but some consideration of
the general nature of Article 1064.
Then in their supplemental reports, I’m just giving
your Lordships the references to this, the supplemental
reports, behind divider 4, page 61, this is
Professor Maggs’ supplemental report, paragraph 3, the
last sentence:
«However, Dr Gladyshev repeatedly invokes the
doctrines of abuse of rights and good faith to support
propositions that go well beyond the interpretations
found in Russian judicial practice [as read].»
That was what Professor Maggs was saying.  Then at
page 63 Professor Maggs has a heading «Good faith in
relation to the realisation of security», paragraphs 14,
15, 16 and 17.
Then Dr Gladyshev, his supplemental report, I just
want to pick up the relevant references to see what
there is in the bundles, at page 77, abuse of rights.
Starting at paragraph 111, where he says he doesn’t
agree with Professor Maggs but then 113 is important:
«Russian courts consider a violation of Article 10
as a ground for a claim on the basis of Article 1064.»
We accept, as Professor Maggs did, that if the
claimant establishes — if the appellants establish
dishonesty in and about the auction process, then that
could create an Article 10 abuse of rights complaint
that could itself vitiate something or otherwise be
lawful for the purposes of a 1064 liability.  We accept
that.  But it begs the question has the Article 10
dishonest interference been proved by the appellants?
Then Dr Gladyshev goes through some cases which are
helpful because, with respect, although the matter
wasn’t squarely addressed because of the way it was put
below, show that in my submission my contention is right
and certainly for present purposes this court should not
be concerned that there is any real likelihood that
Mr Stroilov’s contentions to the contrary are right.
If one goes to page 79, «Abuse of rights and
enforcement of business contracts» because that’s
obviously where we are.  We’re in the case of a pledge
here.  So the question really was how did Article 10
interact with the various business contracts, the loans,
the guarantees and so on in this case?  That starts at
129.
Then over the page at page 80, and this is
Dr Gladyshev, 137:
«A well-known case involving joint application of
Articles 10 and 168 was considered in 2011.  There,
shareholders of a shipping yard ‘Baltic Works’ applied
to set aside certain transactions concluded by the
management of the shipping yard with a Swedish company
(the ‘Baltic works’ case).
«138.  The evidence of the abuse of right was an
allegedly low price that the managers of the Baltic
works charged for building of two ships.»
Then it goes to the lower courts but the highest
court, the Arbitrazh court, the findings are there set
out.  But importantly, paragraph 140:
«The Arbitrazh court stated, in line with previous
submissions, that the mere fact of an alleged low price
is not sufficient to apply Article 10 [as read].»
That would be relevant in our case.  The mere fact
of low values of the sale of pledged property would not
be sufficient to trigger Article 10 abuse of rights.
Then in 141, your Lordship will see what the court
held was necessary to be proved, underlined by
Dr Gladyshev:
«However, to qualify the said transactions as void
it was necessary either to establish a conspiracy
between the managers of the plant and the company, or
a knowledge of the company about such actions of the
managers of the company.  Such circumstances were not
established by the courts.»
So «establish a conspiracy» suggests that the onus
was on the plaintiffs here, the claimants, to establish
that in order to be able to take advantage of
Article 10, a low price in itself not being enough.
Which has obvious echos although I accept it’s not
a facsimile for matters in our case.
Then at paragraph 143:
«… a conspiracy (in this case, a conspiracy to
harm shareholders) …»
That’s what they were looking at.
Then over the page, they pick up another case,
a Supreme Court case, paragraph 147:
«Additionally the Supreme Court noted that when
a claimant furnished sufficiently serious proof that
a sale purchase contract was given in bad faith with an
intention to cause harm to a claimant, the burden of
proof shifts to the respondents [as read].»
But it is important to note, that shifting only
happens once a claimant has furnished sufficiently
serious proof of the intention to cause harm to
a claimant.  So the burden is still on the plaintiff.
Then at paragraph 151:
«In all of the above cases, Article 10 is invoked
only after careful examination of the entirety of facts.
A conspiracy to harm a party must be established [double
underline].  An ambiguous fact such as a low price by
itself is not sufficient [as read].»
So relevantly in our case, the counterclaimants
would have to establish a conspiracy to harm, which is
why they put it in the way that they did and why there
is nothing in the Ground 2 appeal in my submission
because they put it the right way.  Article 1064 were
effectively collapsed into an acceptance that they had
to prove the conspiracy that they allege as the judge
sets out, I’ll come to his judgment in a minute.
Over the page, some more — we go to some other
cases.  Then paragraph 162, at the end:
«On the contrary, Article 10 is regarded as a rule
that enjoins a most complete study of relevant facts,
with a special attention to be paid to conspiracy to
harm.»
That’s the essence, we say, of this approach.
Then looking at the cross-examination relevantly,
just for your Lordship’s note, behind divider 6, of
Professor Maggs at page 84 from line 11 down to line 6.
LORD JUSTICE MALES:  Sorry, which are the four pages?
MR LORD:  It’s my fault, it’s page 5, sorry, line 11 down to
page 6, line 6.
Then if one goes to page 86, this was further
cross-examination of Professor Maggs by Mr Milner,
counsel for Dr Arkhangelsky.  So your Lordship will see
at page 14, line 23, the questioning picks up of
Professor Maggs and your Lordship will see it runs over
the page on to page 15 and on to page 16, stopping
really at line 24 on page 16.  But your Lordship will
see that the premise for the questioning of
Professor Maggs, the Bank’s Russian law expert, was that
there was dishonesty.  In other words, if dishonesty, if
a dishonest scheme, then… various things happen.
It wasn’t suggested in any of his questioning that,
two things, the claimants didn’t need dishonesty as an
ingredient of their tort, something less would suffice,
so that’s the first bit to take from this; and,
secondly, there was any suggestion about the burden of
proof here, that wasn’t being relied upon in the
questioning of Professor Maggs because the case had been
set up in the way that I’ve explained.  It would be an
obvious unfairness now to make findings that Russian law
doesn’t work or works in the way that the
counterclaimants say when that matter wasn’t actually
addressed as part of the trial.
Then if I can just complete the — Dr Gladyshev was
asked some relevant questions.  If your Lordship would
be kind enough, please, to go behind divider 7 at
page 105, page 157, where he was asked this, this is
Dr Gladyshev being cross-examined, line 10:
«It appears from the joint memorandum, we will go to
it in a minute, that you are largely agreed, you and
Professor Maggs, that a pledgee, when acting in
realisation of the pledged property, would only be
liable to the pledgor, another affected party, if it had
acted in bad faith, effectively dishonesty, in being
complicit in an unlawful auction or wrongly interfering
in that auction?
«Answer: yes [as read].»
The next question at line 19:
«Professor Maggs says if there is nothing specified
in the pledge agreement, the pledgee has to realise
security through the court bailiffs or a licensed
auction house and that a pledgee has no obligation to
ensure that the bailiffs or the auction house comply
with the law?
«Answer: yes [as read].»
Then on page 158, lines 19 to 21, Dr Gladyshev was
asked whether he’d ever found a case where this sort of
claimants’ case has succeeded absent some illegal
interference with the process and he said, line 22,
«I don’t remember doing so».
Then at page 159 he said this at line 6:
«I would say that the low price by itself is not an
actionable offence but you have to look into certain
circumstances around it [as read].»
Then at page 106, at sub page 161, he was asked
about this point about undervalue at line 13:
«I just wanted to ask you what you meant there by an
undervalue [as read].»
He said in line 18:
«I think if the allegation of undervalue is
important, it has to be established forensically under
whatever rules there are [as read].»
Then at page 172 — sorry, page 108, sub [page] 172,
lines 1 to 4, Dr Gladyshev was asked this:
«In itself the affiliation [that’s between bidders],
especially in this case where the common child is — the
nexus does not invalidate the auction by itself.
«Question:  Thank you.»
So Dr Gladyshev seemed to be accepting that
affiliation of the two registered participants would not
in itself invalidate the auction.
Those are all the points that I need to take your
Lordships to in the supplementary bundle.  I’ve just
done that really so that your Lordship has what we say
would be at least the best of the relevant evidence on
that.
Can I look at the way that it was pleaded, please,
look at the way the Russian law case was pleaded by the
appellants and that’s in the second core bundle, behind
divider 10.  If we go, please, to page 512, to
paragraph 149(a) of the re-amended defence and
counterclaim:
«The Bank’s actions in demanding repayment of the
group’s loan and enforcing its security were not
undertaken honestly and in good faith for the purposes
of recovering the debt owed to it but dishonestly with
a view to misappropriating the group’s assets for the
benefit of itself and/or connected parties without any
or any sufficient consideration [as read].»
So the allegation was one of dishonesty, dishonestly
seeking to demand repayments of security without any
really sufficient consideration being given for that.
Then there’s a heading «Subsequent dissipation of
assets», paragraph 150(b):
«Each transaction was carried out at a gross
undervalue [as read].»
So in other words the undervalue was being
identified as a component part of the counterclaim.  The
same in paragraph (c), true value was there referred to.
Can we go to page 524?  Paragraph 161 which is where
the claimants respond for the fraudulent sales, it’s an
allegation of fraud.  Paragraph 162, there was an
allegation of there were grossly deflated valuations of
assets.  Then about seven lines down, the complaint was
that they had not been realised at fair market prices.
Then at page 531, we get the claimants’ exposition
of their causes of action as they allege them under
Russian law.  Liability of the claimants, 173(a), they
refer to appendix 4.  «Claim for causing harm, the
scheme».  Over the page, paragraph 174, you can see what
is there said, «without paying a full and proper
consideration».
Then at page 59, subparagraph (d), «Vehicles for
dissipation of assets», again the complaint was that the
pledged assets had been realised through these companies
and that they’d bought them at a gross undervalue at
fraudulent and unlawful public auctions.
Then at page 542, abuse of rights was expressly
invoked under paragraph 180(f).  You can see how that’s
prayed in aid:
«Further or alternative to the claims pleaded above,
the claimants have abused their rights contrary to
Article 10 of the Russian Civil Code [this is where we
get the Article 10 pleading at the trial].  In
particular the Bank entered into the December 2008
agreement and/or required the group to transfer the
shares in Western Terminal and Scan [well, that’s the
repo] in bad faith and not for any legitimate commercial
purpose but for the improper and unlawful purpose of
causing harm to the defendants and OMGP and/or of
seizing or assisting in or facilitating the seizure of
Western Terminal and/or Scan and their respective assets
and/or other assets belonging to the defendants and OMG
without payment of any or any adequate consideration and
without accounting for their true value [as read].»
Then it runs on to complain about dishonest and
fraudulent transactions.  I think my Lord
Lord Justice Males asked Mr Stroilov about that, those
are the auction processes.  Those were said to be
dishonest and fraudulent and Article 10 was prayed in
aid in that respect.
Then at 181(e), which was the point that was put to
Mr Stroilov, page 549:
«Alternatively, if the group would have been unable
to obtain long-term funding … then [they would] at the
very least [be] entitled to be put in the position [so
it runs on] … [to get] proper market value and not
fraudulently to connected parties at a deliberate
undervalue.»
So if one steps back and sees, well, how was the
claim advanced, there was no suggestion in any of
these — no suggestion in the pleading that the
appellants could simply point to their ownership of the
pledged assets and to the fact that there had been
enforcement and that that would actually satisfy the
requirement for harm under 1064 so as to bring into play
a reverse burden of proof under 1064, still less that
under Article 10 of the Russian Civil Code there was any
burden cast on the Bank to disprove bad faith or to
prove its good faith.  So none of that was actually
pleaded or in fact advanced to the judge.
If we see — it was always the appellants’ case
before the judge that they had to prove their dishonest
conspiracy to raid in its three different versions,
including, in the third version, that there had been
a fraudulent, effectively a fraudulent auction process.
We can put the pleading away and just look at the —
see the appellants’ skeleton on this appeal.
LORD JUSTICE MALES:  I think it’s in the same bundle.
MR LORD:  Sorry, my Lord, yes, it is.  Behind tab 13 and
it’s paragraph 16:
«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: see …
Fiona Trust.»
So just pausing there, the appellants’ case remains
their counterclaim is anchored on 1064 and the crux of
that is dishonesty.
If we then look at the judgment which is criticised
in this respect for the way the judge dealt with the
Russian law, we say that it is unfair to criticise the
judge on appeal for not addressing or applying Russian
law points that were not advanced to him and which are
in fact contrary to the appellants’ whole approach to
Russian law before the learned trial judge, which was
that the appellants had to prove their dishonest
conspiracy to steal the assets.
We submit in that respect, first, that that
reflected the correct approach to Russian law, the
appellants rightly acknowledged what they had to prove
and, in my submission, forensically they were unlikely
to miss a trick, as it were, with competent counsel and
Mr Stroilov working for them; secondly, the learned
judge correctly found and applied the relevant Russian
law as he was invited to; thirdly, it should not be open
to the appellants to raise new Russian law points that
were not taken below and it would be unfair to the
respondents to allow a new case on Russian law to be run
for the first time on appeal to seek to disturb the
judge’s findings as to Russian law and whether or not
there was or wasn’t liability thereunder.
In any event, the «new points», quote unquote, which
are now taken on appeal can, we respectfully submit, be
seen on even the limited material available, which I’ve
taken your Lordship to this morning, not to bear out the
appellants’ case.  So therefore, whilst this court is
not in a position to find against the respondents, given
all those matters, this court can take comfort from the
fact that the appellants’ new points do not, even on
a prima facie analysis, appear sufficient to query the
correctness of, first, the appellants’ trial approach to
Russian law and, secondly, the judge’s findings in that
regard and on that basis.
If we look at those findings, we start at
paragraph 786 of the judgment where the learned judge
sets out Article 1064 and then in paragraph 787 he
refers to Fiona Trust and the reference to «payments
made in legitimate business transactions are not
unlawful».
Here was the judge setting out 1064, albeit in
relation to a different part of the claim but this is
the relevant provision of the Russian Civil Code.
More relevantly, at paragraph 855 he looks at the
counterclaim, starting at 855, and refers to the scheme
and the claim for causing harm.  He then sets out from
855 through to 865 his findings as to what the relevant
Russian law is which he’s being asked to apply in
relation to the counterclaim.
857 he correctly identifies that it is 1064 of the
Russian Civil Code that he is being asked to apply, and
then 860:
«It is also common ground that once harm is
established, it is presumed to have been caused
unlawfully unless specifically justified in law by the
person who caused the harm.»
So he is there referring to what’s been called this
reverse burden of proof.  He’s referring there expressly
to the presumption.  So it is not right to say that he
wasn’t aware of it, but it is fair to say to the judge
that he was not being asked at all to apply it.  In
other words it wasn’t being suggested to him that the
presumption somehow absolved the counterclaimants from
proving their dishonest conspiracy.  So he was alive to
the provision but he rightly didn’t, if you like, take
it further.
Then 861, he looks at the Article 10 component, good
faith component where he quotes from Professor Maggs’
evidence and at the top of the next page, the reference
to Article 10 where Article 10 is to be quoted with
dishonesty for these purposes, Article 10:
«So if you enforce rights but in bad faith or
dishonestly, that wouldn’t amount to lawful causing of
harm…
«That’s correct.»
So the judge was alive to Article 10.  There is
a complaint that he lost focus here but he was
identifying Article 10.  Then 862 he says this:
«It is, in these circumstances, common ground
between the Russian law experts that if the
Counterclaimants succeed in proving their factual case
as to the dishonest conspiracy to steal their assets,
liability under Article 1064 is established.»
With respect the judge was unimpeachably there
simply collapsing the various Russian law tributaries
that he’s been shown because in the end what’s required
is for the appellants to prove their dishonest
conspiracy, ie their factual case, that the assets were
dishonestly taken and that they lost value in that
process.  And he wasn’t asked to do anything else.
In my submission, that is the correct approach to
Articles 10 and 1064 in this case.  He is not to be
criticised for not separately identifying Article 10 as
adding a separate feature which he wasn’t asked to do
because the dishonesty had to be proved by the
appellants to make good harm under 1064, first, and,
secondly, in order to get an Article 10 challenge off
the ground, they would have to prove the self-same
dishonesty.  So the judge wasn’t misdirecting himself or
getting the law wrong, he was shortly stating what was
actually a simple approach that he was rightly being
asked to take to the facts of this case.
Then at 863 to 865 he goes on to deal with how this
might work potentially in relation to pledged assets.
In 863 he finds that if the pledgee has effectively
deliberately split up pledged assets to make it less
attractive to buyers:
«… and thus its realisable value would, if proven
to be causative of harm, be wrongful, and actionable
accordingly.»
So he’s saying if that happens and causative harm
results, that would be actionable.  But of course he
went on to find in the judgment that that didn’t happen.
Then he goes on at 864 — he talks about the way the
pledged assets were presented for sale.  Then he says in
the last three lines:
«However, by the same token, assets which are
subject to separate pledges in respect of different
indebtedness may lawfully be sold separately, even if
combining the assets in the separate pledges might yield
a higher aggregate amount.»
What he’s there finding under Russian law is that
actually you don’t — you aren’t under any obligation to
combine separate pledges.
Then paragraph 865 he holds that:
«Similarly, there was no suggestion, and I would not
consider it to be the case, that a pledgee is obliged to
sell pledged assets together with other non-pledged
assets in its possession or control under some different
arrangement, even if the combined package might yield
a higher aggregate amount.»
So we say it’s wrong to criticise the judge, as the
appellants did yesterday, page 91 of Day 2, line 15,
that the judge somehow lost focus on Article 10 in this
process.  That is not a fair or valid criticism of the
trial judge.  He correctly applied the Russian law he
was invited to apply and, in my respectful submission,
that was the correct approach.  It failed on the facts
but it was the correct approach.  And that «dishonesty»
in this case, quote unquote, which is the crux of the
appellants’ case, it potentially operates in two ways on
the counterclaim.  First, it is a necessary component of
establishing harm since a low price in terms of the sale
of pledged assets will not in itself be evidence of
harm.  Well established, a circular argument.  They
would have to prove that dishonesty in that regard.
And, secondly, even looking at their case raised on
appeal for the first time, in order to be able to run an
Article 10 vitiation line, in other words to try to
intercept what would otherwise be lawful under
Article 1064, the burden is on the appellants to prove
the dishonest exercise of rights.
So in other words the burden remains, under
Article 10, on the appellants to prove dishonesty so as,
if you like, to intercept a 1064 defence.  So that’s why
dishonesty always remained on the appellants to prove
and that’s why they put the case as they did, rightly,
although it failed on the facts, and that’s why the
judge summarised it as he did in paragraph 862.
It was never suggested before the judge that somehow
the presumption or reverse burden of proof under 1064,
somehow energised by Article 10, abuse of rights, that
that somehow was relevant to the judge’s analysis and
his application of Russian law to this case.
We say that the judge came to faultless findings on
Russian law.
If I may move to Russian law on pledges.  That’s all
I’m going to say about Articles 1064 and 10.
I’m going to move as quickly as I can to deal with
Russian law on pledges which I think I can take quite
shortly, just giving your Lordship the key findings the
learned judge made in this regard.  Obviously on the
third version of the conspiracy, the focus is on the
enforcement of the pledges and therefore the auction
processes that comprised that realisation.  The judge
picks up the relevant Russian law, he starts that at
paragraph 1266.
So I’m moving on now to look more specifically at
what the judge found to be the relevant Russian law as
it applied to a pledgee like the Bank seeking to realise
its pledged security.  So that’s obviously important in
relation to the third version of the conspiracy.  It
starts at 1266 and I won’t take your Lordships through
all the paragraphs but I will highlight the relevant
ones.  For your Lordship’s note, the judge’s analysis
runs on to paragraph 1304, so 1266 to 1304.  By way of
a bird’s eye canter through, he found that the experts
were agreed that «a pledgee may enforce its rights in
one of two ways», that’s paragraph 1268: the enforcement
of the court which means a court bailiff will arrange
for the auction of the pledged asset, or, two,
enforcement out of court in which case a licensed
independent auction house conducts the auction.
So those are the two mechanisms and the only two
mechanisms, court auction or licensed independent
auction.  Those are the two processes.
Then he goes through the mechanics at
paragraphs 1269 to 1276.  Then paragraph 1275 is an
important paragraph:
«In any event, the mechanics of the actual sale
itself is in the hands of either the court bailiff or
the auction house, and not the pledgee.»
Then paragraph 1276 he records this:
«Thus, while the pledgee (here, the Bank) could
oversee the enforcement procedures, Ms Kosova explained
that it (rightly) could not interfere with the actions
of the court bailiff…»
Then he goes on under the heading «Auctions: legal
framework and practice in Russia», he goes through the
requirements in terms of notice, starting prices,
participants of bidders and so on, he goes through that
and he identifies that there may be an issue as to
whether or not two affiliated participants would
represent a valid quorum for an auction.  He identifies
that that’s an issue between the experts and then at
1286 he says this:
«There seemed to me to be some confusion in both
experts’ approach between (a) whether two affiliated
parties can constitute a quorum, and (b) whether, if
their affiliation is such that there is neither prospect
nor intention of competitive bidding, the purported
event is not in truth an ‘auction’.  However, it may not
matter: the NIK-TRAST case seems to me to confirm that
whilst the affiliation of two parties may not itself
provide grounds to invalidate an auction, it could do so
if the relationship is such as in fact to prevent, limit
or eliminate competition.  I acknowledge Counsel for the
Claimants’ complaint that Professor Maggs’ view was not
expressly challenged in cross-examination: but the
difference between the experts in this regard was clear
and crystallised and in any event I should not adopt an
opinion which I consider wrong.»
Then he goes on to look at, in 1289:
«However, the problem for the Counterclaimants is
that the substantive validity of an auction is, under
the applicable Russian law, the responsibility of the
auction organisers …»
This is a very important part of the story.
So he’s looking at, if you like, the auction process
and he says:
«… the responsibility [is on] the auction
organisers; and any challenge to it must be brought
against them within one year.  An inquorate or collusive
auction is not invalid until declared so by the court
further to action brought within the stipulated period.»
Then he goes on at 1290.
Then picking it up at 1296, he’s looking at the
question of a possible invalid auction and how that
affects this case.  He’s looking at that, so if there
are issues about the validity of the auction, how does
that affect 1064 and so on?  He develops that from 1296
onwards and he refers expressly, your Lordship will see
in paragraph 1297:
«However, I am not convinced that the application of
the theory does anything more than render the auction
invalid under the terms of the laws relating to
auctions.»
Then at paragraph 1298:
«Thus, although I would not accept Professor Maggs’
broad proposition that Article 449 [that was an auction
challenge provision] is the only recourse, excluding all
others, I do not accept Dr Gladyshev’s theory that the
use of affiliated companies to establish an apparently
quorate auction of itself gives an additional claim
(under Article 1064).  Again (and see paragraph [1282]
above), something more must be established.»
Pausing there, what the judge is finding, we say
correctly, what he’s finding is that in order for the
counterclaimants to establish their 1064 liability, they
would have to show that the affiliation of the
participants, that there was something more than simply
the fact that that invalidated the auction.  There must
be some other ingredient.  Then he goes on to explain
what he thinks that is from 1299.  Your Lordship will
see what he there says really in effect is for
Article 1064:
«… room for the deployment of Article 1064 may be
limited, in effect, to cases of demonstrated dishonesty
or participation in dishonesty on the part of those who
have undermined the auction process.»
So he is, we say, with respect, correctly — he’s
gone through the pledge process, the auction process and
he’s now coming, if you like, to the business end which
is, well, how would all this feed into an Article 1064
conspiracy claim for damages of the sort that the
counterclaimants make?  He rightly, we say, identifies
that what’s going to be required to be proved is
demonstrated dishonesty on the part of those who
undermine the auction process.
Then in 1300 he said this:
«As it seemed to me, both experts accepted that if
actual dishonesty was established then the dishonesty
would sustain a claim under Article 1064 which was not
knocked out by Article 449.  It appeared to me that
Dr Gladyshev also accepted that bad faith in the
valuation or bidding process would have to be shown; and
he agreed under cross-examination that it would not
suffice to show only that the price achieved was an
undervalue.»
So that’s what he found there.
Then 1301, he refers to bid-rigging and he says
this:
«Professor Maggs accepted during his
cross-examination that ‘bid-rigging’ (which he defined
as a ‘conspiracy among bidders not to outbid each
other’) would give rise to liability as well under the
combined effect of Article 10 and Article 1064,
demonstrating that Article 449 is not invariably
exclusive in its application.»
So again the criticism that Article 10 didn’t find
enough expression in this judgment is actually wrong,
it’s unfair.  The judge was actually reflecting the way
in which it could potentially work in relation to the
auction process as Professor Maggs, the Bank’s expert,
accepted.  He goes on to say:
«However, as discussed later … where the real
cause of any loss is the non-attendance of anyone except
associated parties, it may be very difficult (if
possible at all) to establish causation.»
We double underline obviously «causation» because
under 1064 the plaintiff has to show causative harm.  So
they would have to show that something to do with
bid-rigging had stopped other bidders coming forward to
bid up the price.  With respect, the judge was entirely
right about that in paragraph 1301.
Then over the page, paragraph 1302:
«In summary, therefore, [so he’s dealt with
Article 10, 1064 and Article 449 so he’s summarising now
where he’s got to] I take the position under the Russian
law to be that in the absence of proof of such
dishonesty there can be no claim, except for breach of
the auction rules, the latter of which is a claim that
could lie only against the bailiff or auction
organisers, and must be brought within one year.  But,
if dishonesty which causes loss is established, a claim
may lie at the suit of the victim under Article 1064 for
recovery of demonstrable loss.  Causation may however
not be easy to prove.»
That’s a crucial paragraph.  We say 1302 is
a correct summary of what’s required in relation to the
auction processes.
Then in 1303:
«Further, it seems to follow from the fact that the
starting price is fixed by the court, or (in the case of
out of court enforcement) by appraisal, that it would be
necessary to show that the court or the appraiser were
either dishonestly misled in some way which caused them
to undervalue the asset (presumably as to some feature
or quality of the auctioned asset, or some contrived
flaw in the assets to make it appear less valuable than
in truth it is) or themselves directly implicated [it
must mean «were directly implicated»] in the dishonest
attempt to harm the counterclaimants and enrich the
pledgee or its associated parties.»
Then 1304:
«Linked to that, it would also have to be shown that
steps had been taken or deliberately omitted, presumably
by or on behalf of those sought thereby to be enriched,
calculated to have, and (in a causative sense) having,
the result that the (unacceptably) low valuation should
not be (as it were) ‘rescued’ by active bidders raising
the price by virtue of their competition.»
We say again that that is, with respect, a correct
approach to the auction process.  If it could be shown
that a pledgee had deliberately subverted the auction
process by the bailiff or the auction house, then there
could potentially be liability under 1064.  But you
would have to show some deliberate subversion, some
active subversion of the process that was done
dishonestly or some dishonest failure to take a step
which the pledgee was obliged to take.  The judge has
earlier in this section made the findings he’s made as
to what a pledgee is obliged to do and in fact not
entitled to do.  We say there’s no reason to go behind
that.
So we say that the judge has correctly set out the
Russian law for these purposes and we say, with respect,
that the following findings at 1137 — at 1137 the judge
says:
«As I have noted previously, the fact is that the
pledges, the defaults, and the triggering of the repo
arrangements gave the Bank the keys to the relevant
assets.  In the events that happened they had the legal
right to rely on their securities, including the rights
conferred by the shares transferred to them under the
repo arrangements: and that was Dr Arkhangelsky’s
undoing.»
So the judge is on the path of the fact that what
the Bank did in this case he found to be lawful.  At
this part of the story, he’s looking at, if you like,
the earlier parts of the story.
Then at 1335, subparagraph (10) — I’ll come back to
this when I deal with Mr Stroilov’s points — but he is
here dealing with the process by which Western Terminal
came to be disposed of.  He set out nine previous
subparagraphs as to why he agrees with the Bank.  In the
end he rejects the conspiracy explanation for that
series of transactions.  But he says in paragraph (10)
this:
«Even if, as Mrs Yatvetsky came close to conceding
and I tend to think, the claimants and/or their
associates or ‘loyal friends’ by now, or even some time
ago, had resolved to retain within their circle and
exploit Western Terminal for their own advantage, using
the resources they (but not the counterclaimants) could
command, I do not think that gives rise to actionable
impropriety, as long as fair value was achieved; and
there is, as I say, nothing such as to dislodge the
value accepted and approved by the Russian court.»
We say that is a correct analysis, bearing in mind
the Russian law and the facts as the judge found.
Then he returns to that point at paragraph 1348, so
immediately after the paragraph that Mr Stroilov points
to where the learned judge makes a similar point about
a potential motivation of the Bank to profit from these
assets down the line, he makes this finding at 1348:
«That said, however, 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.
«As to that, the assumption must be, and I find,
that a marketing exercise which appeared to the auction
organisers to be compliant with their obligations was
undertaken, unless there is sufficient evidence to
establish that the organisers themselves were complicit
and/or actively involved in a scheme or schemes to
reduce the attractiveness of and demand for the relevant
assets and/or to depress third party interest by
inadequate marketing.»
And he goes on to look at all of that.
But what the judge, with respect, is correctly
keeping in mind is that there are a series of — the
Bank has lawful rights to exercise its security
interests.  Provided it does that in accordance with
Russian law and is not proved to be dishonest in the
sense of seeking to subvert this process that it’s
obliged to follow, the Bank is not going to be liable
without more under 1064.  We say, with respect, that
that is a clear and unimpeachable approach to the
relevant Russian law in this case.
So unless I can help your Lordship further, I will
turn now and take the matter I think in the order of my
skeleton.  I think that’s sufficient exposition of the
Russian law, unless your Lordship would like me to
address any further points in this regard?  I propose to
leave Russian law.  I think that probably covers —
LORD JUSTICE PATTEN:  So is the answer then to my earlier
question or one of my earlier questions that where the
judge — sorry, I’m just looking for the paragraph —
where the judge in his conclusions about the auction —
MR LORD:  1525, my Lord.
LORD JUSTICE PATTEN:  Yes, thank you.  At sub (6) talks
about — no, not sub (6).  Sorry.
MR LORD:  Is it 1635?
LORD JUSTICE PATTEN:  Well, it is (5) of that which picks up
some of the points but it’s in his very final — sorry,
it’s page 389, it’s 1635(6).  That is a reference back
I think to some of the things he’s saying, isn’t it, in
the sort of early 1300s that you’ve just been showing
us?
MR LORD:  I think it is, that’s how I take it.
LORD JUSTICE PATTEN:  So that, in other words, this question
of the fact that the bidders were affiliated in some
way, or as he puts it subject to common control, might
in certain circumstances breach the auction rules, but
then if that’s the only claim you’re bringing, then
you’re subject to the limitation period.  But if you’re
into dishonesty, what you’ve described as the dishonest
attempt to subvert the process, that lifts you out of
that problem.  Nobody is suggesting that the limitation
period would have any application to that claim under
Russian law but you’ve got to show dishonesty causing
harm.
MR LORD:  Exactly, my Lord.  We understand him to be saying
exactly that.
LORD JUSTICE PATTEN:  Yes.
MR LORD:  And we submit there’s no basis to criticise that.
So when one has the Russian law, if you like,
template, when one has the cause of action, 1064, and
Article 10 in mind and sees how they work and sees how
they work in the context of pledges and auctions, which
the judge has set out, one can see how he can’t be
criticised.  It’s not just that he’s got it more or less
right or adequately right, he’s got it absolutely right.
He hasn’t made any mistakes.  It is expressed in quite
a — it’s set out at different places, but if one reads
it really carefully, one can see that he does chase down
all the little points.  He identifies the big points and
he follows the little points —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  It’s
not all that complicated, is it, really, Mr Lord?  He
said it was common ground at 862 that if they proved
their case on the dishonesty conspiracy to steal the
assets, Article 1064 would be established and that’s
correct.  We’re concerned here with dishonesty.
MR LORD:  Yes, my Lord.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  And
Mr Stroilov’s point is that he applied the wrong test
under the English procedural approach to whether or not
there was dishonesty in the auction process and that’s
what you’ve got to address.
MR LORD:  I’m going to do so, my Lord.  But another of his
grounds that I’ve dealt with this morning —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  I
understand his other grounds.
MR LORD:  Which I needed to address because they’re
relevant.  They’re relevant to the criticism of the
judge’s approach because pregnant within the point
your Lordship just taxed me about is a criticism that
the judge approached it from the wrong end of the
spectrum.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  I
understand that’s part of it and you’ve addressed that,
but for my part only, what concerns me is not that he
was looking for dishonesty but how he approached the
proving of dishonesty.
MR LORD:  My Lord, I’m going to deal with that head on.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes,
please.
MR LORD:  But I’m going to pick it up, if I may, in my
skeleton and I am going to — sorry, does your Lordship
want me to go to the — I would prefer to deal with
Ground 1 first and then Ground 3.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
take your own course, Mr Lord.
MR LORD:  I will tell your Lordship why I prefer that
course, that is the course of the grounds, is that when
one is criticising the judge under Ground 3 which is the
alleged heightened standard of proof, when one is
looking at the judge’s approach in that regard, it is
relevant to look at the context, as Mr Stroilov submits,
and that context will comprise admitted parts of the
case and facts as the judge finds them, where those
facts are not now in dispute.
So when one is looking at the standard of proof
ground of Mr Stroilov, Ground 3, and looking at the
context, in other words his lions, the fact there were
more lions and predators here than toddlers with
ice-cream in the park, it is relevant to see as part of
that process the journey, the safari the judge is
travelling on and what the judge comes across on the way
because that is context.
LORD JUSTICE MALES:  That is a pretty mixed metaphor.
MR LORD:  It may be.  The point I’m trying to make is this.
When one is criticising the judge for this approach to
the findings of fact and says he’s got the wrong
standard of proof, and he used the words «benign» and
«malign» — his use of those words reflects an
inappropriate, a default setting to innocence, which is
essentially what is said, one does have to look at the
context, that is right, but that context will involve
a host of factors which Mr Stroilov, for good reason,
has not himself brought to life including the judge’s
factual findings which are not themselves capable of
challenge or are not challenged even by reference to
Mr Stroilov’s standard of proof.
So Mr Stroilov complains about some findings the
judge makes but he accepts the vast majority of the
other findings.  So when one says has the judge, when
evaluating conspiracy, is he plainly wrong, the context
of that are the factual findings that the judge makes
which are not challenged on appeal because they are
going to calibrate the context.
The reason the safari metaphor is apt is for this
reason: if the judge had found, for example, that the
December 2008 events had been the result of dishonesty
by the Bank and the result of a state sponsored raid, if
he’d made those findings of fact, then one could see
there would be a contextual driver or, if you like,
propeller that would be pushing the fact-finder through
the later part of the journey with that context in mind.
In other words, he or she gets to the auction process in
mid-2009, the context being his finding that actually
the raiding is happening.
And conversely, if by the time you get to the
auction process or any part of the story the judge has
made unchallenged now findings that there is not
a conspiracy at work at that point in time, that is
relevant context for whether he can be said to be
plainly wrong in not inferring from, for example, the
Gunard Lease that that’s a sign of dishonest conspiracy.
That’s a faultless approach.
The judge identifies, relevantly, the — there’s an
important section earlier on in his approach to the
fact-finding and if your Lordship would be kind enough
to go — I’m going to go through the Ground 1 points and
then I will deal with Ground 3 and all Mr Stroilov’s
complaints.  But I do need to show this I think
prefatory point at paragraph 897.  Your Lordship will
find a heading «My approach to the various iterations of
the conspiracy claims».  This is important, I won’t read
it out but I ask your Lordship to read, please, 897 to
900 and then I will make a short submission.
I’m going to say the judge was right to be alive to
the fallacy of, as it was called, the Latin maxim, post
hoc ergo propter hoc.  The fact that something happens
after something else doesn’t mean it was the cause of
the earlier event.  Mr Stroilov invited the judge to
start at the end and work backwards, to start with what
he said were gross undervalues and infer from that
a conspiracy to steal and look through the telescope
that way.  The judge rightly said, no, that’s not the
right approach.  I’ll look at all the points you’re
raising but I think it must be right to go through it in
chronological order whilst obviously looking at things
in the round, as he said in paragraph 900.  So he did
say in 900, before determining in the round —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
have also to deal with Mr Stroilov’s point about the
failure to step back and his piecemeal approach.
I think Mr Stroilov’s complaint is that he applies
a fine balance to each allegation of dishonesty and bad
behaviour in the 10 or 16 points in paragraph 901 and
then I think he says, Mr Stroilov this is, that having
by a fine margin dismissed each one as being evidence of
the alleged conspiracy, he fails to step back and say,
«Well, I’ve actually dismissed each one by a very, very
fine margin, what happens when you look at all these
points together?»
So I quite understand the point about 897 to 900,
working backwards might not be the appropriate way to do
it.  That obviously does sound rather odd.  But I think
Mr Stroilov’s big point here is that you can’t just take
each of the 16 points, balance them with what
Mr Stroilov says is the wrong standard of proof, dismiss
them and then ignore the fact that you have dismissed
the one before and the one before that and the one
before that on the same basis and then at the end of it
all come back and say, «I’m still left with the most
extraordinary reservations and concerns».  He says that
demonstrates a false approach, that the judge actually
did the exercise probably properly on its own terms but
didn’t first of all apply the right standard of proof at
each stage, as we see from I think 16 examples, and,
secondly, didn’t ever stand back from what he was
finding to see the cumulative position, notwithstanding
your submissions about the moratorium and the six
months.
But that may be a good moment, Mr Lord, to break and
let you start again at 2 o’clock.
MR LORD:  Thank you, my Lord.
(12.58 pm)
(The short adjournment)
(2.00 pm)
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes.
MR LORD:  May it please your Lordship.  I’m going to pick up
my submissions, if I may, at page 7, paragraph 16 of our
skeleton argument, under the heading «Interference with
trial judge’s factual findings and evaluations of fact».
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Sorry,
not paragraph 7, paragraph 17?  16.
MR LORD:  Sorry, my Lord, my fault.  I think I gave a wrong
reference there.
In other words the correct approach of an appeal
court to an appeal such as this.  I’ll take it quickly
because I’m keenly aware —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
think we might have done it before?
MR LORD:  I feel, my Lord, that there will be some
impatience if I try and get grandmother to suck too many
eggs.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
will never get impatience from this court, Mr Lord.
MR LORD:  Sorry, my Lord, no, but there could in theory have
been had this court not been of such a benign rather
than malign disposition, my Lord, jumping to no
presumptions or defaulting to no suppositions.
My Lord, before I come to the case law which I will
take swiftly, save perhaps in relation to a further case
that’s in the bundle but not in the skeleton, which is
worth study, of the Court of Appeal, may I just preface
my submissions about this to invite your Lordship to
recollect that this appeal is in relation to the judge’s
evaluations of primary findings of fact save in relation
to Baltic Fuel ownership.
So putting that on one side and it’s a relatively —
Mr Stroilov accepted yesterday, that wasn’t going to be
a decisive part of his forensic case.  He pursues it but
he accepts that that’s not going to be a determinative
part of the fact-finding exercise.  So putting that to
one side, it is important to remember that the appeal
proceeds on the basis that the learned trial judge’s
findings of primary fact are correct.
It’s very important, in my respectful submission,
when this court is considering overturning his
evaluation of those facts, to remember that important
point.  In other words, whatever the criticisms of the
trial judge, can it be said that he was plainly wrong to
dismiss the counterclaim?  The appeal is not against his
reasoning, it’s against his finding.  Can it really be
said that no reasonable judge who had made the primary
factual findings that had been made could have dismissed
the counterclaim?  In my respectful submission, when one
steps back and puts it in those terms, in my submission
the appellants do not satisfy the very high threshold
required to persuade this court that this court is
compelled to intervene or interfere with those findings.
In terms of the jurisprudence approach and the
importance for serious restraint on the part of the
appellate court, we’ve sought to set out the cases under
paragraph 16 of our skeleton argument.  Because it’s
such an important point, I am going to take the liberty
of just showing your Lordship the relevant passages from
I think five cases which I can do very shortly, but just
so they are all clearly before this court.
The first is the McGraddie v McGraddie case in
authorities bundle 3 at tab 25.  We’ll take it swiftly
because I imagine your Lordships have seen this many
times so I will take it quickly and I won’t trouble
your Lordship with too much of the background but simply
the key paragraphs where the guiding principles are set
out by the highest court in this land.
In McGraddie v McGraddie, a Supreme Court case, the
judgment was given by Lord Reed with whom the other
Supreme Court justices agreed.  The relevant passages
start at paragraph 2 and run through to the end of
paragraph 6.  Your Lordship knows the crucial direction
that the appellate court should intervene only if it is
satisfied the judge was plainly wrong.  Importantly, in
paragraph 4, Lord Reed refers to the following:
«Furthermore, as was stated in observations adopted
by the majority of the Canadian Supreme Court in Housen
v Nikolaisen …
«‘The trial judge has sat through the entire case
and his ultimate judgment reflects this total
familiarity with the evidence.  The insight gained by
the trial judge who has lived with the case for several
days, weeks or even months will be far deeper than that
of the Court of Appeal whose view of the case is much
more limited and narrow, often being distorted by the
various orders or rulings being challenged.»
Then if I may go to the second case, Henderson v
Foxworth which is behind divider 29 of the third
authorities bundle, which was a decision of the
Supreme Court again the following year, 2014, and again
Lord Reed gave the judgment with which the other four
Supreme Court Justices agreed.  The learned justice
there picked up what he had said in McGraddie in
paragraph 62, where he said this:
«Given that the Extra Division correctly identified
that an appellate court can interfere where it is
satisfied that the trial judge has gone ‘plainly wrong’,
and considered that that criterion was met in the
present case, there may be some value in considering the
meaning of that phrase.  There is a risk that it may be
misunderstood.  The adverb’ plainly’ does not refer to
the degree of confidence felt by the appellate court
that it would not have reached the same conclusion as
the trial judge.  It does not matter, with whatever
degree of certainty, that the appellate court considers
that it would have reached a different conclusion.  What
matters is whether the decision under appeal is one that
no reasonable judge could have reached.»
And Lord Reed was with respect there making clear
what «plainly wrong» meant and guarding against or
rather admonishing against construing that as a test
where, if the appeal court was itself plainly satisfied
of a different result, that would satisfy the
constraint.  It would not.
If I may go next, please, to the well-known case of
Fage v Chobani which is behind divider 28 of this
bundle, which was a decision of this court.  In
a passage that is much quoted now, starting at
paragraph 114, Lord Justice Lewison, having agreed with
Lord Justice Kitchin in relation to the reasons that he
set out for dismissing the appeal, added a judgment of
his own headed «Appeals on facts».  Again, I know
your Lordship is familiar with this paragraph but
I simply invite your Lordship to remind yourself, with
respect, of paragraphs 114 to 115.
By way of emphasis, Lord Justice Lewison identified
that the test involves the appeal court only interfering
if it felt compelled to do so and that this restraint or
constraint applied not just to findings of primary fact
but also to evaluation of those facts and inferences to
be drawn from them.  He made the point that the trial
was not a dress rehearsal.  He made the well-known
observation that the trial judge will have regard to the
whole of the sea of evidence presented to him whereas an
appellate court will only be island-hopping.
Just pausing there, that obviously applies
a fortiori in this sort of case where the trial spanned
some three to four months and straddled a host of
documentary material and witness evidence.
Then in subparagraph (v):
«The atmosphere of the courtroom cannot, in any
event, be recreated by reference to documents (including
transcripts of evidence).»
Again that is, with respect, an important point when
what the court is effectively being asked to do is to
gainsay the trial judge’s evaluative process where this
has been informed, at least in part, by his assessment
of witnesses and the atmosphere within the courtroom.
If I could please then go to a case that is in the
bundle but not referred to in our skeleton argument, for
which I apologise.  It’s behind divider 43 of bundle 3.
It is a decision of this court again, the Court of
Appeal, in the long-running dispute involving
Mr Ablyazov.  It was the Court of Appeal of Lady
Justice Gloster and Lord Justices Leggatt and Coulson in
May 2018.  In paragraph H2 one can see what this appeal
was about:
«This was an appeal against the decision of the
High Court rejecting a bank’s claim that a payment from
the first defendant to the second defendant was liable
to be set aside as having been made for the purpose of
putting assets out of the reach of the Bank [as read].»
LORD JUSTICE PATTEN:  Sorry, what page?
MR LORD:  Sorry my Lord.  It’s the front page, it’s the
headnote.  It’s my fault.
LORD JUSTICE PATTEN:  Sorry, I thought you said 82.
MR LORD:  It’s H2, it’s my enunciation.  It’s the second
paragraph of the headnote.
«Putting assets out of the reach of the bank under
section 43 of the Insolvency Act 1986 … [as read]»
Then in court is familiar with the substantive
points.
Then if we could go, please, to the judgment of
Lord Justice Leggatt, he gave the main judgment,
Lord Justice Coulson gave a short concurring judgment
and Lady Justice Gloster said she also agreed.
Starting at page 105, at paragraph 30, under the
heading «Alleged failure to draw appropriate adverse
inferences from lies», there is some —
Lord Justice Leggatt deals with the potential(?) about
the untruths in the case.  At paragraph 37 he said this:
«At all events it cannot possibly be said the judge
was obliged as a matter of law to draw adverse inference
from those matters.  What significance, if any, should
be attached to the fact the witness has lied or has not
addressed a particular point of evidence falls squarely
within the provenance of the judge whose role it is to
find the relevant facts.  The bank’s argument on this
ground of appeal must also therefore be rejected [as
read].»
Then of more relevance, more important is what then
comes under the heading «Alleged failure to give
appropriate weight to the judge’s own findings».  In
paragraph 38 Lord Justice Leggatt said this:
«The third ground of appeal which the bank was given
permission to argue was that the judge failed to give
appropriate weight to his findings summarised at 18
above.  It was submitted that had the judge done so, he
would have concluded that the gift to Madiyar was made
for the prohibited purpose [as read].»
Then in paragraph 39, in the last sentence, he says
this:
«Whether or not the inference should be drawn as
a matter of fact which depends on all the circumstances
of the case … [as read]»
Then this is important, paragraphs 40 and onwards,
paragraphs 40 through to 43 and then I’ll pick up 45 as
well briefly.  In paragraph 40 he said this:
«It is convenient to distinguish, although the
difference is really one of degree, between findings of
primary fact and factual findings which involve
evaluating and drawing inferences from such primary
facts.  The reasons for the reluctance of appellate
courts to interfere with findings of fact made following
a trial apply in both cases.  Indeed the reasons for
restraint are often stronger where the finding involves
an evaluation of primary facts.  Those reasons are by no
means limited to the advantage enjoyed by the trial
judge [as read].»
And he goes on.
«The reasons also include recognition that the judge
who also presides over the trial is immersed in the
evidence in a way that an appeal court cannot replicate.
As was put in the majority judgment of the Supreme Court
of Canada in Housen v Nikolaisen, quoted by Lord Reed in
McGraddie, appeals are telescopic in nature, focusing
narrowly on particular issues as opposed to viewing the
case as a whole [as read].»
Then they cite the passage that I’ve taken
your Lordship to already.
Then going over to the next page,
Lord Justice Leggatt cites the well-known passage from
Lord Hoffmann in the Piglowska v Piglowska case about
the expression of judge’s findings.  It’s probably
worth, given the criticism of this judge, just reminding
ourselves of this:
«The judge’s expressed findings are always
surrounded by a penumbra of imprecision as to emphasis,
relative weight, minor qualifications and nuance, of
which time and language do not permit exact expression,
which may play an important part in the judge’s overall
evaluation [as read].»
Then in paragraph 42 he says this:
«Even where it could in principle be done, for an
appellate court in a case involving a substantial body
of evidence to attempt to acquire the same absorption in
the detail of the case as the judge of first instance
would be a disproportionate use of judicial resources
and would hugely increase the length, cost and delay of
litigation in return for little likely improvement in
decision-making [as read].»
Then he goes on to refer to Fage and then in 43 he
then refers to the test of the appellate court being
satisfied the judge was plainly wrong, and he goes on
then to explain what that means.  The question is
whether the decision under appeal is one that no
reasonable judge would have reached and that’s what he
there set out.
We don’t accept there has been any material error in
the judge’s process of reasoning, I’ll come to that
obviously in Ground 3.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Sorry,
could you just speak up a bit, Mr Lord?  You’re speaking
to your papers rather than to us.
MR LORD:  Sorry, my Lord.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
don’t accept that there has been any material error in
the process of reasoning.
MR LORD:  Material error in the judge’s process of
reasoning.  I’ll obviously pick that up in more detail
when we come to Ground 3, to the standard of proof
complaint.
Then over the page at paragraph 45,
Lord Justice Leggatt looks at the Bank’s arguments as to
the different evaluation for the transaction to that
which the judge found and he acknowledges, this is
halfway down that paragraph:
«Given that finding and the benefits afforded by an
investor [so it runs on] it does seem to me that the
inference might have been drawn that the transaction was
entered into for the purpose of ensuring that Madiyar
would be able to obtain the right to remain in the UK.
That in turn could have led a less charitable
fact-finder to conclude that the transaction was entered
for the purpose prohibited by section 423.3.  To say
however that a different view could have been taken
falls far short of the test which must be met to justify
interference by an appellate court.  In any case,
I remind myself that my impression is based on
a telescopic view and that the judge was much better
placed to make the necessary evaluation based on his
closer consideration of the evidence and ability to view
the facts as a whole.  The judge gave reasons justifying
his conclusion that the transfer was not made for the
prohibited purpose and it is impossible to say that
those reasons are misconceived or to regard his
conclusion as one that no reasonable judge could have
reached [as read].»
We say, my Lord, just pausing there and picking up
what Lord Justice Leggatt there said, we would endorse
his observations in this court that the need for
restraint is stronger in the case of evaluation of
primary facts in a case like this for the obvious reason
that there has been a very, very long trial and the
judge has made these findings of primary fact and in
fact the complaint that’s made against the judge is that
he reached certain evaluative findings only in a very
equivocal way.
We don’t accept that is true and I will deal with
that as I go through the particular points taken.  We
don’t accept that starting point.  But accepting that
that is the right starting point, that this was a finely
balanced case for the judge, the need for restraint in
this court is the more, not the less.  Because taking
a step back at the appellate level and bearing in mind
that necessarily this appeal is going to be a much more
telescopic analysis of this case, if it’s right that it
was finely balanced, the scope for a different tribunal
to come to a different view is all the more.  And for
that different view to be formed on appeal by a court
which necessarily will be in a less good position to
form that view must, in our submission, risk unfairness
to the party that succeeded below.
In other words, the more finely balanced, as
Mr Stroilov would have it, the more the need there is
for this court to remind itself that it should only
interfere if no reasonable judge could have dismissed —
could have come to the decision that he came to.
So actually these points work against the appellants
here, not in favour of them.  We do endorse what
Lord Justice Leggatt says in terms of the importance of
applying this test very faithfully to an evaluation of
fact challenge such as this is.
Then if I could please go finally to the case of
Perry v Raleys Solicitors at tab 44 of this bundle which
is a decision of the Supreme Court in 2019.  One can see
from the headnote it was a professional negligence case,
solicitors negligence case and one can see from the
ratio there set out what this case was about:
«Held, allowing the appeal, that to the extent that
the question whether negligent advice had caused a
claimant’s loss depending on what the claimant would
have done upon receipt of competent advice, this has to
be proved by the claimant upon the balance of
probabilities, but to the extent that the question
depended on what others would have done it would be
determined on a loss of a chance evaluation …»
And it runs on.
At the foot of that page, it says:
«… this was not one of those rare cases where it
was appropriate for an appellate court to reverse the
trial judge’s findings on issues of fact; and that,
accordingly, the judge’s order would be restored.»
So the Court of Appeal had overturned the trial
judge and the Supreme Court reversed that decision on
appeal.
Lord Briggs gave the judgment of the Supreme Court
and the other justices agreed with him.  It starts at
paragraph 49:
«The judge’s determination of the facts.»
He there refers to the cases and authorities that
I’ve taken your Lordship to.  Then in paragraph 52, he
says this:
«Rather, the question is whether the Court of Appeal
were correct in concluding, as they did, that there were
errors in the judge’s factual determination which
satisfied these very stringent requirements.»
Then as he goes on to say, the Supreme Court didn’t
agree that there was basis to reverse the trial judge.
And that’s all I need to take from that authority.
We set out in our skeleton, going back to my
skeleton argument, please, at paragraph 16, subparagraph
(3), we set out some citation from a number of Court of
Appeal cases in relation to the evaluation of facts and
the appellate court’s approach where you have what is
often called a multi-factorial judgment, as this is.  We
make this submission: the correctness of the evaluation
is not undermined by challenging the weight the judge
has given to elements of the evaluation unless the judge
was «clearly wrong» and reached a conclusion on the
evidence which the judge was «not entitled to reach».
We cite Langsam v Beachcroft in the Court of Appeal.
Then we say the evaluative exercise is holistic: a
focus on discrete parts to try to show that the exercise
is wrong is the incorrect approach unless the judge’s
evaluation is perverse.
So we do respectfully say that when one looks at
this judgment, particularly when one bears in mind that,
perhaps unusually, there is praise for the learned judge
in his meticulous approach to fact-finding and no appeal
in relation to his findings of primary fact, we say that
this really is not a case where the challenge under
Ground 1, even supported by Ground 3, satisfies those
very stringent requirements that the Supreme Court
restated as recently as last year.
If I may go, please, to paragraph 17 —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  I
understand all that, Mr Lord.  But if Ground 3 were
right, let’s just assume it were right, and he’d gone
through the whole judgment applying the wrong standard
of proof because it’s all a dishonesty claim and he
looked at it through really what was the wrong prism,
obviously you say that’s not the case but let’s assume
for just a moment it is, surely this court is justified
in thinking something needs to be done?
MR LORD:  My Lord, the question would be, given that the
primary factual findings are not challenged —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You say
it doesn’t matter?
MR LORD:  Well, this court would have to be very
satisfied —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  That
is, if I may say so, somewhat illogical because the
primary findings of fact are made — sorry, the
challenged evaluations are made on the basis of the
wrong standard so it’s the evaluations that are
challenged and surely we’re entitled to look at the
evaluations through the right telescope rather than the
wrong one?
MR LORD:  My Lord, but with this check: that if the findings
of primary fact which are not challenged, if those
suggest that a reasonable judge could have come to that
view, then this court would have to be very hesitant
before finding that the evaluation process had gone
wrong.
I can see that the court would be concerned if they
thought the trial judge had applied the wrong standard
of proof but it’s worth remembering that there’s no
complaint about his factual findings, bearing in mind
the standard of proof, for the vast majority of the
matters in this long judgment.  There are inferences
that are challenged on appeal, I accept that, but one
needs to take a step back and say, well, the appellants
are not challenging the primary findings of fact.
I will go through those in order.
Then if you set all those together, in my submission
this court would need some persuading that an
experienced Chancery Division judge, having come to
unchallenged primary findings of fact that span as far
and wide as they do, is to be criticised because he
hasn’t got the right standard for the evaluation, that
would be quite an unlikely outcome, that he could have
done an unimpeachable job for the vast majority of his
fact-finding and then to have gone awry at the
evaluation stage.  That is very unlikely, in my
respectful submission.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  I don’t
understand that.  I mean, the primary facts are based on
documents and everything else and what I find difficult
with this is that if — this is why, you know, to me,
the case turns on Ground 3.  If he’s wrong about
Ground 3, just bang wrong and in 20 places in the
judgment we see him applying the wrong standard and just
getting the wrong balance so that it’s as if it’s there
but it should be there, so the scale is in the wrong
position, then surely that’s a classic for interference
by the Court of Appeal in the evaluations to which that
has been applied?
MR LORD:  This court is certainly going to be in no position
to substitute its own evaluation.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  So it’s
got to be a retrial?
MR LORD:  There would have to be a retrial.  This court
isn’t going to be able to carry out the balancing
exercise in a finely balanced case in this sort of
telescopic way.
LORD JUSTICE PATTEN:  No, but it — you may be right about
that but there wouldn’t be any doubt, on the hypothesis
my Lord has put to you, that the judge had misdirected
himself.  It’s as simple as that.
MR LORD:  I accept that, my Lord.  If your Lordship found
that there was a misdirection, then that may cast the
judgment in a different light.
LORD JUSTICE PATTEN:  That’s one of the species of case, if
you like, which comes under the heading of «plainly
wrong» in Lord Reed’s analysis.  I mean, he uses those
words but when you actually drill down into what he’s
saying, it includes a case where the judge has simply
misdirected himself.
MR LORD:  I accept that, my Lord.  Your Lordship knows that
we don’t accept that the judge did misdirect himself.
LORD JUSTICE PATTEN:  Well, I understand that.  But, you
know, the trouble with all these cases is that if you
push it too high — I’m not saying you are pushing it
too high — you end up in a situation where you are
effectively telling the court that it can never
interfere.  You know, the judge has got to be given such
a sort of omniscient sort of presumption or presumption
of omniscience and so on that the room for any sort of
review by this court is reduced to negligible
proportions.  But that’s simply not what the law is.
MR LORD:  I think the point I was trying to make but
obviously not making is that in a judgment that’s
400 pages long, where the factual findings are not
challenged and where a number of the learned judge’s
evaluations are challenged, then even accepting if there
was a misdirection in those regards, this court would
have to weigh up whether that was a sufficient
contaminant of his overall —
LORD JUSTICE PATTEN:  We would have to decide whether it was
material.
MR LORD:  Yes, and whether therefore it was — I accept
that, my Lord.  I do accept that if your Lordship finds
there was a misdirection, that takes it into a —
I accept that.  I do accept —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  This is
where the delay comes in.  Because what troubles me with
that misdirection, if it is, the two misdirections
really that Mr Stroilov points to, is that when he got
to having written his book on the case, it was so long
afterwards that he must have not had that finely
balanced ability to recall all the evidence because he
was doing it 20 months later.  And that’s what I feel is
the worrisome thing about this case.  If this had all
happened with it fresh in his mind within the first two
months — one month, when judges really ought to be
writing their judgments on any basis, well, fine, you
accord it fantastic amounts of respect.  But here, he
may have been writing all this two years later nearly.
MR LORD:  My Lord, can I try to turn that point around, if
I may?
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes.
MR LORD:  I’m coming straight now to Ground 5, the time
taken, because that’s relied upon as warranting
a greater readiness in this court to intervene.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Well,
if there’s something to intervene with.  My Lord says if
there’s no obvious error in this judgment, you know, we
wouldn’t be here.  My Lord wouldn’t have given
permission to appeal, I suspect, he’s pretty sticky on
that.  So we’re here because permission was given and
the question is whether the delay has any impact on our
view about what to do if there’s something that needs to
be considered for action.
MR LORD:  Can I answer it primarily in this way: that the
judge has said in his judgment that a reason for the
delay or certainly a material explanation for the length
of time taken by the judge is the exercise that he
undertook to assist the appellants.  Would your Lordship
be kind enough to go to his judgment —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  I know
he said that, we’ll go to it again but we’re conscious
of that.  But it may be to help the appellants but it
was also to help himself because he obviously left it
too long.
MR LORD:  My Lord, can I deal with it in different — I want
to deal with each of the points.  Just if you like
a sort of general response is that we don’t accept that
the judge should be criticised for delay where that’s
explicable for the reasons that he gives.  We have not
reason to go —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
don’t say he should be criticised for a delay of 20
months?
MR LORD:  My Lord, where the time — I think I put it a bit
more specifically than that, that he explains that part
of the delay was in part due to the exercise he felt he
should carry out.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes,
because it hadn’t been done quickly enough.  I mean,
whatever exercise you do in writing a judgment, the
rules are three months.
MR LORD:  My Lord, can I just turn that round?  I don’t
accept that, and this is going to lead, I’m afraid, into
the Ground 6 point and the impecuniosity because we
don’t accept —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You can
touch the impecuniosity incredibly lightly because
anyway, speaking for myself, unless my Lords take
a different view, it’s not something we’re going to
determine.  We’ve no idea who was impecunious.  The
defendant was not properly represented — was not fully
represented but he had access to lawyers at certain
times.  We know what the position was.
MR LORD:  My Lord, the appellants beseeched the judge to do
a very thorough job in their stead because of the way
they were represented, or not, at the trial.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  The
judge is a very thorough judge, let’s be honest.  He’s
never given a judgment that wasn’t thorough, that I know
of.
MR LORD:  I’m trying to make this submission, my Lord.  I’m
not in a position to say how long this should have taken
this judge.  I’m in a position to say how much of this
delay might be forgivable because of the matters that he
adumbrates in paragraphs 39 to 41.
LORD JUSTICE MALES:  The correspondence that you’ve supplied
us with this morning suggests that the reading exercise,
whatever that took, doesn’t really account for a great
deal of the time, does it?  Because the time comes after
about a year when the judge is saying that he is
expecting to produce the judgment imminently.
MR LORD:  My Lord, I’m not here to defend the length of time
that Mr Justice Hildyard took —
LORD JUSTICE MALES:  I know you’re not but you are seeking
to say perhaps it’s all or a large part down to the
reading exercise which he set himself and I’m just
wondering whether that’s consistent with what you’ve put
in this morning.
MR LORD:  My Lord, I am not in a position — it would be
impertinent of me to gainsay a High Court judge who
sought in his judgment to explain, at least in part, the
delay.  It is not for me to go behind — I don’t know,
I’m not a judge.  I don’t know how long this takes and
I don’t know how arduous this additional exercise, which
he explains he carried out to ensure that he was meting
out justice in this case for the appellants, how much
that could have complicated the position and how far
would a sitting judge in a busy division, that would
have added to his workload.
I can’t comment on that and I can’t make any
submissions obviously as to what the right time is and
how he should have done it and so on.  Maybe some judges
would have done it more quickly even though there was
more of an undertaking involved than normal.  I can’t
possibly make submissions on that.
I just think in fairness to the judge, when one is
looking at the judgment and the time taken, he has
explained his additional task and it’s important in the
delay context because it looks from his judgment as if
he was, through this course of the reserved — if you
like, the reservation of the judgment, he was actively
engaged upon reviewing and re-reviewing the matters in
the trial.  So I don’t accept that his memory would have
dimmed over that period.  We’ll come to the cases on
delay.  But the contrast —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
really make that submission, Mr Lord, that you don’t
accept his memory would have dimmed?  I find that an
extraordinary submission, I’m sorry.  I’ve written a lot
of judgments and heard a lot of cases and been
a barrister for a very long time.  When you’re heavily
engaged in other cases, doing other things, your memory
doesn’t dim, it’s obliterated.  You have to bring it
back by looking at the documents.
MR LORD:  Yes but, my Lord, certainly the case I’m going to
take you to, the Privy Council case, I think the Privy
Council case, says that when you remind yourself, if
you’ve got a good note as a judge, the case ought to
come back to you.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  It
comes back but in a different form.  That’s the point of
the cases that we’ve been looking at.  It becomes
a documentary exercise.
MR LORD:  My Lord, it depends what the judge has done in
terms of his noting and how he sub-divided up his review
process.  My Lord, relevantly —
LORD JUSTICE MALES:  Wouldn’t it be reasonable to expect
that Lord Hoffmann’s penumbra would dissipate over two
years?
MR LORD:  My Lord, in this case, nothing — no part of his
judgment is said to be in error, his recollection is
said to be in error as a result of the time taken.
There’s no mistake identified, and this is a very
striking part of this Ground 5, that the appellants
don’t identify any or any material mistake the judge has
made.  Now, you would expect, if actually he was — if
his assessment process had been materially impaired,
that he would have made mistakes, particularly given the
number of points he had to decide and the sort of span
of the trial.
My Lord Lord Justice Patten referred to the Goose
case and that was a case where the judge had lost his
notes and the Court of Appeal identified errors, obvious
mistakes that were referable to the loss of notes and
Mr Justice Harman’s inordinate delay.  But in this case,
there isn’t any —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  This is
not a Goose case.
MR LORD:  No.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  All
I was putting to you, Mr Lord, and I really think not
much time is worth spending on this because he’s written
a meticulous judgment, all are agreed, he’s not made
factual mistakes and it’s not a case where the factual
findings are challenged.  All I was putting to you was
that when you are considering whether the court can
interfere, having found a clear error of law in the
approach to the evidence, one factor the court will
weigh in the balance is that he delayed by a very long
time before the judgment came out, so he wouldn’t have
had as freshly in his mind the trial when he made his
evaluations.  And I would have thought the answer to
that is obviously yes.  It’s unlikely to be decisive but
it is a factor because this judgment, I think for my
part anyway, cannot — the time of delay cannot be
justified by anything.
MR LORD:  No, my Lord.  But accepting that, relevantly for
the appeal, on the appeal, the question is what, if any,
is the impact of that delay?
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You say
little and I say some, there will be some impact if
another error is found which is why, you know, I’m not
telling you what to do with your submissions but if
I were you, I would concentrate on whether there was an
error because I think your submission very strongly is
that there wasn’t and time is getting on.  We’re now in
the middle of the afternoon, you’re going to have to
give Mr Stroilov some time to reply, and the two grounds
that I’ve said from the moment you got up worry the
court, Grounds 1 and 3, have yet really to be covered.
So delay, it’s a given and you say, okay, it’s not going
to tip the balance but it’s certainly not going to tip
the balance if you’re right on Grounds 1 and 3, because
you’ll win.  But you need to cover those in detail
because the court, again speaking only for myself,
Mr Lord, the court is worried about those grounds.
MR LORD:  My Lord, it’s relevant on the Ground 5 point to
acknowledge that this is not a case where the appellants
identify, except for the Ground 3 point, they say the
wrong standard was applied to various evaluations.  But
that is, if you like, the full extent of the alleged
misdirection.  So one can put that — it may be very
important but one has to say, well, how far is that
supported by delay when nothing else in the judgment is
challenged?  That’s my only — my only submission is
that the facts of the case are all and this is a case
where, in large measure, the judge’s factual findings
are not appealed against.  So when he’s criticised for
some references to the standard of proof, as it’s put,
one needs to put that in context.
Yes, there is delay, of course it shouldn’t have
taken so long, but what’s come out of that process?
Something where, we say, you have this minor criticism,
as I’ll explain, based upon his language.  And to cut to
the chase, he’s really being criticised for saying
«benign» or «malign» and what he’s really there doing is
a shorthand.  It’s a shorthand there, plainly, the
«malign» explanation is the conspiracy to raid and the
«benign» explanation is the one advanced by the Bank,
which is the protecting their asset, realising their
security and so on.  It’s a shorthand, nothing more than
that.  No basis to say that somehow he has applied
a heightened standard.
It is, with the greatest respect, he’s absolutely
right in this case to have followed the approach which
says you need cogent proof to establish serious
allegations because the malign explanation, of which, as
shorthand, conspiracy to raid, a state-sponsored
conspiracy to raid a bankrupt debtor whose business was
built on sand would need cogent evidence.  He can’t be
criticised for that.  It’s absolutely the right starting
point.  And every one of his factual findings would
simply have reinforced that that was the correct
approach.
This was not a case where contextually Mr Stroilov
gets any following wind from the context.  The context
actually suggests the judge should have been more
critical of this counterclaim than he was.  He was
extremely open-minded if I may respectfully say, given
his findings about Dr Arkhangelsky and forgery and so
on, which we will go through, and all the other
background factors, all the other background factors
about the value of assets, the economic conditions, the
Bank’s concerns about security.  All those findings he
makes, none of which are challenged and none of which
depend upon inference.  Those are findings as to who
said what to whom, when and where.  That’s not an
evaluative task of the sort that’s complained about.
That is simply factual findings.
What is complained about is that you should stand
back and that every piece of the jigsaw the judge
thought ended up — when it was looked at specifically,
none of that brought to life the conspiracy.  And when
the judge did, on occasions, look at the matter in the
round as he was required to do and didn’t find
a conspiracy, somehow this court can impose its own
evaluation of a conspiracy to raid, a conspiracy to
carry out a state raid formed in December 2008.  That is
the burden of this appeal basically.
LORD JUSTICE PATTEN:  Well, I do understand that, of course,
and you are absolutely entitled and right to make those
points.  The difficulty about the judgment or one of the
difficulties about the judgment, which I tried to make
clear in giving permission for the appeal, is that you
might have expected that the process of reasoning you’ve
just described would lead the judge to say «On the
evidence I reject», as you say he does, «that there was
such a conspiracy, it’s highly improbable», et cetera
et cetera, and you leave it there.  That is the
conclusion you’ve reached on the facts and you’ve set
out your process of reasoning.
The judge has no sooner reached those conclusions
than we then get paragraph after paragraph setting out
his misgivings and all the reasons which lead him to
think he may not have been told the whole truth, his
refusal for example to make declarations in your favour
on the basis of his finding.  I have to say I don’t
think I’ve ever read a judgment where a judge has come
to one conclusion and then has spent the last part of
his judgment explaining why he has serious misgivings
about the conclusion he’s come to.
MR LORD:  Can I make some submissions on that?  I accept
that this may not be a typical approach but, my Lord,
what the judge has done, with respect, is to set out
a lot of his workings, more of his sort of thought
process than you would expect.  Now, that, in my
submission, is explicable in this case because he wanted
to demonstrate just how painstakingly he had thought of
all the contrary points.  Because one does need to bear
in mind that there was a challenge to this trial ever
taking place and your Lordship will have seen what
Mr Justice Hildyard said.  This is quite important, what
Mr Justice Hildyard — there was an application by the
appellants before the trial started to adjourn it
because it couldn’t be fairly conducted on a number of
grounds.
Mr Justice Hildyard said that, after anxious
consideration, he thought he could undertake a fair
trial on various bases and then permission was sought
from this court and Lord Justice Elias refused
permission, referring to the judge’s express undertaking
to keep the matter anxiously under review and to do all
that was required to make sure it was fair given the
alleged inequality of arms and so on.
LORD JUSTICE PATTEN:  Yes.
MR LORD:  That is relevant background.  I don’t know if
that’s why the judge did it but one can understand that
when he explains what he did out of court to make sure
that he explored every avenue on the appeal that the
appellants wanted him to explore and check carefully
against all the material that he thought he should check
against, that he wanted the headmaster, if you like, to
know that he’d done his homework very thoroughly.  He
wanted it to be seen that he had gone through this very,
very thorough job for the appellants’ benefit.
So that’s the first explanation for why there is so
much, if you like, of the thought processes rather than,
if you like, simply the relevant factors and the
concluding judgment.  That’s the first submission.
But, secondly, in my respectful submission, the fact
that the judge anxiously weighed up the matters in that
way doesn’t impeach or impugn his judgment on that.  The
fact that he very actively carried with him all the
competing points which Mr Stroilov wants this court to
look at, that he had those very much in his mind as he’s
walking through his fact-finding exercise, should
actually redound to his credit in terms of his
conclusion, not the other way.  Because the mere fact
that he expresses his misgivings and says he anxiously
thought about this and found this arresting suggests
that he has been meticulous and scrupulous to see
whether in the end he’s coming to the right findings.
It doesn’t undermine that, if you like that
thoroughness.
We would with respect respond in that way, that it’s
not really fair to the judge to say that there was an
unconfident finding.  When one goes to the relevant
paragraphs at the end of the judgment, he’s really
saying that there were features which displeased him
about the Bank’s conduct and untruthfulness and so on
which deprived it, in his view, of any discretionary
exercise to get the declarations.
He wasn’t, with respect, there saying it was a close
run thing.  He doesn’t say it was finely balanced.  He
says it was «much more finely balanced» than the banks
submitted to me when they asked for the declarations.
The Bank submitted in closing that this counterclaim was
dishonestly pursued and should never have been pursued.
And the judge said, well, bits of it were dishonestly
pursued.  There were wild and fanciful claims made by
Dr Arkhangelsky but I don’t find that there weren’t
issues here to be tried and therefore I do find it was
much more finely balanced than you’re saying.
That’s not the same thing to say he doubts whether
he should have rejected the counterclaim.  He comes
down, with respect, in that concluding paragraph quite
firmly to say «I’ve made my findings, I have rejected
the counterclaim and that should be enough for your
purposes».  And I agree that those concluding paragraphs
do give one pause for thought, would give your Lordship
pause for thought.  I fully accept that.  But it’s
important to see them in that light.
You’ve got a trial judge in a very exceptional case
anxious to be seen to do everything for the appellants
that should possibly be done to see anything in this
conspiracy case, saying that he’s going to look
everywhere, identifying where he thought that there were
reasons that pointed the other way and then making his
binary findings.  And he explains that that’s what he
did.  He refers to In re B and the binary approach and
if he finds something that isn’t proved, it’s not more
likely than not, then obviously that didn’t happen.
We do say that the judge needs — the judgment needs
to be viewed in that context.  We don’t accept the
characterisation that this is an uncertain knife-edge
decision in the event because when one goes through what
the claimants or the counterclaimants relied upon for
the conspiracy, one ticks off a series of points which
I keep cataloguing but at the trial very important
points.  Because it was all very well for the claimants
to say, «We’ve got a third version of our conspiracy
which can be advanced even if versions 2 and 3 are
rejected», but this third version which they shrewdly
fashioned shortly before the trial itself was clearly
a recognition, a prescient acknowledgement of the
fundamental flaws in their primary conspiracy case which
I will then go through.
The judge didn’t have any — there was no
equivocation in the judge’s findings about those crucial
building blocks to the first and second conspiracy
claims.  It can’t possibly be characterised as any
uncertainty.  With respect, when one looks at where the
judge does muse and does say he had anxious thought
about this, I fully accept that.  When one looks at that
one can see that those, properly analysed, are not on
what I would call the critical path, the critical
forensic path here.
LORD JUSTICE PATTEN:  No but on the critical thing of this
allegation of dishonesty against your clients, he says
in 1632:
«… I have found the matter to be much more finely
balanced.»
MR LORD:  No, sorry, my Lord, that’s stopping the quotation
I’m afraid.  I think it goes on to say «than we
submitted».
LORD JUSTICE PATTEN:  Yes, he sets out your submission which
says it was «one of the most remarkable fictions to come
before the English court».
MR LORD:  Yes.
LORD JUSTICE PATTEN:  And he rejects that and says:
«… I have found the matter to be much more finely
balanced.»
MR LORD:  Yes but, my Lord, it’s more finely balanced than
we suggested —
LORD JUSTICE PATTEN:  Much more finely balanced.
MR LORD:  Much more, but it’s not finely balanced.
LORD JUSTICE PATTEN:  I’m not going to waste time, it’s
pointless.  We’ve got to read the judgment, I’m not
going to debate with you how finely balanced.  The point
is though that the more finely balanced it is, the more
critical to the way that the judge ultimately determined
the issue of dishonesty becomes the issue of the
standard of proof or the direction of the standard of
proof which the judge gives to himself.
MR LORD:  I accept that, my Lord.  But one also needs to put
into that appellate review mix the findings of fact that
are —
LORD JUSTICE PATTEN:  Oh, yes, I understand.
MR LORD:  I do accept your Lordship’s point, I do accept
that, but I don’t accept that these concluding
paragraphs which were in the context of rejecting the
declaration application carry with it the weight of
explaining material anxiety about the judge’s earlier
findings in the body of the judgment.
LORD JUSTICE PATTEN:  Well, not about all of them, no.
I mean, all these paragraphs are focusing on the issue
of dishonesty.  The judge isn’t saying he found, for
example, whether there was the moratorium agreement to
be finely balanced in the same way.  He is here talking
about the allegation of dishonesty.
MR LORD:  He’s dealing with various features, my Lord, that
may have pointed in the other direction as far as the
counterclaimants are concerned —
LORD JUSTICE PATTEN:  Yes but all this, this final analysis
about his misgivings is all directed to whether he
should draw the inference of dishonesty from the
findings of fact that he’s made.
MR LORD:  Well, my Lord, he is setting these out as reasons
why suspicion may have been aroused on the claimants’
part.  They are not all points in relation to whether
untruthfulness was found against the Bank.
LORD JUSTICE PATTEN:  Well, 1634, he says:
«… in considering whether to grant the
declarations sought, I think it’s relevant that I have,
throughout the case, before, during and after the
hearing, harboured a nagging and discomfiting feeling
that the evidence by which alone the case is to be
decided may not have revealed the whole truth; and that
the very different conditions in Russia may mean that
what seems improbable, or at least not probable, looked
at through the lens of a different jurisdiction
accustomed to different conditions, may yet have
occurred.»
Now, you say therefore his decision was not
a marginal one?
MR LORD:  I do say that, my Lord, because it wouldn’t be —
whether he should have said that is a different question
but there wasn’t any basis for him really to speculate
in that way to say, «Well, things might be done
differently in Russia».  He had to decide on the
matters —
LORD JUSTICE PATTEN:  I know but this is his judgment we’ve
got to review.
LORD JUSTICE MALES:  And this is all under the heading of
should he give your side a declaration which, in
substance, amounts to saying that they weren’t
dishonest.  So it is focusing on precisely that
question.
MR LORD:  My Lord, if my Lord goes to the counterclaims at
page 385 of the judgment, paragraph 1620.
LORD JUSTICE MALES:  Yes, exactly.
MR LORD:  But they went beyond that, my Lord, including that
the counterclaim had been brought dishonestly.  That was
the point that the learned judge was really dealing with
in 1634 and 1635.  He was really dealing with — if we
can go back to paragraph 1630, halfway down that
paragraph — he says:
«Lastly and more generally, the Claimants submit…»
He goes on.  Then he says:
«As indicated above, the starting point of these
submissions is that the Counterclaim has not only not
been established (as I have found) but has been pursued
dishonestly, knowing there to be no evidential basis for
them, to distract and delay the Claimants and to assist
in a political campaign and generate public sympathy
against them.»
So that, with respect, is — that is really the
target that he’s got here.  He obviously doesn’t
agree — he wasn’t accepting that the Bank — that that
submission of the Bank was actually well made.
LORD JUSTICE PATTEN:  No.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
have to read the next subsequent paragraphs as well.
LORD JUSTICE PATTEN:  He explains in 1633 that he’s rejected
the idea it’s a complete fiction dishonestly contrived
by the defendants, and his conclusion is simply that:
«… the claims have not been established having
registered to the strength of the evidence [he says]
that was necessary to discharge the burden of proof.»
So all of this comes down to whether or not they had
discharged, as he put it, the burden of proof.
Then he goes on to explain, I’m not going to read it
out again, in the following two paragraphs what his
concerns are and how he’s come to a solution about that.
MR LORD:  We do say that this is a summary at the end of the
judgment in relation to a declaration application and
this doesn’t do justice to his factual findings in the
previous 385 pages.
LORD JUSTICE PATTEN:  All right.
MR LORD:  I’ve dealt with Ground 5.  If I can move on then,
please, to Ground 1 at paragraph 21 of our skeleton.
I do submit that the judge cannot be said to have been
plainly wrong in his dismissal of the counterclaim.
It’s important, with respect, it’s important to remind
oneself of the way that the counterclaim was put and
argued at the trial in its different iterations.
Because on appeal this is getting telescoped into one
general dishonesty allegation that had more legs than
the judge has really given credit for.
That wasn’t how the trial unfolded.  It wasn’t how
the claim was advanced.  It was advanced as
a state-sponsored raid.  The reason that that is
relevant is because, if you’re the trial judge and
you’re sitting and you hear the claim is «My assets have
been dishonestly taken by a state-sponsored raid» and
you’re then told that the basis for that allegation and
claim is forgery, trickery, coercion, intimidation and
so on, and you listen to the evidence and you come to
the view, judgment, that that isn’t right, then
forensically you have to ask yourself, well, what is the
basis for the next iteration of the conspiracy?
If the judge has reliably rejected version 1, which
we say he must have done, and reliably rejected
version 2, which we say he must have done, on findings
that really don’t involve the evaluation, then you come
to version 3, the auction, with a very different
approach.  You come to it thinking, well, why would the
Bank be dishonestly conspiring to raid Dr Arkhangelsky’s
assets in the enforcement process when I, the judge,
have concluded that there was no state-sponsored raid in
the previous six months?  I am satisfied that there was
no forgery, that the moratorium wasn’t agreed, that it
was dishonest of Dr Arkhangelsky to say that there was
forgery and to make all those findings.  Because it
would be the case when you came to the enforcement
process, it would with respect to the trial judge, by
this stage of the story, you would want cogent proof
that the raiding conspiracy was going to spring to life
in the middle of 2009 in circumstances where you had
found that that had not been in play for the previous
six months.
Because just on the inherent probabilities, if the
previous six months were, as the judge found, a series
of steps and agreements and exchanges, as he found as
a matter of fact, no inference, findings as to what was
going on, and he rightly rejected the notion that that
could found a conspiracy, you would take some persuading
that suddenly the story took a sinister turn of events
in the middle of 2009 or at some point thereafter.
Why would there be that step change?  That wasn’t
the more likely explanation, that was the less likely
explanation and it became less likely because of the
rejection of the previous allegations.  Because you
weren’t finding predators and conspiracy factors, you
were finding the stuff of lending and lending in the
credit crunch.  That was what you were finding.
If one looks at some of the relevant background that
the judge looked at, which we set out in our skeleton at
paragraphs 8 and onwards, it’s important to note some of
these findings.
If one goes to the judgment at paragraph 225, the
judge has a heading «The OMG business was built on sand»
and he makes that finding.  In paragraph 225 he says:
«The truth is, as the claimants put it, that the OMG
business was built on sand, and OMG could not survive on
its operational turnover, but could only survive by
borrowing money to buy more assets to support further
borrowing.»
Then he sets out from paragraph 225 and onwards the
difficulties that he identifies with OMG’s business and
its financial difficulties, he sets that out over
several pages of his judgment.  And he says in
paragraph 239:
«… it is plain (and I find) that by autumn 2008
OMG was already in deep trouble, and that in truth
Dr Arkhangelsky was well aware of this.»
So just pausing there, at the beginning of this
story, beginning of the dispute, he finds that the OMG
business which is said to have been raided was one that
was built on sand.  So taking a step back for a minute
in terms of the inherent probabilities, what the judge
was being asked to find was that there was
a state-sponsored raid hatched at the end of 2008 to
steal a business that was built on sand.  Now, that was
an inherently improbable proposition.  It’s not the
stuff of raids and that’s an absolutely fundamental part
of the story because that affects the probabilities.
That was why, with the greatest respect, the judge
was absolutely right with his shorthand references to
the different likelihoods, because it was intrinsically
and always unlikely that the Bank would want to raid
this sort of business.  He’s absolutely right about
that.
The context for this was the credit crisis, of
course, and it’s worth looking in paragraph 937 at what
the judge says.  He is picking up the story in relation
to the repos.  What he says in 937 is this:
«I do not accept that the fact that the Bank already
had pledges over most of the real estate owned by
Western Terminal and by Scan removes any benign
rationale for the repo arrangements.  The evidence that
enforcement, even of such pledges, may be
a long-protracted business if the pledgor is minded to
‘play the system’ was not contradicted; and
Dr Arkhangelsky made no secret of his intention to use
the full armoury of tactics available to borrowers in
Russia to delay or even defeat a lender.»
So pausing there, you have a borrower whose business
is built on sand, who knows it’s built on sand and who
the judge has found made no secret of his intention to
seek to thwart the lender’s enforcement process.
So that was all very important context when one
comes to the conspiracy, because, first, it would be
inherently improbable that a worthless business would be
of interest to a state raider, that’s the first point,
and, secondly, it would obviously be very plausible and
probable that the lender, faced with a borrower who had
made no secret of his intention to obstruct and to take
on the Bank, that the lender in that situation would be
extra mindful to protect its security position and its
exposure, without any raid, without any attempt to
snaffle assets at an undervalue.  That’s absolutely key.
Those are pivotal findings by this judge that are not —
can’t be under appeal, are not challenged and they
affect the probability.  They course through this whole
judgment.  It’s absolutely crucial to understand that
feature.
Then going on in 937:
«Control of the borrower achieved through
implementation of repo arrangements would circumvent all
this, and, as Mr Turetsky pointed out, would be of
particular interest and potential utility in the context
of fast-deteriorating asset values where, in his phrase,
‘the land was burning under their feet’.»
So the judge again was correctly identifying the
context.  This context coursed through the trial.  The
courtroom brought to life these months and these years
and we were back in the credit crunch with a lender
panicking, trying to protect its position, thinking that
it had lent money, 4% of its portfolio was accounted for
by a business built on sand with a borrower who was
going to try to frustrate it at every turn and it then
sought to protect itself.
That was the crucial «context» quote unquote for the
judge’s findings in this case and for his standard of
proof as to whether a state-sponsored conspiracy to raid
was the more or less probable explanation for events.
It’s absolutely crucial.  Mr Stroilov didn’t make any
mention of that but that’s absolutely a crucial piece of
background to the case.
One can see straightaway that any bank faced with
those sorts of exigencies is going to be wracking its
brains as to how it can protect its position and doing
so in a way that would not betoken something sinister,
even if there was a concerted effort to protect the
position.  That wouldn’t, in these situations, be
something that you would think was probably to be
explained by a state-sponsored conspiracy.  It was, to
be fair to the judge, inherently improbable.
So when he says at different points in his judgment
that it was an inherently improbable counterclaim and he
reminds himself of that, one has to remember that the
trial judge was well aware, having sat through these
four months, of the relevant context, that it was
intrinsically inherently improbable and that when one
comes into the further complaints about lies or unusual
features, one has to remember that this is the context.
Was an unusual feature in a repo, was that more
likely to be a state-sponsored conspiracy or was it more
likely to be a response to this grave situation and the
war that the borrower had declared on the lender?
That’s all the judge was doing throughout these 20
references.  That’s all he’s doing.  And we say that he
can’t be said to be plainly wrong.
LORD JUSTICE MALES:  So the judge has found that it was
a business built on sand but he’s also found that that
realisation only came much later in mid-2009, hasn’t he?
MR LORD:  He does, but can I go to that —
LORD JUSTICE MALES:  And therefore the context you’re
inviting us to accept is not the context as it was at
the time.
MR LORD:  Can I go to that section of his judgment, please,
at paragraph 425?  Under the heading «The development of
the Bank’s concerns as to the value of its security».
The judge there sets out from paragraph 425 through to
447 his findings as to this developing concern.
Your Lordship is right that he does observe that the
dates of the subsequent valuations suggest that there
was a while — a time during which the original Lair
valuations may still have been given currency within the
Bank, that is true.  But if one reads all these
paragraphs, one can see of the developing concern that
there was within the Bank, there was some uncertainty
about the dates of the subsequent reports that suggested
that the Lair reports were significantly wrong and he
identifies that in paragraph 430.
There was a reference to a trip to visit the
property, secure property, with wintry weather, which
suggests it was late winter or early rather than late
spring.  So there was some uncertainty as to exactly
when the Bank started to be concerned but he goes
through the Bank’s evidence on this and its developing
concerns, he refers to Ms Mironova’s evidence and it’s
right in this context that one looks at paragraph 442,
the heading «The Bank finds out about the arrest of
Vyborg Shipping’s vessels».
Your Lordship can see there:
«The Bank finds out about the arrest of Vyborg
Shipping’s vessels».
He goes through — Dr Arkhangelsky, some of his
vessels had been arrested in 2008 and he was obliged to
tell the Bank that as the lender, as the lender who had
lent on the security of those vessels, and the judge
makes the findings that he does, effectively rejecting
Dr Arkhangelsky’s evidence that he previously informed
the Bank and explaining how the Bank came to find out,
and recording the concern in the Bank that it hadn’t
been told by Dr Arkhangelsky at the time that his ships
had been arrested for non-payment of bunkering charges
and the like.  In paragraph 447 he says this:
«Although the sequence of later events is not
altogether clear and in important aspects disputed, the
Bank’s resolve to proceed to call a default and to
insulate and then perfect its control over its security,
and especially the assets of Scan (at Onega) and
Western Terminal was by now fixed.»
He’s talking about early April 2009.  So picking up
my Lord Lord Justice Males’ point to me, yes, it’s right
that the previous Lair valuations were hopelessly
overvalued, didn’t come till the middle of 2009, but the
Bank had this burgeoning concern about their exposure to
Dr Arkhangelsky that would itself have explained their
actions for very good reason, they hadn’t been told
about the arrest of secured vessels, so a pretty serious
matter, and it would mean that when one comes to the
enforcement process which didn’t start until about
July 2009, the Bank by that stage knew that those Lair
valuations were wrong.
So, again, the reason for the Bank to want to go on
to raid that security from the middle of 2009
evaporates.  Why would the Bank want to raid
Dr Arkhangelsky’s assets from a point at which it knows
that they aren’t worth anything like what they were told
they had been before the credit crunch.
So taking a step back from there, up to the middle
of 2009, the claimants’ case — the appellants’
conspiracy case is the state-sponsored raid at the end
of 2008 with the repo and so on which the judge has
clearly rejected.  He’s rejected the idea that the Bank
engineered a default in March 2009, that’s the second
version of the conspiracy.  He’s identified the
unfolding concern at the Bank about its exposure to
Arkhangelsky.  He’s identified Dr Arkhangelsky made no
secret of the fact that he was going to try to obstruct
the Bank.  I think OMG accounted for something like 4%
of the Bank’s credit exposure, so a significant credit
risk to the Bank, and all that explains that the Bank
could have been seeking — the Bank was engaged upon
anxiously trying to protect its position qua secured
creditor rather than that there was a state-sponsored
raid of valuable assets.
When one gets then to the middle of 2009, the judge
has confidently, with respect, rejected the first two
versions of the conspiracy.  They’ve gone.  There’s no
basis for them to be resurrected.  He’s now looking —
faithfully he’s looking at the third version.  In other
words, is there something dishonest in the enforcement
process which either judge had found, contrary to what
has been alleged by Dr Arkhangelsky, which I have found
to be lawful and enforceable and so on?  Is there a raid
going on there?
Those enforcement steps don’t begin until after the
Bank knows that those assets are not valuable.  So
again, even if the Bank had thought, even if the Bank
was being pushed on because of the view of the value, by
the middle of 2009 that propeller stops, that propulsion
goes away.
So the question is what’s more likely in that
situation?  By that point in the story, what’s more
likely through this enforcement of pledge process in the
height of the credit crunch?  That the Bank is anxiously
trying to protect its secured exposure, or that there is
a state-sponsored conspiracy to raid a very valuable
business?
The answer overwhelmingly is that it’s much, much
more likely to be the Bank’s explanation, the benign one
to use the shorthand, in other words the lawful one.
The secured lender trying to get its money back was the
benign explanation.  The malign one was
a state-sponsored conspiracy in which the Bank and
a host of people, state officials, were involved in
trying to steal this very valuable business empire,
which the judge found was built on sand and couldn’t pay
its debts and had no chance of any other finance from
any other quarter by the end of 2008, was totally,
totally bust.
And that’s the context for these findings.  So what
one looks at — when Mr Stroilov understandably puts the
telescope on the Morskoy Bank quorus(?) where some
untruths were told to the Russian court relating to the
Morskoy Bank loan criminal proceedings, those can’t
dislodge.  Those don’t begin, in my submission, to start
to change the environment in which the judge is
requiring cogent proof.  He asked himself, well, why
would they be doing that?  There was a sensitivity about
the repo because of its regulatory implications which
I’ve made submissions on, but there’s no suggestion that
the Morskoy Bank criminal proceedings had anything to do
with the obtaining of security, the calling of security,
the enforcement of the security, nothing at all, had
nothing at all to do with what the Bank was engaged upon
in relation to enforcing its contractual rights.
So the judge was perfectly entitled to say, well,
I have misgivings about these lies, I don’t like that,
and to think what lies behind that.  But the most likely
explanation was not covering up a dishonest conspiracy,
that wasn’t the most likely explanation.  And in fact it
hadn’t anything to do really with the Bank’s realisation
process.  There were reasons for the untruthfulness
which was a sensitivity about the Bank’s involvement in
the repo for regulatory concerns, but none of that
changed any of the other fundamental probability factors
which I’ve adumbrated.  None of that changed it.  That
didn’t make this a valuable business, that didn’t change
the valuations or Dr Arkhangelsky’s untruthfulness.
None of that was changed by that.
So the idea that that, for example, should have
caused a recalibration by the judge of his standard of
proof, that somehow he was wrong to remind himself that
cogent proof would be required for these sinister
explanations that Dr Arkhangelsky submitted, was exactly
the right approach.  A conspiracy to raid is an
inherently unlikely thing.  And it won’t do for
Mr Stroilov to say «Well, Russia is a funny old place».
This court can’t proceed on the basis that conspiracies
to raid are the norm in Russia.  That would be an
extraordinary position for this court to take.  Russian
litigants come here because of this court’s renowned
reputation for fairness and impartiality.  It doesn’t
default to an idea, which was essentially the burden of
Mr Stroilov’s submissions, that in Russia things are
more naturally dishonest.  That’s the burden of that
submission, however delicately he put it.  That’s what
he was saying.
My clients would be horrified to be told that, that
they are getting a different forensic treatment because
they were a Russian bank as opposed to an English bank
and that affects the learned judge’s approach to the
matter.  That would be a very serious matter indeed and
I’m sure it wasn’t one that the judge entertained.  He
went through the matter faithfully, just as he would
have done if it had been — without any reference to any
of the supposed sinister background factors Mr Stroilov
encouraged him to…
Then go to paragraph 993, please.  This is all
context because these are all matters which the learned
judge was quite right to take into account in his
fact-finding process on the relevant factors for him to
take into account when he decides what is more likely
than not about disputed matters.
So paragraph 993 is important, this was the
revelation in the early part of 2009 that
Dr Arkhangelsky had kept quiet about the arrest of
Tosno.  He says this, the judge:
«It is hardly surprising that upon its revelation,
the decision on the part of Dr Arkhangelsky (as I find
it to have been) to keep quiet about the arrest of
‘Tosno’ so as not to upset the reconstruction
negotiations, caused the Bank to doubt its borrower.
When added to that (a) the fact that the promised
RUB 300 million proceeds from timber sales showed no
signs of materialising, (b) Dr Arkhangelsky’s failure to
provide the financial information he had also promised
Ms Volodina, (c) rumours in banking circles which
Ms Volodina considered reliable that OMG was in real
trouble and even that turnover had been fabricated from
sham transactions and (d) the conclusive signs from the
fact that there were no remittances into Vyborg
Shipping’s bank accounts that the business was either in
catastrophic difficulty or amounts were being diverted
elsewhere, both the collapse of trust in Dr Arkhangelsky
and the decision not to extend the PetroLes and Vyborg
loans, in the absence of any commitment to do so, seem
to me to be readily understandable.»
With the greatest of respect, that is something of
an understatement.  And the judge’s language is
characteristically one of understatement and he’s not to
be criticised for that.  But the fact that he expresses
himself often in a quite understated way doesn’t mean
that his findings are any less reliable.  When one looks
at these factors, one can see there’s no doubt that he
was finding that the Bank was rightly, was reasonably
concerned about the position.
Then if one adds into this mix in terms of what was
or wasn’t more likely, one goes to paragraph 139 of this
judgment, I’m sorry to be hopping around amongst islands
but this is important context, under the heading «Fourth
Vyborg loan», this is the section where the judge is
setting out the relevant loan and security arrangements
that pertained between OMG and the Bank, and he’s
chronicling them in their various stages.
The fourth Vyborg loan and the third Vyborg loan as
he found earlier, they were advanced by Bank
St Petersburg to allow OMG’s Vyborg Shipping business,
that’s Dr Arkhangelsky’s shipping business, to buy
ships, three ships: Volkhov, Tikhvin or the Luga.  That
was the specific and only purpose for those loans, the
third and fourth Vyborg loans.  See the judgment
earlier.
Then he says this halfway down that paragraph:
«There is good reason for Dr Arkhangelsky’s evidence
not referring to any ‘intended’ vessel: the truth (as
I find) is that, notwithstanding the significant sums
advanced to Vyborg Shipping under the Third and Fourth
Vyborg Loans, which had been advanced specifically and
solely to make payments under the various time charters,
Vyborg Shipping did not acquire the three relevant
vessels, the ‘Volkhov’, or the ‘Tikhvin’, or the ‘Luga’.
«This has inevitably raised the question as to where
the proceeds of the Third and Fourth Vyborg Loans went.
It is the claimants’ case that they ‘simply disappeared
into OMG’ and were then ‘diverted into Mr Arkhangelsky’s
pocket’.
«Dr Arkhangelsky denied this; but his evidence as to
what had happened was far from clear.»
Then it runs on.  The final sentence is this in that
paragraph:
«I cannot accept that evidence; and, though I do not
think that it is established that Dr Arkhangelsky
pocketed the money himself, I find that the monies have
never been accounted for.»
This was all important background for the judge.
When he’s carrying out this weighing-up process, he
hasn’t got to write each time, «Well, I’ve got all these
things in my mind, I’ve got credit crunch and these
findings about Dr Arkhangelsky’s business».  This court
trusts that that is what he’s doing.  But these are very
good reasons why the judge would have kept requiring
cogent evidence that the Bank’s malign purpose explained
things rather than the more benign one of trying to deal
with a dishonest borrower who was giving them the
runaround.
If I can, please, with that background go to my
skeleton at paragraph 21.  If I could go, please, to
paragraph 24 where we pick up our submissions really on
the substance of Ground 1, why we say that the judge
cannot be said to be plainly wrong to have dismissed the
counterclaim.  We set out there the three versions of
the conspiracy and we make the point in the first
paragraph as to the, we say, overwhelming findings by
the judge that destroyed the credibility of the prime
version of the conspiracy to raid.  Your Lordship has
heard that many times and can see the constituent parts.
In the second subparagraph we deal with the second
version of the conspiracy.  Again, we say that the
overwhelming weight of evidence based upon factual
findings that are not challenged on appeal was that
there was no such conspiracy to raid and it can’t
possibly be said that the judge was plainly wrong to
reject the second version of the conspiracy.
Then we come to the third version, which is this
shrewd tertiary fall-back position which arose
alternatively if the first and second versions were not
made out.  We submit there that the findings were clear
that the judge made and that the necessary evidence and
basis for a third version of conspiracy was equally not
made out.
Now, in paragraph 25, we have thought to set out
what the judge actually found, most of which is not
challenged on appeal, with what the counterclaimants
said to the judge were the reasons he should infer
a conspiracy.  So we respectfully submit that if the
burden of these findings shows the judge could not be
said to be plainly wrong, there’s no reason to think
that in the result there’s been any unfairness.  These
are the signs that the counterclaimants themselves
identified.  This is what they said to the court were
the basis for the inference of conspiracy.
So we’ll take them in order and it’s important to
know that these are a response to paragraph 901 of the
judgment, which is worth going to just to see the
context for this.  We can pick it up at paragraph 897,
«My approach to the various iterations of the conspiracy
claims».  I’ve taken your Lordship to those paragraphs
about the approach to the conspiracy claims.  It’s worth
picking up in paragraph 900 what the judge said.  He
says:
«Although mindful of Mr Stroilov’s point that
seemingly benign events may be given malign colour by
their context, and by the sequence of events that follow
from them, and that a chronological progression through
facts may disguise a malign objective, I nevertheless do
not consider it right to start, as it were, at the end
and move backwards in time.  Before determining in the
round whether there is substance in the
counterclaimants’ allegation of conspiracy in any of its
iterations, I propose to address in roughly
chronological sequence the findings they invite.»
So stopping there, that, with respect, is sufficient
to show that the judge did consider the conspiracy case
in the round.  There’s no reason to think that because
he doesn’t regularly use the words «in the round»,
although I will show later paragraphs where he does use
that phrase, there’s no reason to doubt that that’s the
exercise he was engaged upon.  He’s saying «I’m being
asked to make these findings, I’m going to look at these
findings before determining in the round whether there
is substance».
So that, with respect, is an answer to the
suggestion that he adopted a piecemeal approach.  He
can’t be criticised for making findings on the matters
in paragraph 901.  You can’t criticise a judge who is
invited to make findings from which to infer
a conspiracy if he goes on to make those findings
before, in the round, inferring no conspiracy.  You’ve
asked him to do that, firstly, and, secondly, that’s
obviously the right way round.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Can you
just show us where the «in the round» consideration is
primarily to be found?
MR LORD:  Paragraph — well, the different places that he
refers to it?
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  No,
where he actually does it.  He says he’s going to do
this before considering the conspiracy case in the
round.
MR LORD:  Yes.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Where
does he consider the conspiracy case in the round?  He
obviously goes through the 16 points, then where does he
consider it in the round?  Where is the paragraph you
rely on —
MR LORD:  Well, my Lord, he’s looking at the various
iterations.  In paragraph 909, for example:
«Effect of my findings that there was no agreed
general moratorium in December 2008»:
«My findings as regards the alleged moratorium,
however, are more problematic for the counterclaim.»
In summary what he is there doing is to review —
he’s reviewing the effect on the alleged conspiracies as
a result of his findings elsewhere.  He’s not saying
«I’m doing it in the round» but that’s what he’s doing.
He’s standing back and reflecting what is the forensic
effect of other findings I’ve made upon this conspiracy
case, where he says it’s more problematic.  He is
considering the forensic effect in a balanced and
non-piecemeal way at 909 —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  So is
the answer to my question paragraph 909?
MR LORD:  Well, it’s a series of paragraphs, my Lord.
I accept —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Could
you tell me where they are?  Put them in a note if it’s
helpful.
MR LORD:  I will, my Lord.  I apologise for — paragraph 916
where he says:
«… [it] is undoubtedly destructive of two
important elements of the Counterclaimants’ case.»
Then 919, where he says:
«… though seriously damaging, I do not consider
that my findings … are necessarily fatal …»
So he’s very fairly travelling on to consider the
matter still notwithstanding that finding.
936, in relation to the repo arrangements he says at
the end of that paragraph:
«For the purpose of analysis, I turn to assess each
curiosity in turn and then at the end seek to assess the
arrangements in the round.»
Then paragraph 937, I’ve taken your Lordship to
that.
Paragraph 1133, where he’s dealing with — in these
paragraphs which I’ll come to tomorrow, he’s dealing
with various alleged telltale signs of raids, that’s
what he’s being asked to look at, and in particular
whether there’s a sign of a state-sponsored raid.  And
1133:
«For reasons which will already be apparent …»
So he’s referring backwards to his reasoning.
Then at the end of the paragraph he says:
«… (for the reasons I have sought to explain) [it
is not] determinative.»
So he is looking to other parts of his judgment when
he is coming to a decision about various parts of the
story.
It can’t be said that all he did was to look at the
individual pieces of the jigsaw and he had his head down
all the time and he wasn’t looking in other directions.
He plainly was, even if he didn’t at all junctures say
that that’s what he was doing.  It’s plain that is what
he was doing.  That was the task that he was engaged
upon.
1387, one has to remember here that the story —
he’s looking at the story as it evolved and 1387,
a point that my Lord the Lord Chancellor raised a day or
two ago:
«That brings me back again to the counterclaimants’
central contention…»
This is about the auction process.  It «brings me
back again» so there is a dynamic and multi-factorial
exercise going on here.  The judge is not just looking
at each little specific factual complaint, he’s coming
back to the central contention so he’s reminding himself
that that’s the burden of Mr Stroilov’s submissions.
That’s what he’s saying.  He’s saying this all smells,
this is all rum.  He’s coming back to that and reminding
himself of that as he’s going through his findings on
the auction process, which is obviously the third bit of
the conspiracy.  That’s the third version, was the
auction process dishonestly run to snaffle the assets?
The judge is very alive to that point.
1417, which is an important finding, this is in the
context — I took your Lordship to this earlier:
«Looked at overall, therefore, there is substance in
the claimants’ case that Dr Arkhangelsky benefited from
the ultimate result since he and his companies were
entirely released from further liability in respect of
the relevant loans, unless the value of the Onega
Terminal exceeded the full amounts outstanding together
with interest and costs.  That does, as it seems to me,
spike the Counterclaimants’ guns in the context of any
claim for recovery of loss in respect of the
transactions.»
So he is looking at it overall.  That suggests that
he is looking at other aspects of his findings and
testing the suggestion at this point in the claim: is
the third conspiracy made out?  Is the Bank’s conspiracy
to steal the assets through the pledge process, is that
made out?  They were very, very powerful reasons he
finds at 1417, albeit he’s really referring to them
compendiously.  Looked at overall, there is substance in
the claimants’ case, in other words value was given.
Value was given to Dr Arkhangelsky and OMG, therefore
there’s no theft, there’s no raid.  No value has been
snaffled away.  And that spikes the guns.  It does spike
the guns, it’s exactly what it does.
And 1524, «Conclusions as to the auction sales»:
«I return to the overall question, which needs to be
revived after being drowned in the above detail: in
effect, whether (as the Counterclaimants assert) the
auction sales were dishonestly orchestrated to yield
hugely discounted values with a view to the Claimants
and their loyal associates scooping the real value at
the later stage of subsequent sales.
«From this long analysis of the auction sales I have
concluded as follows…»
So again in answer to the criticism that the judge
was carrying out a piecemeal assessment, we point to
this.  This is really the conclusion on the third
version of the conspiracy.  He’s plainly doing it
overall and he plainly has in mind his other factual
findings, most of which do not depend upon inference,
depend upon findings of what happened, what actually
happened, what happened in the bid process, what
happened with the auctions.  Not really evaluative, it’s
what happened and that’s not challenged.
Where we’ve really got to by this stage of the
analysis, in my respectful submission, is that here the
judge rejects the third version of the conspiracy by
reference to asking himself overall how the land lay,
having reminded himself that he’s got drawn into the
specific matters, rightly so, as he had to do to make
the findings of primary fact.  Then you have his
confident rejection of the first and second versions of
the conspiracy in the earlier part of the judgment, for
the reasons that he has given: the memorandum, the repo,
the lack of coercion.  Again not inferential matters,
matters as to what actually took place.  No evidence
there that he had any doubt about what he was doing or
was uncertain about the result.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  The
problem, Mr Lord, that I find with all this is
subparagraph (5) of his conclusions, I know that my Lord
or you drew attention to subparagraph (9), but in
subparagraph (5), he says in the last two sentences —
well, you can read it — that it always struck him as
plausible, the fundamental allegation of a stratagem,
but in the end he rejects it because it’s not so
implausible — because the Bank’s justifications are:
«… not so implausible that they must be rejected,
bearing in mind the heavy onus of proof in the context
of an assertion of dishonesty.»
What’s said against you is that that’s really the
wrong way of looking at it.  You don’t look at an
allegation of dishonesty and then say if there’s any
other plausible explanation, the allegation of
dishonesty must be rejected.  That’s just the wrong
approach.
MR LORD:  That’s true, my Lord, but he has rightly —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Which
is what he seems to be doing.  That’s the problem.
MR LORD:  I agree, my Lord, that it may be an unfortunate
choice of language, but the question is for your
Lordship to — I accept that, that it’s unfortunately
expressed.  But the question is, going through the
judgment, is that what he’s actually been doing or has
he actually been correctly applying the standard of
proof which does require cogent evidence for proof of
serious wrongdoing?  There’s nothing wrong with that.
That’s the correct starting point.  And one looks always
at the context for that, as Mr Stroilov submits, and the
context are all his other findings that render the need
for cogent proof the more, not less appropriate.  That’s
the way I would put it, that by this stage in the
analysis he has rejected an awful lot of the other
building blocks that were being put to him as indicia of
the conspiracy so to be inferred.
It may be a slightly infelicitous expression but
it’s not enough to pull the whole 400-page judgment
down.  It’s not enough for that.  With respect, he
refers to the burden of proof —
LORD JUSTICE PATTEN:  But you can tie that in with 1634,
can’t you?  Because he more or less says the same thing
there.  He says in the middle of 1634:
«The Counterclaim always faced the difficulty that
it relied on proof of the inherently improbable, and
a burden of proof that could only be discharged by
showing the facts to be incapable of innocent
explanation such as to give rise to the inference of the
conspiracy or conspiracies pleaded.»
MR LORD:  Well, my Lord, it’s right that on the authorities,
if facts are consistent with honesty, you don’t infer
dishonesty from that.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  That’s
not what he said.
MR LORD:  My Lord, that isn’t the task that he has been
engaged upon when you go through the judgment in my
submission.  That isn’t what he’s been doing.  He’s been
looking at the competing explanations of conspiracy or
enforcement of security and he’s been adding that in to
his findings, importantly many of which are not
challenged.  So he is by this stage in his winding-up as
it were, he has rejected most of the building blocks
that the counterclaimants relied upon.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  The
problem, Mr Lord, is that he has rejected the early
building blocks but not the later ones and the later
building blocks are mostly, shall we say, qualified by
a reference to this high standard of proof or the benign
as opposed to malign, in other words the wrong approach,
so that you find when he rejects the allegations about
various bits of the story, the Morskoy loan, the string
of lies told in evidence, the Gunard Lease and other
aspects, there’s just a line in the paragraphs
I highlighted yesterday morning showing that he’s got
the wrong end of the standard application.  And that is
what troubles me about this case.  In fact it’s the
bottom line as far as I’m concerned, that every time he
comes to make a decision about the dishonesty in this
part of the story, he laces it with an indication that
he seems to be applying the wrong standard.  It’s those
16 examples that, to me, are the foundation of the
appeal.  If you could persuade me, speaking only for
myself, that they were, to use the word of the case,
benign and that they weren’t in error, then you would be
home.
But at the moment, I am troubled by the fact that
he — I’m troubled by two things.  I want you to be
absolutely clear about this because you’ve got an
opportunity tomorrow to address them.  The first thing
is that, and the second thing is that I don’t believe
anything you’ve shown us in those paragraphs which I’ve
carefully noted down was a consideration in the round
until you get to 1634 when it’s an expression of what
I regard as very serious doubt about whether he’d got
the wrong answer.  That’s the problem.  So that his «in
the round» came down the other way but he’d already
hoist himself because in 16 cases he’d said, «No, I’m
applying the wrong standard, can’t say that proves
a raid; applying the wrong standard, can’t say that
proves a raid», and then when he comes to saying in the
round he says «I’m still terribly concerned about it so
I’m not going to give you a counterclaim declaration»
but doesn’t reach what seems to be the inevitable
conclusion if he’d applied the right test.
MR LORD:  Can I go through 901.  Can I go through paragraph
25 factors, briefly, because they’re in our skeleton and
they’re important —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Sure,
they are important.
MR LORD:  In terms of — your Lordship is — show why the
judge didn’t materially go wrong given all the findings
he did make and those that we’re told where he appears
to have expressed himself worryingly, how significant
are those to the story, if I put it that way.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes.
MR LORD:  Could I deal with — paragraph 901 is in 25 of our
skeleton, so I’ll go through that quickly.  Then I’ll
deal with the complaints that are made in paragraph 17
of Mr Stroilov’s skeleton where he alights upon the
paragraphs which I think in large measure are the
facsimile of your Lordship’s paragraphs and obviously
I’ll make sure I don’t overlook any additional
paragraphs.  So if you like I follow through the sort of
twists and turns of the analysis, if that’s all right,
and identify what we say are the sufficiency of his
findings to mean that the overall result, however
infelicitously framed, does not actually suggest that he
actually went plainly wrong in the result.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  I think
you are accepting in that, and you’ve accepted before,
that what you call an infelicity of expression is at
least wrong, not correctly expressing the standard of
proof.  Is that right?  Certainly in some places.
MR LORD:  My Lord, we’ve set out in our skeleton argument,
under Ground 3, what the relevant standard is.  It’s
obviously only one standard.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  We all
agree what the relevant standard is.
MR LORD:  It’s only one standard.  It’s right to say that
when the court is applying that standard one does look
for cogent evidence for more serious things because they
are generally less likely.  There’s nothing
controversial with that.  That isn’t the wrong statement
on authority.  If your Lordship thinks that is, I’ll
have to go through the cases.  That’s in accordance with
the Re H approach.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  No but
it just has to be contextual.
MR LORD:  It does, my Lord, but that’s why importantly here,
contrary to Mr Stroilov’s submissions, you didn’t have
a developing world of suspicion, even if the judge has
talked it up at the death in the declaration section, as
he has done, when you walk through his judgment that’s
not the right context.  It’s not a context of increasing
suspicion.  If I can put it this way, he makes a meal of
the curiosities but when one looks at his findings and
puts them into the chronology and works out what he has
found reliably before and after, one can see that there
is nothing unsafe in his conclusion.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Though
I hate lions, when you walk through the park, the
probabilities of seeing a lion become more likely as you
get closer to the lion enclosure.  And that’s the point
here.
MR LORD:  Yes, and the question is whether the lion
enclosure could really be at the end of the walk or
there had to be a few predators at the beginning and all
the way through.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Anyway,
I hate the analogy, I’ve used it myself now so I can be
dragged into the lions’ den.
MR LORD:  Shall I make a start then on paragraph 25?
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Sure.
MR LORD:  Paragraph 901 of the judgment which was the —
my Lord, with respect to the learned judge,
paragraph 901 sets out a series of 16 facts from which
he said — from which it is said you should infer the
various iterations of the conspiracy and dishonest
collusion.  So whatever Mr Stroilov points to and
emphasises now, these were what were being relied upon
in front of the judge.  These are what was said to show
the conspiracy.  So one has to have those open on the
one hand, to say right, is the judge’s rejection of the
conspiracy in its three different forms, is it plainly
wrong?  Does his approach to the fact-finding, the
evaluative standard of proof, does that somehow taint
his rejection of all three versions of the conspiracy to
steal the assets?  What was he being told, or what do
the appellants point to, well, these are the 16 factors,
and then we have to tick them off.
So paragraph 25 of our skeleton has sought to try to
superimpose on to paragraph 901 what the judge actually
found.  So the first of the 16 is the allegation of
forgery and that was important because it was contended
that that was part of the Bank’s dishonest attempt to
ensnare Dr Arkhangelsky.  That was one of the early
forensic tracts relied upon.  That was an absolutely
crucial bit of the story, that the Bank had forged
a whole host of documents in order to be able to
implement this conspiracy to raid.  In other words, it
didn’t have any entitlement to any of these monies, but
it fabricated documents in order to start to attack
Dr Arkhangelsky and raid his empire.  That’s what was
said.  That was a very important building block.
Again what one doesn’t get from this sort of review
is the weighting that comes out in the trial, a sort of
weighting of what was more important and less important.
This was a very important part of the case.  We had
handwriting experts, we had a whole host of evidence and
the judge decisively rejected these allegations and said
they had been dishonestly pursued.  Dr Arkhangelsky must
have known that he’d signed these documents.
In this context, the judge refers to the OMG debt
schedules.  So there were actual internal OMG documents
that recorded as liabilities those within documents that
Dr Arkhangelsky, right the way through to the trial and
through the trial, alleged were forgeries.
That has a number of ramifications for the judge, in
my respectful submission.  It obviously casts all sorts
of question marks about Dr Arkhangelsky and his
credibility and that’s important because the judge is
considering, well, is what I’m told about what’s
happening from Dr Arkhangelsky, is that likely or not,
where that’s relevant to the story?  That’s obviously
relevant.  It’s also relevant that he’s dishonest to
this extent.  And secondly — thirdly, it shows the
extent to which Dr Arkhangelsky would go to seek to
obstruct the Bank’s attempt to enforce its debt claims
and its guarantee claims.  Even through to the end of
trial he sought to allege forgery, however weakly as the
trial unfolded because he could see it was collapsing.
It was a hopeless thing to say but it’s a sign of what
the Bank was faced with.
So when you’re looking at what the Bank did and what
the Bank is said to have done by way of a raiding
conspiracy, you do need to plug in, with respect, this
important sort of curtain-raiser.  It is very important.
The judge made the finding at paragraph 903 and onwards
«Forgery allegations and the counterclaim» and he found
that it wasn’t fatal to the counterclaim because, as
my Lord has said to me, in large measure this turns upon
things that the Bank was doing, not things that
Dr Arkhangelsky was asserting.  And I accept that.
But there were respects in which Dr Arkhangelsky’s
honesty and account was relevant and most obviously
would be the sort of borrower with whom the Bank had to
deal.  In paragraph 906 the judge says this in the last
three lines:
«Put another way, it reinforces my conclusion that
Dr Arkhangelsky is an unreliable, sometimes dishonest,
and often reckless witness, whose evidence I would not
accept without undisputed documentary corroboration.»
That is a very — for this judge that is a very
powerful rejection of the honesty and reliability of
this witness and the counterclaimant.  It’s important
that when one is insinuating into this counterclaim
fact-finding process things that Dr Arkhangelsky is
alleging and asserting, it’s true enough that if they
only concern the Bank, the judge must only look at the
Bank.  But the court is entitled to say, well, I wonder
if that’s right.  This is a man who can’t be trusted and
who lied about forgery.  Can I really assume that his
valuable business was really an attractive target to the
outside world?  Is that likely?  That’s all part of the
mix.  So that’s the first, number one.
Then going back to my paragraph 25, subparagraph
(2), the judge found that there was no general
moratorium, and we’ve given the references in our
skeleton, and that the various extensions given by the
Bank were a «valuable breathing space or lifeline»
without which default before the end of 2008 was
inevitable.
The judge has found further that Dr Arkhangelsky was
not coerced into signing the memorandum or entering into
the repossession agreements, repo agreements.  He wasn’t
tricked, he wasn’t intimidated and he had lawyers
involved and it was untruthful of him to say otherwise.
He said to the court, «Well, I was really basically —
this is all part of the conspiracy, they forged all
these documents and now what they’re doing is tricking,
coercing and intimidating me, without legal input, into
entering into the repo agreements which is going to be
the key through which they then seek to unlock my
valuable business empire and scoop the pot».  That’s
what his case was.  The judge clearly rejected this.
I can’t do justice really to the judge’s findings by
compressing it.  We’ve sought to set out in our skeleton
the paragraphs but the judge sets out at some length on
the moratorium, he walks the reader through the
documents and the evidence and he notes, for example,
that the memorandum that Dr Arkhangelsky signed, with
his lawyer helping, made no reference to a six-month
moratorium.  There’s no reference in contemporaneous
emails to which Dr Arkhangelsky was privy after that
point in which there was any suggestion of a six-month
moratorium when the Bank produce the loan-specific
extension documents that don’t track a six-month
moratorium but have specific extensions dotted around
different dates, some on six months and some shorter.
No sign of any complaint, no querying by Dr Arkhangelsky
at the time those were signed on behalf of
Dr Arkhangelsky.
So at the end of 2008 and into 2009, the repo that’s
said to be part of this great trickery the judge has
rejected and for very sound reasons.  The judge perhaps
could have put it more trenchantly, it’s a mark of his
understatement that perhaps he didn’t — he does it in
a very sort of understated way perhaps.  But the upshot
is that he found that these were valid contracts and
that Dr Arkhangelsky had made up the allegation that
he’d been effectively dishonestly drawn in to that
arrangement in order to found the raid.
Because one of the key points in the case was, well,
you the Bank have got these repo rights which allow you
potentially to control these two companies, Western
Terminal and Scan, and Dr Arkhangelsky’s case was:
you’ve effectively — you have dishonestly got those
keys, you have stolen those keys from me to my two
valuable businesses.
Pausing there, they were built on sand and they were
keys which the judge found Dr Arkhangelsky willingly and
consensually, on legal advice, handed over to the Bank
to get valuable breathing space without which he was
indisputably lost.  He was playing for time and hoping
that something would turn up and he agreed to those
arrangements and then he sought to allege dishonesty on
the Bank’s part in relation to them and he identified it
as his second indicia of a state-sponsored raiding
conspiracy.
So again, when we come to this point of the order,
that point has decisively gone in the Bank’s favour when
one is looking at the context here.  No question that
there’s any standard of proof concerns about these
findings at this point.
Then we go to the third bit.  Repo arrangements were
consensual — sorry, the third feature the judge
identified, the unusual features of the repo
arrangement.  I think I have dealt with that, that
although they were unusual the judge has found that they
were entered into without any trickery or chicanery,
with legal advice available to Dr Arkhangelsky, in
circumstances where Dr Arkhangelsky had made no secret
that he was going to seek to obstruct the Bank otherwise
and where the judge found that the unusual features such
as the original purchasers not being the Bank, the judge
found that that was plain on the face of the
arrangements.  So there was no subterfuge here.
You would think if you were going to steal something
and use somebody else as your thief, you might keep
quiet about it.  The Bank didn’t do that.  The Bank put
on the face of the repo arrangements who these other
companies, these SPVs would be.  Again, not the stuff of
some asset-raiding plan.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Well,
are you going to deal in relation to the repo
arrangements with paragraphs 942 and 958 to 960 and
1044(4) to (6)?  That’s the case against you.  It’s up
to you but those paragraphs that I’ve mentioned are said
to indicate a wrong approach.
MR LORD:  My Lord, all I can do is to point to the material
that was before the judge.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  So
you’re looking at the whole — you’re saying whatever
the approach may have been in those paragraphs, the
whole thing is as you describe it and therefore it
doesn’t matter?
MR LORD:  I do, my Lord.  I’m saying really now that however
it’s been phrased, I will come back to that in Ground 3.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
will come back to that.  Okay.
MR LORD:  My Lord I do submit —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Because
that’s directly under head 3 of the 901 allegations.
MR LORD:  It is but I am submitting that there was more than
sufficient material here, evidence here —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Oh,
absolutely.  What is said against you, material or no
material, the test he was applying in making his
decision on those curiosities, as he calls them, I’m not
quite sure why they’re called curiosities, but those
features, is not the right one.
MR LORD:  Yes.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  We can
come to it tomorrow.
MR LORD:  Yes.
Unless your Lordship would like to press on, it
might be appropriate —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  You
think that might be a convenient moment?
MR LORD:  It might be a convenient moment, my Lord.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  How are
we doing timing-wise because I’m just concerned — have
you fixed or agreed a time for reply for Mr Stroilov?
We are going to have to rise at 4.15 tomorrow, we start
at 10.30, there’s no extensions, so how long have you
agreed to give Mr Stroilov for his reply?
MR LORD:  Well, he took the best part of two days and I said
I would take probably until tomorrow lunchtime,
I thought, or thereabouts.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  That’s
absolutely fine.
MR LORD:  I thought I would be a little — I need to give
him — but even allowing him a little bit more than
half —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  In
fairness you don’t need to give him the whole afternoon
but I think you do need to give him an hour and a half,
probably.
MR LORD:  Certainly, my Lord.  I’m sure I can finish by that
point.  Obviously if there are bits of — obviously
Grounds 1 and 3 are very important.  I can take Ground 4
quite quickly.  I’ve done Ground 2.  I’ll reflect on
your Lordship’s observations as to how long I need to
spend on other grounds.  Obviously if your Lordship
wants Grounds 5 and 6, 6, for example, the question is
do I have to allow myself time for that, or — that’s
the only equality of arms.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Well,
you’ll make those choices overnight but as you will
realise, it is a matter really for you.
MR LORD:  And obviously the illegality point, my Lord, which
I will want to spend some time on because that is
a point I do rely upon in the respondents’ notice.
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Yes, so
you will have to leave time for that.
MR LORD:  I will need to leave time for that because —
THE CHANCELLOR OF THE HIGH COURT, SIR GEOFFREY VOS:  Very
good.  10.30 tomorrow.
(4.14 pm)
(The hearing adjourned until
Thursday, 5 March 2020 at 10.30 am)

INDEX
Submissions by MR LORD (continued) ……………….1