Full text of Judgement

Neutral Citation Number: [2018] EWHC 1077 (Ch)

Case No: HC-2012-000165

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
7 Rolls Building, Fetter Lane, London, EC4A 1NL
Date: 09/05/2018

Before:
THE HONOURABLE MR JUSTICE HILDYARD
Between:
(1) Bank St Petersburg PJSC
(2) Alexander Savelyev

Claimant

— and —

(1) Vitaly Arkhangelsky
(2) Julia Arkhangelskaya
(3) Oslo Marine Group Ports LLC

Defendant

THE HONOURABLE MR JUSTICE HILDYARD
Tim Lord QC, Simon Birt QC, Richard Eschwege (instructed by Reynolds Porter Chamberlain
LLP) for the Claimants
The Defendants appeared by their McKenzie friend, Mr Pavel Stroilov and on 12 April 2016, 4-5 May
2016 and 8 July 2016 by Alexander Milner (instructed by Withers LLP) on issues of Russian law and
valuation
Hearing dates: 28-29 January, 1-4 February, 8-9 February, 12 February, 15 February, 17-19 February, 22-
25 February, 29 February-4 March, 7-8 March, 10-11 March, 16-18 March, 21 March, 23 March, 4-6
April, 8 April, 11-12 April, 14-15 April, 18 April, 4-5 May, 6-8 July and 11 July 2016
Further written submissions 25 July 2016, 29 July 2016
— — — — — — — — — — — — — — — — — — — — —
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this
Judgment and that copies of this version as handed down may be treated as authentic.


Outline summary of claim and counterclaim ………………………………………………………………….. 8
Logistics of the trial and the disparity in legal representation ………………………………………… 11
Parties and factual background ………………………………………………………………………………….. 13
The Bank …………………………………………………………………………………………………………………. 13
Mr Savelyev ……………………………………………………………………………………………………………… 13
Key personnel within and witnesses of fact for the Bank ………………………………………………… 15
Other persons of primary relevance who were not called for the Bank ……………………………. 17
The Defendants/Counterclaimants and their witnesses of fact ………………………………………… 18
Expert witnesses ……………………………………………………………………………………………………….. 22
The OMG companies ………………………………………………………………………………………………… 24
The Bank’s relationship with OMG …………………………………………………………………………….. 25
Hierarchy within the Bank for credit approvals ……………………………………………………………. 26
The Bank’s loans to OMG………………………………………………………………………………………….. 26
Loans to Vyborg Shipping in 2008………………………………………………………………………………. 28
Pledged and unpledged assets at Western Terminal ……………………………………………………… 30
Fourth Vyborg Loan …………………………………………………………………………………………………. 31
Other Vyborg Loans ………………………………………………………………………………………………….. 31
Further loans in 2008 ……………………………………………………………………………………………….. 32
Dr Arkhangelsky’s plans for a vertically integrated cargo and shipping business …………….. 32
The Western Terminal site …………………………………………………………………………………………. 33
The Onega Terminal site ……………………………………………………………………………………………. 33
Vyborg Port ……………………………………………………………………………………………………………… 33
Vyborg Shipping……………………………………………………………………………………………………….. 34
OMG’s development plans and funding requirements for Western Terminal ……………………. 34
Dr Arkhangelsky’s search for finance in 2008 ……………………………………………………………… 36
Basis on which finance was sought: Information Memorandum and Business Plan for
Western Terminal ……………………………………………………………………………………………………… 36
Inaccuracies in the draft IMs: the “enormous untruth” and unrealistic TEU figures ………… 37
Dr Arkhangelsky’s evidence that he paid bribes of about US$160 million ……………………….. 39
Efforts to raise finance for Western Terminal ………………………………………………………………. 46
Dr Arkhangelsky’s alleged efforts to fund his expansion plans for Onega Terminal ………….. 49
Similar plans for expansion of Vyborg Port …………………………………………………………………. 50
Failure to obtain outside financing for development plans left OMG dependent on the Bank51
The OMG business was built on sand ………………………………………………………………………….. 51
OMG’s financial difficulties: autumn 2008 ………………………………………………………………….. 53
OMG’s need by the end of 2008 to reschedule its borrowings ………………………………………… 55
Two disputed transactions …………………………………………………………………………………………. 56
Tekno loan ……………………………………………………………………………………………………………….. 56
The risk to the Bank in November 2008 ……………………………………………………………………….. 57
The Personal Loan ……………………………………………………………………………………………………. 58
Context of discussions on rescheduling OMG debts: the Bank’s wish to avoid reserves ……. 63
Efforts to re-schedule debt in November through December 2008 ………………………………….. 66
Crisis in December 2008 …………………………………………………………………………………………… 70
Meeting on 25 December 2008 …………………………………………………………………………………… 73
The Memorandum and paperwork post the 25 December 2008 meeting ………………………….. 77
The provisions and effect of the Memorandum; Dr Arkhangelsky’s assertion of a collateral
moratorium ……………………………………………………………………………………………………………… 79
The (backdated) repo documentation in the context of the Memorandum ………………………… 82
The Original Purchasers under the repo arrangements and the Renord-Invest Group ………. 83
January and February 2009 and the restructuring documentation ………………………………….. 85
Events immediately prior to the Bank calling OMG default……………………………………………. 88
Reality by the end of 2008 was that there was no prospect of replacement funds ……………… 89
The accelerating deterioration in OMG’s financial position ………………………………………….. 90
Request and refusal to extend PetroLes loans ………………………………………………………………. 90
Management Board refuse to extend PetroLes loans …………………………………………………….. 91
Dr Arkhangelsky suspects an imminent ‘raid’ ………………………………………………………………. 93
The development of the Bank’s concerns as to the value of its security ……………………………. 95
The Bank’s decision to call in loans and post reserves ………………………………………………….. 97
The Bank finds out about the arrest of Vyborg Shipping’s vessels …………………………………… 99
The Bank’s review of its security and the introduction of Mrs Malysheva as manager …….. 100
Long-standing associations and the AVK connection ………………………………………………….. 100
SKIF, Mr Sklyarevsky, Mr Smirnov and Renord-Invest: their connections with the Bank … 102
Associations in other entities of relevance in the later events ……………………………………….. 102
Events of March to April 2009: overall view ………………………………………………………………. 103
Transfers of shares in Scan from the Original Purchasers to the Subsequent Purchasers … 104
Mr Sklyarevsky’s participation and interests in the repo arrangements and transfers to
Subsequent Purchasers ……………………………………………………………………………………………. 105
Mr Sklyarevsky’s claims that Dr Arkhangelsky was not open to negotiation…………………… 107
No meetings with Mr Savelyev ………………………………………………………………………………….. 108
Morskoy Bank loan …………………………………………………………………………………………………. 109
The Bank’s reliance on Morskoy Bank loan to justify removing Dr Arkhangelsky …………… 110
The decision to replace the management of Scan and Western Terminal and its aim ………. 112
Mechanics of the removal of Dr Arkhangelsky and Mr Vinarsky as Directors-General …… 112
April to July 2009: the Bank calls in its loans and takes control of Scan and Western
Terminal; Mrs Arkhangelskaya challenges the repos; the Bank seeks to insulate its position
from adverse judgments and encourages criminal proceedings; and Dr Arkhangelsky leaves
Russia ……………………………………………………………………………………………………………………. 113
The Bank calls in its loans ……………………………………………………………………………………….. 114
First to Fourth Vyborg Loan defaults ………………………………………………………………………… 114
2008 LPK Scandinavia Loan ……………………………………………………………………………………. 115
Dispute as to service of demands ………………………………………………………………………………. 116
OMG’s response: its and Mrs Arkhangelskaya’s proceedings in Russia ………………………… 118
Dr and Mrs Arkhangelsky’s marriage contract in May 2009………………………………………… 120
Bank’s proceedings in Russia to obtain judgment against OMG …………………………………… 121
Transfers procured by the Bank and its further steps to ‘protect’ pledged assets ……………. 121
Physical seizure of Western Terminal premises with the help of riot police ……………………. 122
Other legal manoeuvres …………………………………………………………………………………………… 123
The Gunard Lease …………………………………………………………………………………………………… 124
Dr Arkhangelsky’s departure from Russia …………………………………………………………………. 124
Intensifying campaign of criminal investigations and proceedings ……………………………….. 126
Western Terminal/Morskoy Bank criminal complaint: end of 2009 to 2010……………………. 126
International Arrest Warrant issued re Dr Arkhangelsky …………………………………………….. 128
The Bank’s enforcement proceedings and their result …………………………………………………. 129
First to Fourth Vyborg Loan proceedings ………………………………………………………………….. 129
Onega Loans ………………………………………………………………………………………………………….. 131
Personal Loan: Russian proceedings ………………………………………………………………………… 132
Other OMG loans …………………………………………………………………………………………………… 133
First and Second PetroLes Loans ……………………………………………………………………………… 133
2007 LPK Scandinavia Loan ……………………………………………………………………………………. 133
Second Onega Loan ………………………………………………………………………………………………… 134
Scandinavia Leasing loans ………………………………………………………………………………………. 134
Enforcement of security …………………………………………………………………………………………… 134
Realisations of vessels……………………………………………………………………………………………… 135
Claims in bankruptcy of Vyborg Shipping ………………………………………………………………….. 136
Scan and the Pravdy Street Assets …………………………………………………………………………….. 136
Sales of Onega Terminal assets and Sestroretsk Assets ……………………………………………….. 136
Onega Terminal assets and Sestroretsk Assets ……………………………………………………………. 136
Real estate at Western Terminal ……………………………………………………………………………….. 138
The Arkhangelskys’ personal assets ………………………………………………………………………….. 140
The sums claimed by the Bank ………………………………………………………………………………….. 141
The Banks’ claims: have the Defendants a good defence? ……………………………………………. 141
Issue 1: Dr Arkhangelsky’s case in respect of the alleged Personal Guarantees and the
Personal Loan ………………………………………………………………………………………………………… 142
Did Dr Arkhangelsky agree to provide and did he sign the Personal Guarantees? …………. 143
The Claimants’ case as to the authenticity of the documents ………………………………………… 146
The Bank’s practice as to personal guarantees …………………………………………………………… 146
Direct evidence of signatures……………………………………………………………………………………. 147
Contemporaneous documentation …………………………………………………………………………….. 149
Evidence of direct debit agreements premised on Scan guarantee ………………………………… 152
No allegation of fabrication of the Personal Guarantees in the Russian proceedings ……… 159
Falsity of Dr Arkhangelsky’s assertion that he never gave guarantees to any banks ……….. 160
Specific points regarding the Personal Loan………………………………………………………………. 161
Handwriting evidence ……………………………………………………………………………………………… 162
The experts and the process ……………………………………………………………………………………… 162
Experts’ findings as to authenticity……………………………………………………………………………. 164
A Dr Giles ………………………………………………………………………………………………………….. 164
B Mr Radley……………………………………………………………………………………………………….. 167
My findings and my conclusion that Dr Arkhangelsky did sign and was bound by the relevant
documents ……………………………………………………………………………………………………………… 168
Spousal consents …………………………………………………………………………………………………….. 173
Additional agreements and amendments to the Personal Guarantees ……………………………. 176
Issues if Dr Arkhangelsky did not sign Personal Guarantees or Personal Loan ……………… 176
Claims in respect of the Personal Guarantees and the Personal Loan under Article 1064
RCC ………………………………………………………………………………………………………………………. 177
Article 1102 of the RCC: unjust enrichment in the amount of the Personal Loan? ………….. 178
Issue 2: Was a 6-month moratorium promised and agreed? …………………………………………. 179
Did Mr Savelyev promise a 6-month moratorium? Was that the basis of the repo
arrangements? ……………………………………………………………………………………………………….. 179
The lack of any reference to the moratorium in the Memorandum ………………………………… 181
Subsequent individual loan extensions not consistent with the general moratorium alleged 183
Relevance and effect of Russian law if (contrary to my primary conclusion) there was some
form of agreement for the across-the-board moratorium alleged ………………………………….. 186
Consequences of these findings for the Defence: there being no agreed or promised general
moratorium as alleged, the Bank was entitled to call in its loans as and when it did and to
enforce the repo arrangements …………………………………………………………………………………. 189
Issue 3: Claim to set aside the Defendants’ Marriage Contract ……………………………………. 190
Counterclaim………………………………………………………………………………………………………….. 193
Summary of claims and defences to counterclaim ……………………………………………………….. 193
The claims ……………………………………………………………………………………………………………… 193
Outline of findings sought by Counterclaimants …………………………………………………………. 195
The Claimants’ basis for rejecting these claims ………………………………………………………….. 200
Limitation defence to ‘new’ conspiracy claim …………………………………………………………….. 204
My approach to the various iterations of the conspiracy claims ……………………………………. 205
Primary facts relied on by the Counterclaimants as demonstrating conspiracy and collusion
……………………………………………………………………………………………………………………………… 206
Forgery allegations and the Counterclaim …………………………………………………………………. 207
Effect of my findings that there was no agreed general moratorium in December 2008 …… 208
Unusual features of the repo arrangements: the competing views …………………………………. 211
My assessment as to whether the form of the repo arrangements itself demonstrates or
supports an inference that the Bank was planning a ‘raid’ …………………………………………… 217
Significance of the introduction of Mrs Malysheva in place of Messrs Guz and Belykh……. 222
Did the Bank wilfully contrive to ensure an event of default? ……………………………………….. 224
The transfers to the Subsequent Purchasers ……………………………………………………………….. 234
Removal of Dr Arkhangelsky and Mr Vinarsky …………………………………………………………… 235
The wars in the Russian courts …………………………………………………………………………………. 238
Counterclaimants’ civil and criminal proceedings………………………………………………………. 239
Mrs Malysheva’s extraordinary proposals in relation to Western Terminal and Scan assets
……………………………………………………………………………………………………………………………… 241
The Gunard Lease again ………………………………………………………………………………………….. 242
Police raids and the deployment of state power ………………………………………………………….. 246
Did the state cause Dr Arkhangelsky to leave Russia and harry him in exile to assist the
conspiracy? ……………………………………………………………………………………………………………. 247
False evidence and the object of the criminal proceedings in respect of Morskoy Bank loan
……………………………………………………………………………………………………………………………… 255
Morskoy Bank criminal proceedings and the harassment of the Arkhangelskys as part of the
alleged conspiracy ………………………………………………………………………………………………….. 262
State assistance in dishonest collaboration: the signs and characteristics of a classic ‘raid’?
……………………………………………………………………………………………………………………………… 262
Control and/or ownership of the Renord-Invest Group, SKIF, the Original and Subsequent
Purchasers and the long train of transactions between them ………………………………………… 268
Ownership and control of Renord Invest and SKIF……………………………………………………… 269
Business and constitution of the Renord-Invest Group…………………………………………………. 270
Relationship between Renord-Invest Group, SKIF and the Bank…………………………………… 276
Beneficial ownership of the Renord-Invest Group and SKIF ………………………………………… 279
The spreadsheet ……………………………………………………………………………………………………… 280
Conclusion as to paragraph [1154] above and the ultimate control and ownership of these
various companies ………………………………………………………………………………………………….. 282
SKIF and Mr Sklyarevsky ………………………………………………………………………………………… 283
Mr Savelyev’s interests (direct and indirect) in the Bank ……………………………………………… 284
Ownership/Control of ultimate purchasers of (a) Western Terminal and (b) Onega Terminal
……………………………………………………………………………………………………………………………… 287
Kontur and Baltic Fuel ……………………………………………………………………………………………. 288
ROK No. 1 Prichaly and Onega Terminal ………………………………………………………………….. 291
Long series of transactions ………………………………………………………………………………………. 293
The issues to be addressed to adjudicate between the competing positions …………………….. 295
Russian law as to duties of pledgees and processes of realisation …………………………………. 296
Auctions: legal framework and practice in Russia ………………………………………………………. 298
Choice and real purpose of auction sale ……………………………………………………………………. 302
Were steps taken to deter potential buyers of the assets? ……………………………………………… 304
Artificial encumbrances …………………………………………………………………………………………… 305
Sales of assets in unattractive parcels, lowering demand and auction values …………………. 306
Inadequate marketing ……………………………………………………………………………………………… 311
Summary as to the effect of whether what was done intentionally dampened third-party
interest…………………………………………………………………………………………………………………… 313
Is there any evidence of complicity on the part of the auction organisers? …………………….. 313
Is there evidence to support the claim that the starting prices were grossly deficient? …….. 316
Has a case of bid-rigging causative of loss been demonstrated? …………………………………… 319
Allegations based on links of ultimate purchasers with Mr Savelyev and others ……………… 321
Expert valuation evidence ………………………………………………………………………………………… 329
Experts’ valuations of Western Terminal …………………………………………………………………… 334
Valuations of land at Onega Terminal……………………………………………………………………….. 341
Seleznyovo ……………………………………………………………………………………………………………… 347
Sestroretsk ……………………………………………………………………………………………………………… 349
Tsvelodubovo …………………………………………………………………………………………………………. 353
Pravdy Street ………………………………………………………………………………………………………….. 354
Personal assets……………………………………………………………………………………………………….. 355
Apartment ………………………………………………………………………………………………………………. 355
Parking space…………………………………………………………………………………………………………. 356
Chattels …………………………………………………………………………………………………………………. 356
Conclusions as to the auction sales …………………………………………………………………………… 357
No recovery in any event………………………………………………………………………………………….. 359
Public policy ………………………………………………………………………………………………………….. 359
No loss …………………………………………………………………………………………………………………… 364
No claim for business loss is sustainable in any event …………………………………………………. 364
Reflective loss…………………………………………………………………………………………………………. 366
Dr Arkhangelsky’s (allegedly) hidden assets ………………………………………………………………. 372
City-Centre …………………………………………………………………………………………………………….. 372
Vyborg Port ……………………………………………………………………………………………………………. 378
Use of ‘mirror companies’ ……………………………………………………………………………………….. 380
Other assets and resources, Co-France, and further claims by the Bank ……………………….. 381
Claim for declaratory relief ……………………………………………………………………………………… 382
Conclusion …………………………………………………………………………………………………………….. 388


Approved Judgment
Bank St Petersburg v Arkhangelsky
The Hon. Mr Justice Hildyard :
Outline summary of claim and counterclaim
1. This awkward case, in which the Claimants have been represented at trial by two
Leading Counsel and a junior instructed by a London firm, whereas the Defendants and
Counterclaimants have been represented only by their McKenzie friend, has generated
a multiplicity of factual disputes and legal arguments; but the parties’ respective cases
may be summarised at a high level quite shortly.
2. The Claimants claim against the First Defendant (whom I shall refer to as “Dr
Arkhangelsky”, although in some quotations he is referred to as “Mr Arkhangelsky”)
under six personal guarantees (the “Personal Guarantees”) and one personal loan (the
“Personal Loan”).
3. The Personal Guarantees on which the Claimants rely relate to the indebtedness to the
First Claimant (the “Bank”) of various companies within the large group known as the
Oslo Marine Group (“OMG”) which Dr Arkhangelsky controlled.
4. The Claimants’ case is that the Personal Loan was obtained by Dr Arkhangelsky to
service interest due in respect of such loans to OMG companies.
5. Towards the end of 2008 the OMG companies, in common with many other enterprises
in Russia and elsewhere, suffered extreme financial difficulties.
6. The parties are agreed that, in light of those difficulties, and some time before the end
of the year 2008, there was an agreement that the dates for the payment of interest under
the loans should be extended. There is a dispute as to whether the capital repayment
dates were also rescheduled. The Claimants contend that specific and different
repayment dates were left to be determined in individual agreements, and that in the
case of two loans (known as the First and Second PetroLes Loans), for example, the
extension provided for was only until March 2009.
7. Dr Arkhangelsky is adamant that there was an agreement that all payment dates were
agreed to be extended to June 2009. According to him, it was only on that basis that he
was prepared to agree somewhat unusual arrangements, known as “repo agreements”.
These repo agreements provided for the transfer of shares in the principal OMG
companies to what Dr Arkhangelsky understood to be Special Purpose Vehicles
(“SPVs”) controlled by the Bank, subject to an obligation on the part of the Bank to
transfer the shares back “[a]fter the complete fulfilment of the Group’s obligations to
the Bank”.
8. According to the Claimants, however, Dr Arkhangelsky had nothing else to offer: the
repo arrangements were his own suggestion and bought him some time in respect of
some loans, to be memorialised in due course, but did not buy him the general
moratorium alleged, which the Claimants insist was never agreed.
9. The arrangements and repo agreements were supposed to be described in a
memorandum, and a memorandum was indeed prepared by the Bank (the
“Memorandum”). However, the Memorandum did not mention any general moratorium
Approved Judgment
Bank St Petersburg v Arkhangelsky
(including on capital repayments), reinforcing the dispute between the parties as to
whether such a moratorium was ever agreed.
10. By early 2009, it was clear that the OMG companies were unable to pay interest and
then principal due under the loans. In particular, by February 2009, it was clear that the
PetroLes loans could not be repaid on time, if at all. Whether and when the OMG
companies went into default depends upon the answer to the dispute as to whether and
to what extent the loans, and in particular the PetroLes loans, were rescheduled.
11. It is the Bank’s case that the PetroLes loans became due for repayment at the end of
March 2009, that all of the OMG companies went into default in the first half of 2009;
and that it was then entitled to and did serve demands for repayment both in respect of
the principal indebtedness (including the Personal Loan) and under the guarantees
(including the Personal Guarantees, as well as certain other intra-group company
guarantees), and then to enforce against and realise the assets pledged to it to secure the
loans.
12. The Bank, early on in a protracted process, seized control of the pledged assets, already
having control of the companies by virtue of the transfer of shares under the repo
arrangements. Dr Arkhangelsky challenged both the repo arrangements and the Bank’s
seizure of OMG’s assets and contended that it was not entitled to call in the loans as it
had.
13. After various protracted legal disputes and court cases in Russia, in which initially the
Defendants were successful, the Bank obtained judgments which it enforced on all the
OMG loans.
14. The total sums owed by the OMG companies to the Bank, including sums which are
not the subject of the Bank’s claim, amounted, as at 7 September 2015, to RUB 2.181
billion (approximately £20 million at an exchange rate of £1 = RUB 108 as at 7 January
2016)). After various recoveries, as at 7 September 2015 the total of the Bank’s claim
in roubles amounted to RUB 1.797 billion (approximately £16.5 million at the exchange
rate above stated). The Bank seeks to recover the shortfall under the Personal
Guarantees.
15. Dr Arkhangelsky and his wife (“Mrs Arkhangelskaya”, the Second Defendant and
Counterclaimant), on the other hand, have claimed that the Personal Guarantees were
forgeries, or at least were put forward and unwittingly signed well after the event of the
loans. Until shortly before trial they claimed that the Personal Loan was an invention
also and that the documentation was forged.
16. Dr and Mrs Arkhangelsky also deny ever having been duly notified of the demands for
payment under the alleged Personal Guarantees and Personal Loan.
17. They deny that Dr Arkhangelsky is under any personal liability to the Bank accordingly.
18. They also, together with the Additional Party, Oslo Marine Group Ports LLC
(“OMGP”), make a very extensive counterclaim on the basis that: (a) the Bank acted in
breach of terms agreed for the rescheduling of the loans, and was not entitled to make
demand under the Personal Guarantees, and (b) the Bank used OMG’s short-term or
Approved Judgment
Bank St Petersburg v Arkhangelsky
medium term cash flow difficulties arising in consequence of the global crisis towards
the end of 2008 to implement a classic and notorious scheme of fraudulent raiding of
OMG’s assets, having identified that the OMG businesses had a value, or at least
potential value, well in excess of the loans, and huge business potential.
19. Their case is that the Bank, “with the assistance of corrupt officials or courts”, took
advantage of OMG’s undisputed difficulties in late 2008 and engineered and
implemented a ‘raid’, the features of which (they say) fit precisely into one of the classic
schemes for raiding distressed businesses identified in a report in 2011 by the National
Anti-Corruption Committee, a body which investigates suspect practices in the Russian
Federation.
20. The Counterclaimants contend that, far from being (as the Claimants would have it) a
series of sporadic reactions to Dr Arkhangelsky’s alleged dishonesty and hostile
actions, the Claimants carefully orchestrated and implemented the scheme by first
putting in place the means of securing and then acquiring control of the OMG
companies, and then contriving a series of what they contend were fake or sham
auctions, whereby first to launder the assets, and then to enable the ultimate sale of the
businesses and assets at rock-bottom prices to a web of companies ultimately controlled
by the Bank and/or the Second Claimant (“Mr Savelyev”) or their associates. Mr
Savelyev is a very substantial shareholder and for many years was Chairman of the
Bank.
21. Dr and Mrs Arkhangelsky and OMGP (together, in the context of their Counterclaim,
“the Counterclaimants”) portray themselves, therefore, as the victims of a state-assisted
and dishonest conspiracy, which resulted in them being stripped of their valuable
businesses, having to flee to France, virtually penniless, leaving Mr Savelyev and the
Bank holding and controlling through associated companies valuable assets which Dr
Arkhangelsky had built up.
22. The Counterclaimants seek to recover the difference between the value of the OMG
businesses, alternatively the assets, thus ‘raided’. The value of the Counterclaim, if
established, is disputed; but according to Dr Arkhangelsky the discrepancy between the
realisations achieved and the true value of the businesses and assets realized by the
Bank may be as much as US$ 500 million.
23. That huge discrepancy is presented, moreover, as the crux of the Counterclaimants’
case, from which fraud may be inferred.
24. The Bank entirely rejects the Counterclaim. Its case is that the moneys it lent were not
applied in the development of the businesses of the OMG companies which had, in
truth, very little value, and that it was in the position of trying to save something from
a wreckage. The Bank contends that the notion of a dishonest raiding scheme is fanciful
and assumes a pre-determined sequence which would have been impossible to direct
and is far from the truth.
25. The Bank’s case is that Dr Arkhangelsky presided over a financial pyramid and that the
OMG companies which he controlled, far from being genuine and successful
businesses, were vehicles for borrowing huge sums against grossly overvalued assets.
Approved Judgment
Bank St Petersburg v Arkhangelsky
26. The Bank further asserts that a significant proportion of these sums were syphoned off
and hidden from creditors so as to enrich Dr Arkhangelsky personally, and the
remainder of which were largely used to pay off the interest on previous loans.
27. According to the Bank, it was because of this that when the global crisis of 2008 hit,
the borrowings on which the pyramid depended (and in respect of which, according to
the Claimants’ case, Dr Arkhangelsky was required to and did provide personal
guarantees) could no longer be serviced, and fresh borrowings could not be obtained.
Collapse became inevitable.
28. The Claimants depict Dr Arkhangelsky as a thoroughly dishonest man, who left Russia
to flee from his creditors. They contend that he has contrived increasingly fanciful
allegations of forgery of the Personal Guarantees (saying he is not bound by any of
them), political intrigue and asset ‘raiding’ on the part of the Claimants to seek to evade
liability under those Personal Guarantees which, in light of the massive shortfall
between the realised value of the assets which stood as security and the amount of the
loans, represent the Bank’s only remaining recourse.
29. The Claimants seek to strip away these alleged contrivances, and to make good what
they present as an ultimately straightforward case that Dr Arkhangelsky is bound by the
Personal Guarantees and by the Personal Loan he signed and must pay up accordingly.
They reject the Counterclaim as unsubstantiated, false and dishonest; and they also seek
declarations to that effect as the only available means of properly vindicating their
position and reputations.
30. Each side’s case, therefore, depends on establishing the other side’s dishonesty. There
is no escape from such a finding, one way or the other.
31. Further, and despite the fact that the parties’ overall cases can be summarised shortly,
there is no escape either from the factual detail and issues of both foreign (in this case,
Russian) and domestic law, especially in the context of the Counterclaim.
Logistics of the trial and the disparity in legal representation
32. The trial occupied the Court for 46 sitting days (including ten days sitting in France
since the Defendants dared not leave, for fear of arrest at any border) as well as many
other reading days. The Bank called 12 factual witnesses and 3 expert witnesses. Dr
and Mrs Arkhangelsky each gave evidence; and the Counterclaimants also called 6
factual witnesses and 3 expert witnesses. In addition, both the Bank and the Defendants
each adduced written evidence from a handwriting expert; and the Bank and the
Counterclaimants also put forward one expert each to give evidence as to the value of
the relevant businesses; but none of those additional four experts was called, the
handwriting experts because the dispute became narrow and to some extent incapable
of definitive resolution by expert evidence, and the business valuation experts because
the Counterclaimants could not afford to do so, and a stand-off was agreed subject to
re-visiting the matter should that prove necessary in the light of this judgment.
33. All this generated nearly 10,000 pages of transcript and over 200 files of documents.
The written closing submission on behalf of the Claimants comprised some 631 pages
Approved Judgment
Bank St Petersburg v Arkhangelsky
and 1210 paragraphs, with 3,477 footnotes; and that does not include numerous
appendices and schematics.
34. The Claimants have throughout been represented by an impressive slate of Counsel
instructed by Reynolds Porter Chamberlain LLP (“RPC”): Mr Timothy Lord QC, Mr
Simon Birt QC and Mr Richard Eschwege. The Defendants and Counterclaimants have
not been professionally represented for the majority of the trial.
35. At every stage in these complex and fraught proceedings I have been concerned about
the inherent disparity in the parties’ firepower in terms of representation, and the
obvious and formidable difficulties which confront parties who do not have the benefit
of legal representation in marshalling and presenting their own case and in challenging
and testing that of their opponents.
36. That concern has been partly attenuated by the impressive efforts of an extraordinarily
capable McKenzie friend, Mr Pavel Stroilov (“Mr Stroilov”) who (with my permission)
assisted and spoke for the Counterclaimants throughout, and by the more discrete but
invaluable assistance given by Mr Alexander Milner of Counsel, who stepped in for the
Counterclaimants pro bono on certain aspects of the case, especially in relation to the
expert evidence and on an issue of illegality which I later describe. I am very grateful
to both of them, as should be the Defendants/Counterclaimants.
37. I have kept under constant and anxious review my decision, made at the PTR only after
considerable hesitation, to try the case notwithstanding these difficulties. I have in
particular taken constant account of the observations of Elias LJ (as he then was) in
refusing permission for an appeal against that decision (as it seems to me, also not
without hesitation, and indeed misgivings, acknowledging nevertheless that it would
have been “a very serious matter for a case of this kind, in which, of course, there is a
cross-appeal which alleges very serious allegations of fraud,…[to be]…effectively
adjourned forever”).
38. The disparity in the apparent resources and level and depth of representation between
the parties has called for responsible constraint from Counsel for the Claimants, and it
has required me to intervene more often than would usually be my preference and
practice, and to consider and question each and every reference, footnote and
submission with especial care.
39. I should perhaps note that by far the greater difficulties have arisen in the context of the
Counterclaim, since the main claim is more confined, and has been considerably more
straightforward. I have sought to consider every avenue opened or explored by that
Counterclaim, and to follow up every reference, whilst keeping in mind also that the
process must be fair also to the Claimants, and that it is not for the Court to devise its
own arguments or otherwise ‘descend into the arena’.
40. Rather than rely on the selection in the written closing submissions, I have felt it
necessary to re-read the entirety of the transcripts of evidence, and all the documents
referred to in the course of trial, as well as in the nearly 3,500 footnotes in the
Claimants’ Closing Submissions. This has been a long process, involving review of
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Bank St Petersburg v Arkhangelsky
many thousands of documents, which I trust explains at least in part the delay in
providing this judgment, which I nevertheless regret.
41. In the end, I have satisfied myself that the process, though tortuous, has been such as to
enable me to reach a decision after full and fair consideration of the evidence and of the
competing submissions and legal arguments. Of course, whether my ultimate
conclusions are perceived by others to be right is a different matter: but I am satisfied
that they have not been skewed in consequence of the different resources of the parties.
Parties and factual background
42. After that introduction and high-level summary I start this inevitably very long
judgment with a description of the parties and an elaboration of the relevant factual
background.
The Bank
43. The Bank is the largest privately-owned bank in the St Petersburg region and the NorthWest
of Russia. It was incorporated in 1990 when the system of specialised state banks
was introduced in what by then had become the Russian Federation. Its original name
was joint stock company Lenbank (formerly the Leningrad Regional Directorate of
Zhilsotsbank of the USSR).
44. Mr Savelyev acquired shares in the Bank and became Chairman of its Management
Board in 2001, having been approached by the then management of the Bank in the
wake of the financial crisis in Russia in that year, sometimes referred to as “the rouble
crisis”.
45. The Bank has since then grown substantially. Its assets in 2001 were some US$ 100
million, and are now some US$9 billion.
46. Its standing has grown also. In 2007 it became the first Russian privately-owned bank
to make an Initial Public offering (“IPO”) by listing on Moscow Interbank Currency
exchange (known as “MICEX”) and the Russian Trading System Stock Exchange
(“RTS”). It now has more than 55,000 corporate clients and around 1.4 million
individual clients.
47. A mark of its growing standing overseas is that in October 2011 the European Bank for
Reconstruction and Development (“EBRD”) acquired a stake in it of some 6.17% of
the Bank’s ordinary shares. Its shareholders include well known and respected western
financial institutions, such as JP Morgan, Credit Suisse and UBS.
Mr Savelyev
48. Mr Savelyev, the Second Claimant and second defendant to the Counterclaim,
graduated from Tupolev Kazan Aircraft University. He has, since its formation, been a
substantial shareholder (direct and indirect) in the Bank. His personal direct
shareholding in 2009, as disclosed in the Bank’s accounts for that year, was 29.9% of
the voting shares. However, that is not the extent of his interests.
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49. The accounts for 2009 record that he also held 19.9% of a body corporate called ‘Issardy
Holdings Limited’ which held 19.9% of the Bank’s voting shares. In addition, it was
there recorded that he had a call option agreement with his sister-in-law, Ms Lyudmila
Stepanova (“Ms Stepanova”), to buy 81% of a body corporate called ‘System
Technologies Ltd’ holding 19.36% of the Bank’s voting shares.
50. Furthermore, through another body corporate called ‘Verniye Druzya’ (which means
‘Loyal Friends’), which he owned 100% of the shares until 2015 when they were
transferred to another vehicle called ‘Sovet Direktorov LLC’ (“Sovet Direktorov”,
which is the Russian for ‘Board of Directors’), he controlled further shares. Under
cross-examination Mr Savelyev told me this of these arrangements through Verniye
Druzya:
“Q. So, Mr Savelyev, do I understand correctly that the purpose
of that company is simply as a vehicle for distributing
shareholding between managers of the Bank and your daughter?
A. I would like to say before the court, because of course my
daughter holds an option from the three holders of the shares,
and in the event of non-performance of certain covenants, the
daughter is entitled to buy the shares from these three holders of
the shares.
Q. What covenants?
A. I do not recall all the covenants now, but for the most part,
it’s to do with the Bank’s capital, following the Bank’s strategy,
and there have been many provisions that the Bank managers
need to comply with.
Q. So in a way, Verniye Druzya is your tool for control of the
Bank, isn’t it?
A. I never denied that I control the Bank, however, I would like
to say that everything here is correct and the Bank’s managers,
as of today, own the shareholding and have an option with my
daughter, between them and my daughter.
Q. Yes, thank you. Then just back to my question, so really, that
is the purpose of Verniye Druzya LLC, really to exercise that
control and to exercise that arrangement between you and the
other top managers; is that the purpose of Verniye Druzya or is
it doing anything else?
A. That is the global purpose of the company. The thing is that I
am not a young man and I would like to see in time that Verniye
Druzya company and my daughter would exercise control of the
Bank in the future period.”
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51. Mr Savelyev, who in addition appears to have owned or controlled further shares in the
Bank through other corporate vehicles, also had control at management level, as its
Chairman. He described his role in that capacity as “principally a strategic one”:
together with its Management Board (see later) he “set the strategy for the Bank”.
However, his evidence was that he had few day-to-day dealings with customers. There
is a dispute about this, it being the Counterclaimants’ case that he made a practice of
having frequent personal meetings with the Bank’s 30 or so largest clients.
52. The Counterclaimants depict the Bank as to all intents and purposes, and at all material
times, Mr Savelyev’s fiefdom. Mr Savelyev personally is perceived by the
Counterclaimants as being the principal architect of the conspiracy against them and
the ‘raid’ of the OMG assets, acting with the assistance of well-placed friends and
contacts. He is also said by the Defendants/Counterclaimants to have threatened Dr
Arkhangelsky and his family and to have encouraged criminal investigations and
prosecutions against Dr Arkhangelsky by the Russian authorities with a view to
discouraging any resistance to the Bank’s objectives. They accuse him of dishonesty
and serious wrongdoing accordingly.
53. Mr Savelyev is also said by the Counterclaimants to have been acting in all this with
the assistance of his friends in high places, and especially Mrs Valentina Matvienko
(“Mrs Matvienko”). She was Governor of St Petersburg from 2003 until 2011 and since
2011 has been Chair of the Federation Council of Russia (the country’s third-highest
elected office). Also said to have been involved in the ‘raid’ are two allegedly “corrupt
officials” in the state apparatus of St Petersburg ultimately controlled by Mrs
Matvienko during her tenure, namely Gen. Vladislav Piotrovsky, at material times the
head of St Petersburg police (“Gen. Piotrovsky”) and Lt. Col. Levitskaya, at material
times the St Petersburg chief prosecutor.
54. Mr Savelyev rejects these claims; and he has become a Second Claimant to these
complex and expensive proceedings for the sole purpose of seeking declaratory relief
to vindicate his conduct and reputation, although it is fair to note that it was always
intended by the Counterclaimants to join him as a defendant, so it was inevitable that
he would be a party.
Key personnel within and witnesses of fact for the Bank
55. The Bank also called as witnesses of fact the following key personnel within the Bank
in addition to Mr Savelyev.
56. Mr Vladislav Guz (“Mr Guz”) is the current Chairman of the Management Board. At
the material time he was on the Management Board and the Major Credit Committee
(the “BKK”), and was responsible for corporate customers like OMG.
57. Ms Olga Volodina (“Ms Volodina”) is the Senior Vice President of the Bank. From
2007 until March 2015 she was the Deputy Chairman and sat on the Management
Board, as well as the BKK. At the material times, she was in charge of the Credit Risk
Directorate and so was responsible for monitoring the Bank’s reserves and credit risk.
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58. Ms Kristina Mironova (“Ms Mironova”) is currently Deputy Chairman of the
Management Board. From October 2008 until April 2009 she was the Deputy Director
of Investrbank, the branch which managed the Bank’s lending to OMG. She had to deal
with OMG’s borrowing difficulties at the time. She then became the Director of the
Client Monitoring Department. The Defendants allege that she is a conspirator. They
also allege that she has given false evidence both in these proceedings and in anterior
proceedings brought by the Counterclaimants in the BVI which were stayed to enable
proceedings by agreement in this jurisdiction (in Claim No. BVHC (COM) 70 of 2011,
“the BVI Proceedings”).
59. Ms Tatiana Kosova (“Ms Kosova”) was the Director of the Bank’s Legal Department
from 2007 until 2013. She is currently the Advisor to the Deputy Chairman of the
Management Board, Ms Mironova. Ms Kosova’s statement sets out the various steps
that the Bank took to enforce its security once OMG defaulted. There is no pleaded
allegation that she is a conspirator or that she acted in any way dishonestly, but the
Defendants have appeared recently to indicate that they consider her in some way to be
part of the ‘fraud’.
60. Mr Andrei Belykh (“Mr Belykh”) is the Bank’s Director who worked with “Big
Corporate Clients”. At the material times, he was the Director of Clients and Bank
Branches, and was OMG’s initial contact at the Bank. His direct superior was Mr Guz.
61. Ms Ekaterina Shabalina (“Ms Shabalina”) was the Director of Investrbank until summer
2008 at which point Mr Oleg Platonov took over as Director. In her role she met Dr
Arkhangelsky and was involved in some of the lending decisions. She no longer works
for the Bank.
62. Ms Viktoria Yashkina (“Ms Yashkina”) worked in the Credit Department of
Investrbank under the supervision of the director of the Credit Department, Ms Anna
Borisova (“Ms Borisova”). She, along with others, was responsible at Investrbank for
the OMG lending file. A witness statement was served on behalf of Ms Yashkina but
this was withdrawn on Day 31 of the Trial without objection and accordingly she was
not called to give evidence.
63. Ms Elena Blinova (“Ms Blinova”) shared with Ms Yashkina responsibility for the OMG
file in the Credit Department at Investrbank. She covered for Ms Yashkina during the
latter’s maternity leave from February to October 2008.
64. Ms Tatyana Stalevskaya (“Ms Stalevskaya”) was and is the Deputy Director of the
Department of Client Monitoring. She worked in the Bank’s corporate finance
department, and reported to Mrs Irina Malysheva (“Mrs Malysheva”).
65. Ms Natalya Patrakova (“Ms Patrakova”) worked at a junior level in the Investrbank
Credit Department in 2008. Her only involvement in the events material to these
proceedings was to witness Dr Arkhangelsky sign certain documents in relation to the
Personal Loan. Her witness statement is two pages and of limited compass. She no
longer works for the Bank. Dr Arkhangelsky has recently said that her evidence is a
“piece of fiction”. Ms Patrakova is currently on maternity leave from her employer.
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Bank St Petersburg v Arkhangelsky
66. In addition to these employees, the Bank also called as a witness Mr Vladimir
Alexandrovich Sklyarevsky (“Mr Sklyarevsky”). He is the General Director and owner
of a company called ‘Strategiya Korporativnskyh Investitsiy I Finansov’ (usually
referred to as “SKIF”), which focused on corporate restructuring and refinancing of
distressed banking assets.
67. SKIF had originally been incorporated by the Bank under the name ‘BSBP-Finans’ in
2003 and was a long-standing client: Mr Sklyarevsky estimated that by 2009, around
60% to 70% of SKIF’s restructuring and distressed assets management work was
carried out for the Bank. Mr Sklyarevsky is not, himself, alleged to be a conspirator but
his company SKIF is.
68. The Bank also called Mrs Elena Vladimirovna Yatvetsky (“Mrs Yatvetsky”, whose
maiden name was Goncharuk), a Russian qualified lawyer and legal adviser to an
investment and private equity group based in St Petersburg called the “Renord-Invest
Group”. Mrs Yatvetsky was a late entrant to the list of witnesses for the Claimants in
circumstances described later.
69. As will become apparent, the Renord-Invest Group came to play a central role in the
developing saga: it is alleged by the Defendants to have been part of the conspiracy to
seize Zapadny Terminal LLC or “Western Terminal”, and Scandinavia Insurance
Company LLC/Stravahoe Obschestvo Scandinavia LLC, or “Scan”, and to buy up their
distressed assets at a fraudulent undervalue.
70. The Renord-Invest Group is said by the Claimants and appears at least nominally to be
owned by Mr Mikhail Alexandrovich Smirnov (“Mr Smirnov”), possibly in association
with another businessman, Mr Leonid Zelyenov (“Mr Zelyenov”). Dr Arkhangelsky
and the Counterclaimants do not accept this: their case is that the Renord-Invest Group
is controlled and probably owned by Mr Savelyev and/or the Bank and their “loyal
friends” or associates.
71. Mr Smirnov, who is a former employee of the Bank, is a central figure. He provided a
detailed witness statement, which was of especial interest in its description of RenordInvest
and its group companies’ participation in the repo arrangements and asset sales.
But, in the course of the trial, and after various efforts to accommodate him, I was told
that he was too ill to attend and a confidential medical report was submitted in support.
Although the Claimants also relied on Mr Smirnov’s evidence by way of a Civil
Evidence Act notice, Mrs Yatvetsky appeared, in effect, as his understudy, though she
gave an interestingly different picture of the role of the Renord-Invest Group.
Other persons of primary relevance who were not called for the Bank
72. Certain other individuals of importance to the story, in addition to Mr Smirnov, could
undoubtedly have assisted me but were not called.
73. Mrs Malysheva was the most obvious of these. Mrs Malysheva was the Deputy
Chairperson of the Bank and at material times in charge of corporate financing. It was
she who called in Mr Smirnov, the Renord-Invest Group, Mr Sklyarevsky and SKIF to
assist the Bank when it became clear to the Bank in early 2009 that OMG could not
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Bank St Petersburg v Arkhangelsky
avoid default, and it was she who, with Mr Smirnov and Mr Sklyarevsky, directed the
Bank’s relationship with OMG and Dr Arkhangelsky thereafter (subject to the ultimate
control of Mr Savelyev). She and her husband and son had material shareholdings in
the Bank. She is alleged to have been a conspirator.
74. There is no doubt that Mrs Malysheva would have been a witness of central importance.
She gave a witness statement dated 30 December 2011 in the BVI Proceedings on which
the Bank relies by way of a Civil Evidence Act notice. However, by the time of the trial
she had apparently ceased to work for the Bank, and the Bank has maintained that she
has not been prepared to assist the Claimants. I was given to understand that under the
Russian law, it would not have been permissible for the Bank to require her to attend
as part of her severance agreement.
75. Mrs Matvienko did not give evidence either. At an earlier stage of the proceedings I
had asked whether she would, and suggested that her attendance might help to dispel
the Defendants’ suspicions as to covert assistance or connivance on the part of the state
authorities: but I was informed (at an interlocutory stage, when I enquired) that she was
an important and busy person and would not be doing so.
The Defendants/Counterclaimants and their witnesses of fact
76. Turning to the Defendants/Counterclaimants, their witnesses of fact were Dr
Arkhangelsky and Mrs Arkhangelskaya, and six others.
77. Dr Arkhangelsky comes from a family of some renown in Northwestern Russia, as he
was anxious to tell me in a speech he made at the commencement of his oral
examination. He told me that his grandfather had won the Nobel Prize for Economics
(according to him, the only Russian to have done so); his father was a professor of
biology; and his mother was one of the top executives in the Northwestern Russia
medical system.
78. Dr Arkhangelsky himself was educated largely in St Petersburg, but he also spent time
abroad at university in Norway and in Germany. He said that this experience abroad
encouraged him to adopt ‘Western’ business and accountancy standards, of which he
initially boasted of some familiarity but of which he asserted ignorance when later
cross-examined.
79. Dr Arkhangelsky does not appear to lack self-confidence. He appeared to me to harbour
no doubts as to his own abilities. He described himself to me as “probably the best
student in the university.” He told me that:
“While being a student of the second and while being a student
of the second and third year at University of St Petersburg, I’ve
already been given a guest professor lectureship in City
University of London, in University of Munster, in Insurance
Academy of Oslo, Stockholm, Copenhagen, Finland and so on.
So I have been well regarded that time, when I was only 20.”
80. After a period of overseas study, apparently, Dr Arkhangelsky got a PhD for a paper
comparing Norwegian and English marine insurance conditions and implications for
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Bank St Petersburg v Arkhangelsky
the Russian market, and then worked in a leading insurance company’s office in
Moscow which was later acquired by Zurich Insurance.
81. In his speech at the beginning of his oral evidence, Dr Arkhangelsky described his
career thereafter in his own words as follows:
“At some stage I understood that I was too young and too smart
to be employed, and I thought that, having all this background,
why not go back to St Petersburg and to start my own business.
Considering that most of people working in Moscow were above
50 or 60, not speaking any language, still trying to live in the
Soviet conditions and didn’t want to implement anything modern
and European, which was quite strange for me while I spent
about 10 or 15 years abroad, so I decided why not come back to
St Petersburg and establish a company called, at that time, Scan
Marine Consulting. I think it was a really successful venture, so
in a short while I managed to obtain the most important, most
famous Russian international clients, like all the major oil and
gas companies, for whom I’ve been doing reinsurance generally
in markets in London, in Norway, in other Scandinavian
countries and in Bermuda. So, as I have written in the witness
statement, it has been really one of the first Russian insurance,
reinsurance broking companies. And then I decided, why not to
go forward, while at that time it was a time of restructuring of
the international insurance markets of 9/11 and so on. So I’ve
been rather deep in that subject and I decided, why not to build
up something special, local. And later on, when the market
would be a better market, not depressed after 9/11, then I would
be able to sell this to international players, to international
insurance companies with whom I’ve been working and whom
I’ve been knowing personally. So I’ve been knowing personally
directors of major energy syndicates at Lloyd’s and so on, so
we’ve been well regarded, so we’ve been knowing each other
quite well and I believe that in case they wanted to touch Russian
market, my business would be the best business for them to buy,
or, if not whole, at least a share. Then at some stage, we
understood that — I employed quite a number of good, young
people, so most of the people in my office have been between 20
and 35, all of them speaking languages, having experience
international experience, got some, at least, partial international
education, and I thought that I built up quite a good and modern
team and we could easily expand, and definitely one of the areas
of expansion was that time I thought the assets of the ex-Baltic
Shipping Company. You know, in St Petersburg, in the Soviet
Union, one of the major shipping companies was the Baltic
Shipping Company, trading worldwide and so on, and as long as
my mother has been, let’s say, one of the top executives of that
community, and she’s been known by everybody, so all the exdirectors
and captains and so on, they’ve been personal friends
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Bank St Petersburg v Arkhangelsky
with our family and so on, so I decided — and this company had
been bankrupted, so it has been a number of big scandals and
beginning of the 1990s, so it has been divided to many, many
different parts and pieces, and so they called it — some of them,
they called it privatisation; some of them called it bankruptcy,
but it was a big collapse of criminal things all around there. So I
found out that — then I was the age of less than 30, and I had a
good family reputation and I found out that the ex-assets of
Baltic Shipping Company had been distributed and divided
among hundreds of people who had been considering each other
as enemies, so one had been owning a piece of land, another had
been owning water at this piece of land, a third one was owning
electricity at this piece of land, and they were considering that
each of them were stealing assets from each of them. So it has
been quite a complicated story. I found myself that I am able to
come in discussions, negotiations with these people, and even
considering that they are enemies between each other, I consider
that I can come and make an agreement with them because they
were not considering me as the criminals, as they were
considering each other as criminals, so they could have a
confidence, especially because of the family connections and my
mother’s great reputation there. I went around the market while
knowing all these people from my childhood, and made a
preliminary agreement that I buy each and every piece. So
initially it was an Onega Terminal, then it came to Western and
Vyborg Port and so on. And so then I’ve been doing a lot of
interviews to Russian media at that time, and they said: what is
the secret of your success story? And I said — I was telling at that
time that if you watched a movie, Pretty Woman, so it’s
absolutely the same what I have done. So I was just collecting
assets which were considered not to be interested, each and
every, and then by different M&A transactions, I was changing
their status, changing documents, changing the purpose of use,
obtaining clients and so on.”
82. Dr Arkhangelsky also struck me as having a propensity to see things as he wished them
to be in his ego-centric view of the world; and he tends to regard any detractors or
criticism as either lamentably misinformed or inferentially dishonest.
83. Dr and Mrs Arkhangelsky married in 2002. They have three children, now aged 13, 11
and 9. The effect on their family life of the events with which this judgment are
concerned must have been devastating, whatever may be the rights and wrongs of the
matter.
84. The stress on the family was evident in Mrs Arkhangelskaya’s demeanour and tone.
She struck me as a quieter, much more hesitant, person than her husband. She was
certainly more reserved in giving her evidence, though on occasion defensiveness and
what appeared to me to be bouts of despair about her family’s predicament made her
appear truculent.
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85. She has a degree in accountancy and audit. She says she had little knowledge of or
involvement in her husband’s business. However, she states in her witness statement
that she considers that under Russian law the assets of OMG belonged to her husband
and herself in equal shares “however they might be held as to legal ownership”.
86. Mrs Arkhangelskaya was joined as a defendant because (a) what purports to be her
signature is on a number of formal ‘spousal consents’ in respect of the Personal
Guarantees in issue, and (b) in May 2009, and thus after the Bank had started making
demands under some of the Personal Guarantees, she was the transferee of some of Dr
Arkhangelsky’s assets under what was described as a marriage contract (though
obviously the document post-dates their marriage by some 7 years).
87. As well as being a counterclaimant with her husband in these proceedings, she was a
claimant with him in proceedings in the BVI Proceedings. The BVI Proceedings were
eventually stayed, and then in substance recommenced here, in circumstances rehearsed
in a judgment of the Court of Appeal reported at [2014] EWCA Civ 593 (and my own
judgment at [2013] EWHC 3529 (Ch)).
88. Although her witness statement emphasises that she believes the facts pleaded by her
husband to be true, Mrs Arkhangelskaya explained in her oral evidence that:
“my husband does everything for us, on our behalf. I do have to
take part in this, even though I do not like taking part in this, but
because we are the defendants here, I have to take part in this.”
89. My impression is that Mrs Arkhangelskaya veers between bewilderment and anger
about her and her young family’s predicament and remains uncertain whom to blame
for it; and she retreats into denial, and (it seems) occasional bouts of extravagance, to
cope with it.
90. The Counterclaimants also called the following further witnesses.
91. Mr Robin Bromley-Martin (“Mr Bromley-Martin”) is Chief Executive of a company
called ‘Port Evolution and Development Limited’, and a partner at an entity called
‘Neutralis Asset Management LLP’, which specialises in emerging market project
finance and between 2007 and 2009 also traded as or through another entity called
‘Oxus Border Finance LLP’ (“Oxus”). In addition, he has other interests in the field of
corporate finance, focusing on emerging markets. He gave evidence, on which he was
cross-examined, as to the work he did, mostly through Oxus, for Dr Arkhangelsky in
relation to his and OMG’s plans for development of their respective assets. Mr
Bromley-Martin seemed almost to straddle a line between expert and factual evidence.
He did his best: but the revelation of a number of very material inaccuracies in
documentation he had helped to prepare undermined him.
92. Mr François Ameli (“Mr Ameli”) is a French lawyer. He was called to the Paris Bar in
1993, and is a Professor at the University of Paris Pantheon-Sorbonne, and a lecturer in
the fields of international trade law, international contracts, international law and
arbitration. He is one of the legal representatives of Dr and Mrs Arkhangelsky in France.
He has been representing them in matters before the French courts and other authorities,
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Bank St Petersburg v Arkhangelsky
in particular, the French Office for the Protection of Refugees and Stateless Persons
(“OFPRA”). He has given a number of statements in these proceedings and in the BVI
Proceedings.
93. Mr Mikhail Eduardovich Nazarov (“Mr Nazarov”) is a Russian lawyer who has
represented Dr and Mrs Arkhangelsky in Russia in relation to various criminal charges
brought against him, and also Mrs Arkhangelskaya in certain enforcement proceedings
detailed later. A regrettable feature of his evidence was that he said he had never been
made aware of the Court’s order for specific disclosure of certain of his documents, but
(as was revealed by correspondence disclosed by Dr Arkhangelsky, waiving privilege
to do so) that was untrue.
94. Mr Grigory Pasko describes himself as a Russian investigative journalist and former
political prisoner. The main drift of his evidence was that ‘raiding’ of businesses and
persecution of their owners, with the connivance of the Russian courts and the
assistance of state authorities, has been a commonplace in Russia; and that this case
fitted a well-established pattern of (to quote an article he wrote in October 2011)
“threats, power games and court actions” forcing the target to abandon his businesses
and flee for safety, that then being portrayed by the raider as “a flight from
responsibility”. He also had interviewed Mrs Malysheva at some length: and both sides,
in her absence, relied on what she said, to little effect in my view. What he had to say
was general and journalistic: it was interesting, but not of evidential substance and
therefore not of much assistance.
95. Ms Deliya Meylanova is an associate solicitor at Withers. Her evidence was somewhat
peripheral.
96. Also, in the interlocutory stages of the proceedings, Ms Lukina (Director-General of
Vyborg Port LLC, as below described) provided a witness statement dated 5 April 2013
earlier in the proceedings in support of Dr and Mrs Arkhangelsky but not for the
purposes of the trial: she explained that in doing so she was afraid lest she be subjected
to “revenge or pressure” from the Bank and Mr Savelyev, whom she described as
having “a huge power and influence”.
97. The Defendants and OMGP also relied on the witness statement of Mr Vladimir
Ashurkov. He is now a full-time anti-corruption campaigner, who founded, with
another such campaigner (Mr Alexey Navalny) the Foundation for Fighting Corruption.
Having become subject, whilst in the UK, to what he stated he believes to be “a
politically motivated criminal prosecution on charges of misappropriation of electoral
funds during Mr Navalny’s campaign for election as the Mayor of Moscow in 2013”
he sought, and in 2015 was granted, political asylum here. His brief, and the subject of
his witness statement, was to “investigate connections between certain individuals”
including Mrs Malysheva, her son and husband, Mr Smirnov and Mr Sklyarevsky. His
evidence took the matter no further. He did not give oral evidence.
Expert witnesses
98. Expert evidence was given on: (a) handwriting and documentary authenticity; (b)
banking practice in Russia; (c) Russian law; and (d) business and asset valuation.
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99. Dr Audrey Giles (“Dr Giles”) and Mr Robert Radley (“Mr Radley”) provided reports,
on behalf of the Claimants and the Defendants respectively, on the authenticity of
identified documents. Neither gave oral evidence.
100. Mr Mikhail Turetsky (“Mr Turetsky”) gave expert evidence on behalf of the Claimants
(by report and orally) on the approach of lending banks in Russia to defaulting
borrowers as at the end of 2008, the repo arrangements in this case, and the procedure
by which a lending bank enforced its security. Professor Guriev gave evidence (by
report and orally) on these matters. He was acting pro bono for Dr Arkhangelsky
because “a person like Mr Arkhangelsky deserves justice and I would like to support
his right to justice”. He was somewhat partisan. He had not looked at the specific repo
agreements, but his generic observations were of some assistance. He had never
actually been involved in any enforcement decisions taken by a bank.
101. The expert witnesses on Russian law were Professor Peter B Maggs (“Professor
Maggs”), a Professor of Law specialising in Russian law at the University Of Illinois
College Of Law, for the Claimants, and Dr Vladimir Gladyshev (“Dr Gladyshev”), a
practicing attorney in Moscow who divides his time between Russia and London, for
the Defendants and OMGP. Both are experienced expert witnesses in their fields.
Professor Maggs tended to be didactic, Dr Gladyshev to be discursive, but both were of
assistance to me.
102. The experts on Russian real estate valuation were, for the Claimants, Mr Tim Millard
(“Mr Millard”), a chartered surveyor and head of the advisory department at Jones Lang
LaSalle in Moscow responsible for Russia and the CIS, and, for the Defendants and
OMGP, Ms Ludimila Simonova (“Ms Simonova”), a Senior Accredited Appraiser of
the American Society of Appraisers (“the ASA”), a partner of IRE Ukraine LLC, a
licensed appraisal firm in Ukraine, who holds a PhD in Civil Engineering.
103. Mr Millard insisted on a market approach even when no market could be demonstrated.
Ms Simonova had no practical experience of selling property in Russia at all; her
theoretical approach begged many questions; and she tended to intransigence. I am
sure both wanted to assist me; but I regret to say that I did not feel able to place safe
reliance on either.
104. On the market valuation of businesses, Mr Yegor Popov (“Mr Popov”), like Ms
Simonova a member of the ASA, but also a partner in Deloitte Corporate Finance within
ZAO Deloitte & Touche CIS, gave expert evidence for the Claimants. Mr Luke
Steadman, a Chartered Accountant with particular experience in accounting and
valuation, and a partner at a firm of forensic accountants called Alvarez & Marsal
Global Forensic and Dispute Services LLP, gave expert evidence for the Defendants
and OMGP. Neither was called, the Defendants pleading shortage of funds. There was
in the end some unsatisfactory uncertainty as to whether the Court should proceed on
the basis of the written evidence. It was left that the Court would determine whether
that was fair and sufficient, or whether it required further evidence after reaching its
conclusion whether it would be relevant, and when the issue of funding might be revisited.

The OMG companies
105. Turning to the corporate entities in the OMG, there were two parent companies, Oslo
Marine Group LLC (otherwise known as Group Oslo Marine LLC or “GOM”) and
OMGP, and a variety of subsidiaries.
106. A simplified corporate structure chart for the OMG companies (prepared by the
Claimants but not disputed) is attached marked ‘Annex [1]’.
107. In his main trial witness statement, Dr Arkhangelsky described the Group as, by 2008,
including:
“9 principal operating companies which owned a variety of real
estate at port sites in St Petersburg and other locations in the St
Petersburg region. At the same time it was also developing its
insurance, reinsurance and broking businesses as well as offering
medical insurance, pension and tourism services…By the end of
2008, the group employed a total of around 620 people across its
various companies.”
108. The relevant subsidiaries of Oslo Marine Group LLC or GOM included:
(1) Scan, notionally at least an insurance company. Dr Arkhangelsky was its DirectorGeneral.
Scan owned various pieces of real estate, including land at Onega Terminal
in the port of St Petersburg, in St Petersburg itself at Pravdy Street, and just outside
St Petersburg at Sestroretsk and also at Tsvelodubovo.
(2) Lesopromyshlennaya Kompaniya Scandinavia LLC, known as ‘LPK Scandinavia’,
‘LPK Scan’, or ‘Scandinavia Timber’, a timber company. Dr Arkhangelsky’s
mother-in-law, Ms Tarasova was Director-General and the legal owner of 100% of
the shares (presumably for GOM). According to Dr Arkhangelsky, it bought timber
from PetroLes LLC (“PetroLes”) (see below) which it exported through Western
Terminal. It also owned real estate at Onega Terminal.
(3) PetroLes was also involved in the timber business as a wholesaler. Its DirectorGeneral
was Mr A.N. Shevelev (“Mr Shevelev”).
(4) Leasing Company Scandinavia LLC, known as ‘LK Scandinavia’ or sometimes
‘Scandinavia Leasing’, was a business leasing company, which Dr Arkhangelsky
described as specialising in business leasing technical and industrial equipment,
cargo ships and specialised vessels, and real estate. Dr Arkhangelsky further
described it as “among the largest leasing companies in Russia by capital.”
(5) Vyborg Sudokhodnaya Kompania, known as ‘Vyborg Shipping Company LLC’ or
‘Vyborg Shipping’, which was established in 2007 to transport containers and
cargo, with an ultimate objective of launching a regular line service from Vyborg
to western ports. Ms Krygina was its Director-General.
109. The relevant subsidiaries of OMGP included:
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(1) Western Terminal, which owned an 8.1-hectare site at the port of St Petersburg
known as Western Terminal, including two berths, Number 15 of which handled
mostly timber exports and Number 16 of which handled oil products. Mr Vinarsky
was its Director-General.
(2) Onega LLC (“Onega”), which carried on the port handling business, and which,
having acquired the land at Onega Terminal, immediately set about constructing a
new ‘Roll-on, Roll-off’ (“Ro-Ro”) facility (see below), intended to attract car
imports previously handed for the Russian market via Finnish ports which led to
considerable delay and cost. Dr Arkhangelsky was its Director-General.
(3) Vyborg Port LLC, which in around 2007, with finance from Vozrozhdenie Bank
(“V-Bank”) of around RUB 1 billion, acquired the port of Vyborg; this is located
about 120 kilometres north-west of St Petersburg, near to Finland and indeed
connected to it by the Saima Channel. Vyborg Port covers some 16 hectares and
had 13 berths, including 8 cargo berths, 4 covered warehouses with a total area of
2,170 square metres and open hard standing areas of some 67,000 square metres.
Ms Lukina was its Director-General.
110. In addition, it appears that OMG had a number of substantial real estate assets held
through subsidiary or associated companies, including:
(1) A commercial and residential development at Novosaratovska in southeastern St
Petersburg, measuring 50,580 square metres, owned by Medstrakhkom LLC;
(2) A residential development at Solnechnoye, to the north of St Petersburg and near
Sestroretsk on the Gulf of Finland, owned by Novy Gorod LLC, a subsidiary of
Karelia LLC which Dr Arkhangelsky says was owned by him;
(3) A residential development near Taitsy, 40km south of St Petersburg, measuring
90ha and also owned by Novy Gorod LLC;
(4) Commercial premises in Gatchina, 55km south of St Petersburg, owned by Svir
LLC, which (according to Dr Arkhangelsky) was an indirect subsidiary of LPK
Scandinavia; and
(5) A large business centre on Moskovsky Prospekt in central St Petersburg, owned by
Rusiv LLC.
The Bank’s relationship with OMG
111. OMG became a customer of the Bank in 2006. Their relationship expanded
considerably over the course of that year, 2007 and the first part of 2008.
112. Mr Belykh, who was in charge of corporate client relationships and of allocating clients
to the Bank’s various branches, recalls meeting Dr Arkhangelsky in May or June 2006
to discuss the Bank’s potential financing of OMG companies.
113. He recalls that Dr Arkhangelsky “had interesting plans and came across as young and
ambitious”. In support of his plans, Dr Arkhangelsky relied upon a letter from a deputy
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of the St Petersburg Parliament requesting support for OMG, and addressed to Mrs
Matvienko, who was then the governor of St Petersburg.
114. After this initial meeting, Mr Belykh sent Dr Arkhangelsky to one of the Bank’s
subsidiary branches, “Investrbank”. The Bank’s Investrbank branch had experience of
large corporate financing and was also the branch closest to Dr Arkhangelsky’s offices.
It dealt with OMG and arranged all the loans to the group. In 2006, Ms Shabalina was
Director of Investrbank and Ms Prokhor was Deputy Director.
Hierarchy within the Bank for credit approvals
115. There was a strict hierarchy within the Bank for credit approvals. This was explained
by Ms Blinova and Ms Shabalina from their experience of working in the credit
department in Investrbank between 2005 and 2009 and between 2002 and 2008
respectively. In summary this was as follows.
116. When a Bank customer sought a loan in excess of certain amounts or on terms which
were not standard, Investrbank’s Minor Credit Committee (“MKK”) would consider
the information prepared by the credit department, and make a recommendation to the
Major Credit Committee (as above, the “BKK”). That recommendation would be
forwarded to the Department of Expertise on Credit Projects (which was independent
of the credit departments of the various branches) for analysis and its opinion. The
BKK, of which (for example) Mr Belykh was a member, would in turn consider the
information and if the amount of the loan sought exceeded its own credit limits it would
make its own recommendation to the Bank’s Management Board which made the final
decision.
117. Amongst those on the Management Board were Mr Guz (to whom Mr Belykh reported),
who from 2004 to 2009 was its Deputy-Chairman and who was then its First Deputy
Chairman from 2009 to 2014 (whereupon he became its Chairman), and Mr Savelyev,
who was Chairman from 2001 until 2014.
The Bank’s loans to OMG
118. OMG opened a number of accounts with the Bank. Over the course of 2006 and 2007
and in early 2008 the Bank provided a variety of loans to OMG. For example:
(1) On 30 June 2006, the Bank provided a loan of RUB 110 million to Onega (the “First
Onega Loan”) further to Onega’s application on 22 June 2006. This was to finance
the construction of the Ro-Ro facility at Onega Terminal. The security consisted of
a mortgage over two pieces of real estate in Sestroretsk (which is north of St
Petersburg) owned by Scan, various corporate guarantees from OMG (including,
according to the Bank, a Scan guarantee), and (also according to the Bank) a
personal guarantee from Dr Arkhangelsky. According to the Bank, there was also a
spousal consent apparently from and signed by Mrs Arkhangelskaya in respect of
the personal guarantee.
Dr Arkhangelsky disputes both the Scan and personal guarantee in respect of this
loan. However, it appears that two direct debit agreements were entered into,
apparently under Scan’s corporate seal, in relation to the alleged Scan guarantee,
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one between the Bank, Scan and CJSC Promsvyazbank and the other between the
Bank, Scan and CJSC Invest Bank, both dated 26 July 2006. Dr Arkhangelsky told
me that he could not remember signing either, though he might have done “among
thousands of documents which I signed”; and he also said that even if he did sign,
it would have been irrelevant, since they were “empty accounts” and “it would not
have been really working”.
(2) On 9 March 2007, the Bank provided a loan of RUB 354 million to PetroLes (the
“First PetroLes Loan”). The First PetroLes Loan, like the Second PetroLes Loan
(see below), was secured by pledges over real estate at Onega Terminal owned by
Scan, and (according to the Bank) by an alleged personal guarantee in the case of
the First and by a Scan guarantee in the case of the Second PetroLes Loan (though
Dr Arkhangelsky denies the guarantees).
(3) On 30 November 2007, the Bank provided a loan of RUB 450 million to LPK
Scandinavia (the “2007 LPK Scandinavia Loan”). The security consisted of a
mortgage over real estate at Onega Terminal (owned by Scan and by LPK
Scandinavia), and (according to the Bank) a Scan guarantee and a personal
guarantee (though again Dr Arkhangelsky denies the guarantees).
(4) On 26 December 2007, the Bank provided a loan of RUB 400 million to Onega (the
“Second Onega Loan”). The security consisted of a mortgage over real estate at
Onega Terminal (owned by Scan and by LPK Scandinavia), and (again according
to the Bank) a Scan guarantee and a personal guarantee (both again denied by Dr
Arkhangelsky).
(5) On 28 March 2008, the Bank provided a further loan of RUB 80 million to PetroLes
(the “Second PetroLes Loan”), secured as previously described above.
119. Valuations reports in respect of the security pledged were provided by a Russian valuer
called ‘Lair LLC’ (“Lair”). Lair was on the Bank’s approved list of accredited valuers:
at the invitation of the Bank, Dr Arkhangelsky selected Lair from that list and OMG
employed them. The Bank accepted Lair’s valuation reports in extending the relevant
loans.
120. Within Investrbank, the OMG lending was handled on a day-to-day basis by the Credit
Department under the supervision of Ms Borisova. Her juniors included Ms Yashkina
and Ms Blinova. Ms Yashkina was initially responsible for the OMG files, but she went
on maternity leave in around February 2008, and so Ms Blinova took over responsibility
for the OMG files in her absence.
121. Mr Belykh also had meetings with Dr Arkhangelsky at various intervals. He recalls:
“At one of these meetings [Dr Arkhangelsky] explained that he
planned to create a large group of companies centred around
Vyborg Port, which he intended to acquire. Part of OMG would
own a shipping business, another part of OMG would own a port,
and another a maritime insurance company. In addition, Mr
Arkhangelsky intended to develop or purchase (as part of OMG)
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a timber company. This created an almost closed circle of
business opportunities, by which I mean he would have a group
of companies that would encompass the entire downstream
process. It seemed to me to be very ambitious, but from letters
he provided to the Bank…he appeared to have government
support, which is important for infrastructure projects.”
122. By early 2008, Dr Arkhangelsky who in 2006 had been a new customer for Investrbank,
was considered one of the branch’s VIP clients. Ms Shabalina recalled that:
“Mr Arkhangelsky seemed to me to be full of ideas, and was
interested in new projects.”
123. Dr Arkhangelsky also had loans from other banks, such as a loan from V-Bank (see
paragraph [109(3)] above) when in 2007 he acquired Vyborg Port. Mr Guz, who was
responsible for key corporate customers, recalled discussions with Dr Arkhangelsky as
follows:
“At some point in 2007, I recall learning (I cannot now recall
exactly from whom) that OMG had acquired the Vyborg Port
with a loan that had been granted to it by Vozrozhdenie Bank
[V-Bank]. It looked from the outside that OMG was receiving
large amounts of money from a reputable bank and that Mr
Arkhangelsky’s business venture was supported by the
government. His acquisition of Vyborg Port and the government
support for the redevelopment projects he was seeking to
undertake gave him credibility so far as I was concerned and
suggested that maybe his business plan might after all be
feasible. I can recall further meetings with Mr Arkhangelsky in
which he reassured me that on top of everything, the federal and
regional governments were supporting his plans. He mentioned
certain names of federal and regional government officials who
were supporting his business plans, but I cannot now recall them.
This was relevant because any large infrastructure project
requires federal and regional government support to be feasible.
In the light of these matters, when Mr Arkhangelsky
subsequently requested larger loans for OMG, the Bank was
prepared to consider and grant those requests.”
Loans to Vyborg Shipping in 2008
124. In early 2008, Dr Arkhangelsky sought the Bank’s assistance for a new project to
purchase vessels and operate them from Vyborg Port. He was looking to “expand
substantially” the fleet of Vyborg Shipping to create a fleet of 30 cargo ships. To finance
the project, he sought from the Bank a number of loans to be made to Vyborg Shipping
(which had opened an account with the Bank in September 2007), or SPVs owned by
it.
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125. The proposal involved the Bank taking as pledges for the loans vessels which were
foreign owned and registered abroad rather than in Russia. The Bank had not done this
before. In March 2008, Investrbank drew up a credit report for a number of loans to
Vyborg Shipping of up to RUB 2.1 billion.
126. As mentioned above, Dr Arkhangelsky’s plan was to create a cargo fleet for Vyborg
Shipping. His expressed objective was first to acquire 10 vessels, and then build 20
more vessels. A Cypriot company, Land Breeze Holdings Ltd (“Land Breeze”), would
own companies registered in the Marshall Islands, each one of which would own one
of the vessels. They would charter each vessel to Land Breeze, which would sub-charter
them to Vyborg Shipping. The vessels would be mortgaged to the Bank, and (according
to the Bank at least) Scan and Dr Arkhangelsky were each to give guarantees.
127. In late March 2008, according to the minutes of a meeting on 26 March 2008, the
Management Board agreed to grant the facility of up to RUB 2.1 billion against certain
security: a mortgage over each vessel, a guarantee from Scan, and a personal guarantee
from Dr Arkhangelsky (it being noted as regards the last that it would be “without
financial due diligence at the time of preparing the report and in the course of loan
agreements monitoring and without life and accident insurance”).
128. The drafting of the documentation for this was undertaken by Ms Blinova. She was the
Chief Specialist at Investrbank responsible for analysing the lending requirements of
Investrbank’s clients, monitoring their financial positions and credit status, and drafting
documentation to record the basis and terms of any loans. (As mentioned above, she
had stood in for Ms Yashkina who had been in charge of lending to OMG companies
but who was on maternity leave at about this time.)
129. Ms Blinova explained in detail in her witness statement the various loan documents she
prepared. These were as follows:
(1) A loan agreement numbered 3500-08-01203 for the First Vyborg Loan, dated 28
March 2008, in the sum of RUB 310 million stipulating security by way of a
mortgage over the ‘OMG Gatchina’ (“Gatchina”), a Scan guarantee, and a personal
guarantee from Dr Arkhangelsky accompanied by a spousal consent form
apparently signed by Mrs Arkhangelskaya. Ms Blinova received shareholder
resolutions from Vyborg Shipping and from Scan, each signed by Dr Arkhangelsky,
authorising the loan and the guarantee. The relevant accounting information on the
loan and guarantees was entered onto the Bank’s system.
(2) A loan agreement numbered 3500-08-1279 for the Second Vyborg Loan, dated 17
April 2008, in the sum of RUB 342 million stipulating security by a mortgage over
the vessel ‘OMG Tosno’ (“Tosno”), a Scan guarantee and personal guarantee from
Dr Arkhangelsky accompanied by a spousal consent apparently signed by Mrs
Arkhangelskaya. Dr Arkhangelsky signed shareholder resolutions for Vyborg
Shipping and Scan authorising the loan and the guarantee. Ms Blinova emailed a
draft personal guarantee and Scan guarantee to Dr Arkhangelsky and referred to the
need for his wife to give her consent. She made the relevant accounting entries on
the Bank’s system.
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(3) A Loan Agreement numbered 3500-08-01342 for the Third Vyborg Loan, dated 30
April 2008, in the sum of RUB 360 million stipulating that it was secured by a
mortgage over the vessel ‘OMG Kolpino’ (“Kolpino”), a Scan guarantee and
personal guarantee from Dr Arkhangelsky. Dr Arkhangelsky signed shareholder
resolutions for Vyborg Shipping and Scan authorising the loan and the guarantee.
Ms Blinova made the relevant accounting entries on the Bank’s system.
130. In July 2008, Dr Arkhangelsky sought a fourth loan for Vyborg Shipping, but this time,
rather than provide a vessel as security, he proposed that land owned by Western
Terminal be pledged. On 16 July 2008, the Bank’s Management Board approved the
request to change the type of security, and noted the forms of security given, including
(it appears) a personal guarantee.
131. The Bank agreed to provide the Fourth Vyborg Loan dated 21 July 2008, in the sum of
RUB 1.088 billion, “for the purpose of rent payments under the time charter
agreements”, and to be used “strictly in accordance with its target purpose”. OMG’s
stated purpose was to make payments under time charters for two vessels, named the
‘Tikhvin’ and the ‘Luga’.
132. The security for the Fourth Vyborg Loan, however, was not any vessel, as had been the
case for the first three Vyborg Loans. The loan was to be secured by a mortgage over
land at Western Terminal (namely SV Berth 15 and the Western Terminal land plot of
some 73,000m2
), a Scan guarantee and a personal guarantee from Dr Arkhangelsky.
133. It was Dr Arkhangelsky who suggested the use of real estate as security rather than
another vessel. The mortgage agreement agreed the value of the real estate for the
purposes of the pledge to be RUB 1.286 billion.
Pledged and unpledged assets at Western Terminal
134. The real estate assets at Western Terminal also included what Dr Arkhangelsky
described as another berth, berth “SV-16”, and “two railway tracks”, which were not
pledged to the Bank. Under the Russian cadastral rules, those assets were registered
separately from the land they were located in, which was registered as a single plot and
pledged to the Bank. There was a dispute as to the value of those unpledged assets.
According to the Bank, these additional ‘assets’ were in a very dilapidated state and
added nothing to the value of the Western Terminal site.
135. The Bank described SV-16 as “in truth…little more than a decrepit jetty” with an area
of only 120m2
with a length of 33.5m and a width of 3.03m, only accessible from the
land plot pledged to the Bank. The two tracks, according to the Bank, were outside the
Western Terminal site and on land owned by a third party, the Severnaya Verf
shipbuilding plant, which was a state-owned military shipbuilding company.
136. The Counterclaimants, however, maintained that both had material value: berth SV-16
and the railway tracks would significantly increase the capacity of any business
operating the Terminal, if owned by the same business as berths SV-15 et al.
137. For comprehensiveness, it may be recorded that there were some further ‘assets’ within
the Western Terminal site, but these had no value because they could not actually be
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pledged at all: they had no title entry in Rosreestr, the Russian Registry of real property
rights. There was an ‘Administrative Building’ which was a two storey ‘temporary
structure’ (in effect, a portacabin), and a one storey guard ‘house’, neither of which was
(or could be) registered in Rosreestr.
138. There is also reference to a document which purports to be a ‘spousal consent’ signed
by Mrs Arkhangelskaya. In Ms Blinova’s absence on holiday the requisite agreement
was drafted by the credit department. It appears that Dr Arkhangelsky signed
shareholder resolutions for Vyborg Shipping and Scan authorising the loan and the
guarantee. Dr Arkhangelsky does not dispute the loan advanced to Vyborg Shipping,
but does dispute that he signed the Scan and Personal Guarantees given in respect of
the First, Second and Third Vyborg Loans.
Fourth Vyborg Loan
139. The Fourth Vyborg Loan has given rise to some controversy. In their Opening
Submissions, the Defendants and OMGP suggested that by “mid-2008, Vyborg
Shipping r[a]n into difficulties, and the vessel intended as a pledge for the 4th loan was
not delivered in time” and so “Western Terminal assets were offered as a substitute
pledge ad hoc and at a very short notice.” However, Dr Arkhangelsky’s evidence makes
no mention of any vessel “intended” as a pledge; to the contrary, he suggested he
“originally” offered various plots of land. 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’.
140. 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”.
141. Dr Arkhangelsky denied this; but his evidence as to what had happened was far from
clear. He suggested, without any documentary support, that what he termed
“prepayments” for the vessels had been made, but “due to the crisis at whatever,
October, November, December, final delivery have not been done, and so we lost quite
a lot of money, I think”. He sought to explain his vagueness on the basis first that
“shipping is rather a complex thing” and secondly, that “…it’s Olga Krygina who’d
been taking care about all these…” (and, knowing she had not been called as a witness,
suggested that “you speak to her first”). 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 moneys have never been accounted for.
Other Vyborg Loans
142. Returning to the description of the various borrowings and their terms, all the Vyborg
Loan Agreements (as well as the PetroLes loans) also required the borrower to maintain
a stipulated percentage of turnover (100% in the case of the First to Third Vyborg
Loans, 70% in the case of the Fourth Vyborg Loan and the First PetroLes Loan and a
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specific sum of RUB 250 million per quarter in the case of the Second PetroLes Loan)
on settlement and currency accounts of the relevant borrower at the Bank. These
enabled the Bank (in theory at least) directly to monitor trading performance.
143. Ms Blinova’s witness statement recounts that, during August 2008, the Bank sent
chaser emails to OMG in respect of the valuation report it needed for the Western
Terminal security, as well as the direct debit agreements between other banks and
Vyborg Shipping and Scan as guarantor.
Further loans in 2008
144. In the course of the first half of 2008, there were various changes to OMG’s existing
loans from the Bank.
145. For example, the First PetroLes Loan was extended by a year until 5 March 2009, and
there were also various changes in security and extension for the First Onega Loan in
that its repayment date was extended by a year until 27 June 2009. According to Ms
Blinova’s evidence, the extension was reflected in amendments to the various guarantee
agreements (though LPK Scandinavia was removed as a corporate guarantor of the First
Onega Loan).
146. As mentioned above, the Bank had previously granted a loan to LPK Scandinavia in
November 2007 (the 2007 LPK Scandinavia Loan). LPK Scandinavia now sought a
further loan in the form of an overdraft facility. The Bank granted the overdraft facility
up to the sum of RUB 145 million by an agreement dated 25 June 2008 (the “2008 LPK
Scandinavia Loan”). The only security required, according to the Bank, was a personal
guarantee from Dr Arkhangelsky, to which his wife should give her consent. But Dr
Arkhangelsky disputes the personal guarantee.
Dr Arkhangelsky’s plans for a vertically integrated cargo and shipping business
147. As these loans illustrate, Dr Arkhangelsky viewed all the port and real estate assets as
a whole and as having both individual and synergistic value and combined potential.
148. He described his overall plans for the Group in his 16th Witness Statement as follows:
“All of the port and real estate assets described above were
acquired with the specific intention of developing them in order
to realise their full commercial potential. My medium to long
term objective for the Group was that it would become a
vertically integrated shipping and stevedoring business,
concentrating on servicing transhipment traffic in the Baltic.
There was an increasing demand for cargo and container
transhipment services in Russia, particularly in the St Petersburg
ports which were suffering from congestion. I thought that if the
Group could capture that demand and satisfy it through its three
ports at Vyborg, Onega and Western Terminal it could
outperform its competitors and potentially make a great deal of
money.
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Clearly, these plans were extensive [and] could not be achieved
overnight. They were going to require substantial investment and
would be rolled out in phases over the course of several years…”
149. I address in greater detail below the difficulties of funding these plans, and whether
they were ever realistic (it being the Claimants’ case that they were not, and that indeed
they were entirely fanciful). But a brief description of the three terminals, and of the
shipping company, may assist in understanding Dr Arkhangelsky’s grand design.
The Western Terminal site
150. I have described the assets, both pledged and unpledged at Western Terminal in
paragraphs [134] to [138] above. Western Terminal had in Soviet times formed part of
a larger, state-owned military terminal, which in the past had handled and stored special
refrigerated containers and nuclear waste. However, it was not disputed that when in
2007 Dr Arkhangelsky acquired it the Western Terminal site was in a poor state: little
more than a timber yard, and (in Dr Arkhangelsky’s own words) “like a swamp and not
all the territory is used”.
151. Moreover, although Dr Arkhangelsky described the Terminal as having its own railway
spur and major road junctions, it became clear that at least the railway was on a separate
plot which had been in State ownership but was never in OMG’s. Design work for
development carried out by a German firm, Schuppertbau, suggested an initial costs
estimate for the proposed work of US$200 million.
The Onega Terminal site
152. The Onega Terminal property consisted of 4,506.5m2 warehouse and supporting space,
and 55,208m2 of land. It was designed for Ro-Ro and containing handling and storage.
It comprised four warehouses and administrative buildings and three land lots, owned
by Scan and LPK Scandinavia.
153. A particular problem was and remained that the site did not include a berth or direct
outlet to the sea, which is obviously vital for any port facility. Instead, Onega’s access
to a berth was provided by an unrelated third party, The Sea Fish Port of St Petersburg
(“SFP”), through a related company, ROK No. 1 Prichaly CJSC (“ROK No.1
Prichaly”).
154. A business plan prepared in October 2008 estimated that Dr Arkhangelsky’s plan for a
larger and more sophisticated Ro-Ro and container transhipment facility at Onega could
cost some RUB 36 billion (then just over US$1 billion).
Vyborg Port
155. When Vyborg Port was acquired it mainly handled bulk commodities, including, in
particular, coal and timber products. Dr Arkhangelsky’s avowed aim was to modernise
the port, increase its cargo throughput capacity and develop a multi-functional container
and Ro-Ro terminal. Funding of at least €115 million was sought.
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Vyborg Shipping
156. As is already apparent from the loans for that purpose described above, Dr
Arkhangelsky also planned to expand Vyborg Shipping’s fleet of vessels: it had started
with just one (the ‘Gatchina’). A business plan, which Dr Arkhangelsky described as
having been prepared by Lair and which is dated April 2008, envisaged the creation of
a fleet of 30 cargo ships as part of what the report described as OMG’s:
“Strategic goal [being] to create a vertically integrated holding
in the field of sea cargo shipping – from order placement to cargo
delivery, where all the links of the chain are the companies of the
Oslo Marine Group.”
OMG’s development plans and funding requirements for Western Terminal
157. Dr Arkhangelsky’s avowed plans for the extensive development of Western Terminal
were the focus of a large part of the evidence at trial. He set out in his 16th witness
statement the three stages he apparently envisaged:
“The first stage would involve building an open storage area at
berth 15, reconstructing a railway track to connect the port to the
main railway system, dredging the channel in front of the
terminal, and finishing the construction of berth 15. The second
stage would include the reconstruction of berth 16, the building
of open storage for containers, the construction of a railway link
to berth 16, purchasing port handling equipment and installing a
container crane. Finally, at the third stage, we planned to reclaim
the bay northwest of berth 16, construct a pile-supported berth,
build further storage space, install a second container crane and
extend the railway track along the pier.”
158. Such a development plan was by no means straightforward. In particular, Dr
Arkhangelsky explained:
“The development plans entailed the removal of a man-made
island near the entrance to the port. From a practical perspective,
I understood this to be relatively straightforward. Once this had
been done and the bay north of berth 16 dredged, access to
Western Terminal by sea from the Gulf of Finland would have
been easier than to competing terminals. The island would need
to be removed by the state authorities because the land and water
were the property of the state. No investments or payments were
needed from Western Terminal itself. All I needed to do was try
to speed up the process as much as possible. I was seeking to do
that by lobbying my contacts and colleagues in the Ministry of
Transport and local government.”
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159. Dr Arkhangelsky set out in his witness statement what he considered were the
‘competitive advantages’ of Western Terminal which he considered justified
investment to “exploit as much as possible”. These included, in his perception:
(1) The advantage that Western Terminal would own its own berths, whereas
(according to him) in most ports the berths belong to the state and are rented at a
price dictated by the government, which may be high.
(2) Its location, which he describes as “the best…in the Greater Port of St
Petersburg…well connected to major road junctions and [having] its own railway
spur”, allowing “intermodal connections and access” setting it apart from
competitors and allowing it to outperform them “in terms of cargo turnaround or
handling time”.
(3) Its border control point and bonded customs facilities, which Dr Arkhangelsky
considered would allow it to speed up cargo handling time, increase throughput and
maximise capacity.
(4) What Dr Arkhangelsky described as its “high quality infrastructure” (though this
was at odds with its previous description, as also with Mr Bromley-Martin’s
description of it in the course of his cross-examination as “A lot of mud”).
(5) Its vertical integration, and having the option of filling any drop in throughput by
redirecting cargo from Vyborg or Onega, so ensuring (so Dr Arkhangelsky
suggested) near 100% operational capacity, “significantly more than its
competitors”.
160. To assist in realizing these ambitions, Dr Arkhangelsky intended, it seems, to make use
of his political contacts. Thus, for example, he referred to the fact that in 2008 he created
a ‘supervisory board’ for OMG:
“With a view to assisting it to obtain financing and political
support for its ongoing development projects. Alexander
Shokhin, the president of the Russian Union of Industrialists and
Entrepreneurs and former deputy prime minister of Russia,
agreed to be its chairman. The other members included
Vyacheslav Ruksha, a former deputy transport minister, Vadim
Lopatnikov, the chairman of the St Petersburg Audit Chamber,
Vitaly Klimov, a member and former chairman of the Leningrad
Regional Assembly, Lars Kolte, the Chairman of the Council of
Europe Development Bank, and Oleg Preksin, the vicepresident
[sic] of the Russian Banking Association. All these individuals
had excellent financial and political connections and were well
placed to assist the Group in achieving its funding objectives.”
161. However, Dr Arkhangelsky also acknowledged that his plans for Western Terminal
required “substantial investment”. Considerable capital and borrowings would be
required. He told me that “obtaining financing for the various projects was going to be
critical, and this occupied an increasingly large proportion of my time.”
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Dr Arkhangelsky’s search for finance in 2008
162. The preliminary cost estimate for the development of Western Terminal was US$ 220
million. This called for project finance. Dr Arkhangelsky approached Oxus to assist.
Oxus, it may be recalled, was a project finance company run by two partners, one of
whom was Mr Bromley-Martin.
163. Mr Bromley-Martin recalls that in early 2008, “Clyde & Co approached us saying that
they had a client who wanted assistance with financing and managing a development
project.”
Basis on which finance was sought: Information Memorandum and Business Plan for
Western Terminal
164. From around May 2008, Oxus started work on a draft Information Memorandum (the
“IM”) containing a Business Plan for the development of Western Terminal, and which
according to Dr Arkhangelsky was “used to approach potential lenders”.
165. This IM painted a rosy picture of the value of and prospects for development, and of
the investment already made; and it was on the basis of that presentation that potential
lenders and finance-providers were invited to provide funds.
166. It suffices for the present to summarise its presentation as follows:
(1) The Western Terminal was described as having been acquired in 2007, in a “very
run-down condition”.
(2) The stated acquisition cost was US$220 million: this was said to have been paid in
cash by OMG.
(3) An up-to-date value for the site was stated to be US$188 million, “in its present
state”.
(4) It was stated that OMG had “already put in US$140 million of equity into the
facility”.
(5) The IM’s ‘Business Plan’ for the development of Western Terminal included an
upgrade of the two existing berths, reclamation of the adjacent area and the creation
of a new (third) berth.
(6) The stated funding requirement was for US$300 million in long term debt to fund
the upgrade of the terminal and to repay $90 million of short term debt used to
acquire the terminal in 2007. There was stated to be “considerable asset backing for
the debt, given the size and location of the facility”.
(7) The Business Plan assumed that US$ 220 million would be invested in the years
2008 to 2011, over three phases, and predicted that Western Terminal’s turnover by
2011 would be 500,000 TEU per annum (TEUs being a standard unit of cargo
capacity based on the volume of a 20-foot long intermodal metal box container
known as a ‘Twenty Foot Equivalent Unit’).
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(8) On the basis of these assumptions, Mr Bromley-Martin produced two financial
models for the development: one dated 18 July 2008 and a later model dated 11
September 2008.
167. Mr Bromley-Martin said that “We had been instructed that various state organisations
would need to – and would – approve the development plans at Western”. Mr BromleyMartin
explained that he created a financial model to underpin the IM.
Inaccuracies in the draft IMs: the “enormous untruth” and unrealistic TEU figures
168. There is no doubt that the draft IMs (in all their versions) were materially inaccurate on
matters fundamental to any investment or lending decision.
169. The most blatant and significant inaccuracies concerned two matters of fundamental
importance to any investor or lender: (a) the statements as to the acquisition costs and
subsequent investment in the facilities; and (b) the projection as to the capacity of the
Western Terminal as measured by annual TEUs.
170. The statement of acquisition costs disguised perhaps the most egregious and troubling
fact in the case: an admitted discrepancy between the figure given in the IM as the cost
of acquisition and initial development and the actual amount paid.
171. Taking for these purposes the version of the IM sent out to banks to attract investment
in July, August and September 2008 as the final version (“the final draft IM”), it was
therein represented that Western Terminal had been acquired for US$220 million. Thus:
(1) Under the heading “Financials”, the final draft IM stated:
“Western was only acquired in 2007, and therefore there is little
reliable financial information available prior to the date of
acquisition. The Western Terminal was acquired for US $220
million, which was funded by OMG’s internal resources ($140
million) and short term debt ($80 million).”
(2) Under the heading “Capital structure and potential site value”, the final draft IM
stated:
“OMG acquired Western in 2007 for the sum of US $220
million, which was paid for with cash by OMG. Western has no
external debt at present, but loans totalling US $90 million taken
out by OMG relate entirely to the acquisition of the terminal. The
site has been valued both for acquisition purposes and now for
the fundraising. Last year it was valued at US $166 million, and
in June 2008, it was valued at US $188 million, in its present
state.”
172. As to the funding requirement, the final draft IM stated as follows:
“Funding Requirement
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OMG are therefore seeking to raise up to $300 million in long
term debt to fund the upgrade of the terminal and to repay $90
million of short term debt used to acquire the terminal in 2007.
The key elements of this debt are:
 Asset backing
There is considerable asset backing for the debt, given the size
and location of the facility.
 Gearing
The parent company has already put in US$140 million of equity
into the facility.”
173. In fact, these statements contain or disguise what the Claimants describe in their written
Closing Submissions as “an enormous untruth” and “fatal falsehood”. The truth was
that Dr Arkhangelsky had bought Western Terminal for only about US$ 40 million in
May 2007; furthermore, the alleged equity investment of US$140 million had not taken
place.
174. In that regard:
(1) The 15 May 2007 share purchase agreement between OMGP and Premina Limited
(“Premina”) records a purchase price for the shares in Western Terminal of RUB
1.069 billion, which is the approximate equivalent of US$40 million at the time. Dr
Arkhangelsky exhibited this share purchase agreement to his 1st affidavit in the BVI.
(2) The US$ 40 million figure (equivalent to approximately RUB 1 billion) accords
with the acquisition cost of Western Terminal set out in Dr Arkhangelsky’s witness
statement for trial, in which he said:
“…in May 2007, OMGP purchased the shares in Western
Terminal, which owned a 8.1 hectare site at the port of St
Petersburg (also known as Western Terminal). Western
Terminal was also acquired partly with the aid of loans from
Vozrozhdenie Bank [V-Bank] that were secured on Vyborg Port.
The purchase price for Western Terminal was just over RUB 1
billion, which I considered to be very low considering its
location and commercial potential.”
(emphasis added)
According to Dr Arkhangelsky, he borrowed the entire US$ 40 million from VBank.

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(3) That accords with Mr Bromley-Martin’s evidence that the Western Terminal site
cost “relatively little”.
(4) The figure of RUB 1.069 billion, likely to have been taken from the May 2007 share
purchase agreement, appears in OMG’s audited accounts as the acquisition cost for
Western Terminal.
(5) In various Russian proceedings later, which OMG commenced in 2009 in order to
unwind the transfer of shares in Western Terminal it had been required to transfer
under repo arrangements later described, OMG relied on the figure of RUB 1.069
billion as the purchase price for Western Terminal.
(6) Dr Arkhangelsky himself emphasised the low price in his evidence. He suggested
that he had paid a low price because Western Terminal had been owned by a
“criminal group” and no other businessman was prepared to deal with them.
According to Dr Arkhangelsky, the port assets had had a “very difficult previous
history”. They were damaged goods (and no doubt remained so).
(7) In his oral evidence, Dr Arkhangelsky further suggested that he had spent an
additional US$ 20 million (or RUB 500 million) from OMG’s balance sheet which
constituted expenses and additional costs, including paying off some debt and as
part of the due diligence. This had not appeared in Dr Arkhangelsky’s witness
statement. Apart from his say-so, there is no evidence that Dr Arkhangelsky did
make payments of a further US$ 20 million on Western Terminal, but if true, at
most, OMG spent US$ 60 million on acquiring Western Terminal and related costs.
175. Under cross-examination, Dr Arkhangelsky was confronted by this falsehood. He gave
the following evidence.
Dr Arkhangelsky’s evidence that he paid bribes of about US$160 million
176. First, Dr Arkhangelsky tried to explain the discrepancy between the acquisition price
of Western Terminal as set out in the purchase contract and the price set out in the final
draft IM by suggesting that he had to pay “separate funding” as part of a “special
investment project” in order to acquire territory at Western Terminal which was
covered in water and was to be reclaimed. He alleged that the share purchase contract
related only to the existing eight hectares of land, whereas the acquisition price in the
final draft IM also related to the territory covered in water.
177. This was not suggested in Dr Arkhangelsky’s witness statement (or Mr BromleyMartin’s)
and was not true. The final draft IM itself contained reference to the potential
purchase of a further four hectares, which was to be reclaimed as part of the
development, but that territory had not been acquired in May 2007 and so could not
explain the US$ 220 million figure. Any reclamation of the water territory at Western
Terminal was part of the very development for which financing was sought; it did not
relate to the original acquisition cost of the site as represented in the final draft IM.
178. Second, Dr Arkhangelsky sought to suggest that Mr Bromley-Martin had
misunderstood the acquisition price for Western Terminal, that “there is definitely some
logic behind that, so I think it’s better to speak to him first”. But this smacked of playing
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for time: it was OMG which had provided the US$ 220 million figure to Mr BromleyMartin.

179. Finally, with nowhere else to go in order to explain the extraordinary discrepancy, Dr
Arkhangelsky alleged that in relation to Western Terminal he had made corrupt
payments of US$ 160 million to a Mr Dmitrienko, the head of the Russian Federal
Agency for Ports and Shipping. His evidence was as follows:
“A. We paid $40 million for acquiring pieces of land and assets
of the Western Terminal which had the property rights, but we
also acquired investment project for these 4 hectares of land, and
it had other additional value, and so I assume that here we are
speaking about these both projects.
Q. And are you saying that you actually paid, you actually paid
extra money for these other rights?
A. Of course, as I said to you before, yes.
Q. And how much did they come to?
A. I think the figures are correct, and as I said —
Q. Sorry, $180 million; is that right? Makes up the shortfall, does
it?
A. No, because initially we paid 40, then we paid 20 more.
Q. So $160 million, is that right?
A. Yes, and —
Q. Sorry, $160 million represents the extra payment, does it, for
these extra rights?
A. I think so. I don’t have all these figures and the currencies
right now but, as I said, we have paid quite substantial amounts,
even personally, to officials.
Q. Up to US $160 million?
A. Quite big amounts, yes. It has been done in stages because the
project was ongoing, and as I mentioned in the open court, I paid
personally to Mr Dmitrienko, who at that time was head of the
federal agency.
Q. How much did you pay him?
A. It has been quite a number of instalments been transferred to
different accounts, and been connected to different stages. I don’t
remember all the figures now.
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Q. And why were those payments made? Why were those
payments made?
A. Why? Because he was a Russian bureaucrat who was
responsible for development in this territory, and unless he
would not agree and unless he would not support this project,
that project would not be realised.”
180. Thus, it was ultimately Dr Arkhangelsky’s case that the explanation for the discrepancy
was that he had had to pay vast bribes, seeking to justify that on the basis that the way
of things in the Russian Federation (and in particular St Petersburg) made such
payments a necessity, and the price of doing business and expanding the Western
Terminal in accordance with his plans:
“A. …Your Lordship, it is quite important to note that we are not
able — we were not able to do – in the aquatoria of the port of St
Petersburg, we are not able to do ourselves anything because it’s
the federal things and it is only federal government who can do
this. And that was normal that we were paying to officials to
include these substantial amounts in the federal budget.
Q. Was it a bribe, Dr Arkhangelsky, in effect? It was, wasn’t it?
A. Yes, it is. It is.
Q. So you had to bribe a federal official in order to be able to get
your Western Terminal acquired?
A. No. We acquired the Western Terminal —
Q. Mm hmm.
A. — but for the future development of that, as long as the project
had been quite big and important, we had to bribe, yes.
Q. And without paying the bribe, you wouldn’t have been able to
develop Western Terminal at all, would you?
A. No. We are speaking about — it’s very well described in the
investment memorandum that even the territory and the state at
which it was, in 2007 or 2008, would be possible to handle
500,000 containers. What we are speaking about, we are
speaking about much greater development, because, as your
Lordship probably could notice, that the draught at the berth at
Western Terminal is 4.5 metres. So, by dredging by the federal
authorities, we could bring it to 14 metres, which is the
maximum draught of the channel of St Petersburg, and that could
enormously increase the capacity and the profitability of the
project.”
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181. Thus, in more detail, the upshot of Dr Arkhangelsky’s oral evidence was:
(1) The difference between the US$ 40 million acquisition cost for Western Terminal
in the purchase contract and the US$ 220 million represented in the IM was in large
part to be explained by the payment of US$ 160 million to just one Russian official
and his son. The relevant official was, according to Dr Arkhangelsky:
“The key Russian person, Russian official responsible for that
project. He was taking care about this project personally
himself.”
(2) These payments were allegedly made in 2007 and 2008, no one else within OMG
was aware of them, and the payments came from OMG’s balance sheet.
182. Although the bribes were allegedly only directly made in relation to Western Terminal,
according to Dr Arkhangelsky they were also necessary for OMG’s port asset business
as a whole:
“A… to be absolutely correct, the same person is responsible for
all the ports and shipping, and having relations on Western
Terminal would mean his general support to other projects also.
Q. So by making these payments, you were securing the support
of officials to all three of your port businesses?
A. Absolutely.”
183. The explanation (payment of bribes) may be more arresting; but the basic fact that the
latest draft IM presented an entirely false figure is important in itself too. It was
accepted that the figure for the acquisition cost was not inserted by mistake. It was the
figure intended to be inserted and was based (I accept and find) on answers given to
Oxus after specific enquiries it made to OMG.
184. Mr Bromley-Martin was cross-examined about this, and in particular the source of the
figure, and his view as to its amount relative to the poor condition of the Terminal. He
emphasised that he had not seen the share purchase contract showing the true figure.
He acknowledged that the US$220 million figure:
“Struck me as being rather a lot, I must admit, but that was the
information we received from our clients.”
185. Mr Lord, when cross-examining Mr Bromley-Martin, clarified that he was not
suggesting that Mr Bromley-Martin knew that “the cost was different”. It is a fact,
however, that Oxus had had available to it the OMG accounts which recorded the
Western Terminal acquisition price: Mr Bromley-Martin had exhibited them to his
witness statement. Even if Oxus only received the accounts in September 2008, as Mr
Bromley-Martin suggested, it made no changes to the October version of the IM.
186. In his oral evidence, Mr Bromley-Martin sought to suggest that he only reviewed the
accounts as a “civil engineer, not as an accountant”, but the price was clearly recorded
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and required no experience to understand it, and in any event, his “more financially
literate” colleagues also checked the accounts.
187. No satisfactory explanation as to why the discrepancy was not spotted ever emerged. I
can only conclude that Oxus’s due diligence was remarkably deficient; and that Mr
Bromley-Martin and his colleagues were too easily satisfied by Dr Arkhangelsky’s
assurances, thrown off course of consistent enquiry by the difficulties he described in
getting any “meaningful information” from OMG and then further distracted and
subsequently convinced by a valuation just before the final version of the IM in October
stating the Terminal to be worth US$220 million.
188. None of that, however, explains or excuses the fundamental misrepresentation of the
acquisition cost in the final draft IM.
189. A second important element in the analysis of Western Terminal in the final draft IM
was the figure for annual TEUs: that is the measure of the capacity of the terminal and
perhaps the most significant indication of its potential. It is thus of considerable
significance that this figure was haphazardly and inconsistently stated in the various
drafts of the IM, including the final draft IM, giving the impression that it was plucked
out of the air.
190. A comparison of the IM’s drafts shows as follows:
(1) The first draft (which the metadata suggests was produced on 27 May 2008) had a
figure of 300,000 TEUs per annum. That capacity projection depended on the
figures for the storage space and berth dimensions of the developed Western
Terminal site. Those figures, however, remained exactly the same in the final draft
of the IM.
(2) The second draft (which the metadata suggests was produced on 29 May 2008) had
a figure of 7,000 TEUs per annum. Mr Bromley-Martin suggested that that figure
was “clearly a typo” because it was “clearly completely wrong” (“you wouldn’t
have a discussion about a container terminal doing 7,000 TEU per year. You could
do that in your back garden”). Yet the 7,000 figure appeared elsewhere in the draft
where it was stated:
“…It should be noted that Western are only projecting a capacity
of 7,000 TEUs per annum upon completion of their development
of the facility, representing of 0.1 per cent of the St Petersburg
market.”
This suggests some considered analysis of the St Petersburg market.
(3) The third draft (which the metadata suggests was produced on 18 June 2008) had a
figure of 35,000 TEUs per annum. Mr Bromley-Martin said, again, that this was a
“typo”. Once again, the 35,000 also appeared elsewhere in the draft: this time it
being later stated:
“It should be noted that Western are only projecting a capacity
of 35,000 TEUs per annum upon completion of their
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development of the facility, representing of [sic] 0.5 per cent of
the St Petersburg market.”
191. It is difficult to know quite what to make of this extraordinary inconsistency on a figure
going to the heart of the value and prospects of the Western Terminal and the likely
perceptions of potential investors and lenders. I would be disposed to accept that the
7,000 TEU figure is an aberration, or perhaps a monthly rather than a yearly figure. But
the wild differences at least cast further doubt on the final draft IM figure of 500,000
TEU per annum. That figure is almost impossible, to my mind, to justify.
192. The only evidence for it really is the say-so of Mr Bromley-Martin, based on
information he had apparently garnered from others with more expertise: he accepted
that at the time (of the IMs), his port experience was “largely in bulk materials rather
than containers, so therefore I was relying upon other people’s information” though he
went on “…since then, in the last five years, I’ve done nothing but container terminals,
hence, I’m rather more fluent on the subject myself…” . He was adamant, not only that
the other figures were ‘typos’, but more importantly that, based on information he said
he had been given by others (the one with experience in Gdansk, the other with
experience in Singapore) the 500,000 TEU figure in the final draft IM was correctly
stated and entirely justified:
“A. I see no relevance to the fact that I changed a draft in an
internal document to the fundamental point, and that is that 8
hectares is capable of handling at least 500,000 TEU per year.
Q. If we go back, please, to to the original draft [IM]…you can
see that you included some statistics…”
A. Mm hmm.
Q. Which I don’t think feature later, in later drafts: can you see
halfway down the sentence there is a sentence:
“Other statistics. 30,000 TEUs per hectare and 1 metre of quay
equals 1,000 TEUs.”
A. That was just an aide-memoire to me.
Q. Yes, but Mr Bromley-Martin, weren’t you there setting out
what would be the orthodox or conventional figure for TEUs per
hectare?
A. That was the the historical information that I found on the
internet which was later disproved by updated practice in the
industry.
Q. As you were led to believe by Dr Arkhangelsky in this
information…
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A. Vitaly had nothing to do with us finding this information at
all.
Q. But when you started out, your first draft information
memorandum…
A. The person I was relying on at this stage was actually James
Sutcliffe, based on his experience at Gdansk; he was a major
input. There was also another gentleman who was helping us as
well, who was in Singapore, who was also a long-standing
container manager operator, so we were getting the bulk of
information from those two gentlemen.
Q. I’m going to suggest, Mr Bromley-Martin, that a figure of
30,000 TEUs per hectare, in other words, 240,000 TEUs per
annum, is a more realistic estimate for the potential container
capacity or turnover of this developed site?
A. I’ve already told you a few minutes ago, with modern
methodology, modern software that you can stack…if you look
at my sheet here, I’ve used two and a half containers’ height.
Most container terminals are using between four or five, so with
modern systems you can greatly increase the volume of
container throughput…”
193. I was not persuaded by this evidence, borrowed from others, and contradicted by the
contemporaneous notes quoted. I accept the Claimants’ submissions that:
(1) Even on the most generous assumptions, the total capacity figure would need to be
halved. The first draft of the IM itself recorded a figure for capacity per hectare at
“30k TEUs per hectare”. On a site of 8 hectares, Western Terminal’s capacity would
therefore have been 240,000 TEUs per annum. There was only a finite land space
at Western Terminal, and it was not physically possible to have greater capacity
given the constraints of the site. The figure of 30,000 TEUs per hectare is consistent
with the expert analysis of Mr Popov of Deloitte, who was instructed on behalf of
the Claimants, and who analysed the capacity at other container terminals and found
an average of 27,000 TEUs per hectare per annum. It is also consistent with the
analysis contained in Mr Steadman’s supplementary report.
(2) Mr Bromley-Martin sought to justify his figure, not on the basis of the data which
he had at the time, which he acknowledged was “very thin indeed”, but by reference
to “modern methodology, modern software” to stack containers. The relevant
question, however, is whether in 2008 a lender contemporaneously evaluating the
IM would have considered the figure realistic. The Claimants submitted, and I
accept, that it would not have done so.
(3) It is of interest that during re-examination, Mr Bromley-Martin sought to rely on
OMG’s draft business plan. That document, however, showed that OMG was
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predicting that by the third stage of the project, it planned to reach transhipment
volumes of 16,730 TEU by mid-2010.
(4) In April 2009, OMG produced a presentation to attract equity investors which set
out an overview of OMG’s port businesses. As to ‘Terminal One’ (i.e. Onega) and
‘Terminal Two’ (i.e. Western Terminal) the document said:
“Upon completion of development Terminal One (St.-
Petersburg) will be capable of handling up to 150,000 Ro-Ro
units and 100,000 TEU per annum
Upon completion of development Terminal Two (St.-
Petersburg) will be capable of handling 1 MTPY of general
cargo and up to 100,000 TEU per annum.”
The presentation further undermines any of the IM’s capacity figures. Dr
Arkhangelsky disowned the document as a draft.
(5) In any event, the final draft IM figure of 500,000 TEUs was subject to assumptions
that were never and could never have been fulfilled, and especially capital
expenditure of US$220 million and the construction of a third berth.
194. In light of these inconsistencies, and unrealistic assumptions, I accept the Claimants’
case and find that there was no sufficient basis for a projected TEU capacity of 500,000
per annum, which implausibly implied that by 2011 Western Terminal would have
become the second largest container handling terminal in Russia.
195. The final draft IM was thus fatally flawed. It disguised the fact that some US$160
million attributed to the acquisition cost was in reality not attributable to acquisition,
nor to investment; and it presented a materially inaccurate picture of the capacity and
thus the prospects of the Western Terminal.
Efforts to raise finance for Western Terminal
196. Nevertheless, armed with a draft IM (or perhaps more than one version, the evidence is
not clear), Dr Arkhangelsky said that he and Oxus met various international banks
during the summer of 2008, and that non-disclosure agreements were entered into with
a number of banks. It is not clear whether it was the final draft IM or some earlier draft
which was provided to such banks.
197. There is very little, if any, documentary record or other evidence of any of the meetings
which Dr Arkhangelsky said had taken place, except in respect of BNP Paribas.
198. In the first week of September 2008, Oxus and Dr Arkhangelsky went to Paris to meet
BNP Paribas. On 12 September 2008, BNP Paribas provided a letter of interest with its
thoughts on the development of Western Terminal.
199. BNP Paribas noted Dr Arkhangelsky’s objective to raise US$ 300 million, and that of
the US$ 300 million debt facility, US$ 220 million was stated to be required for the
redevelopment of Western Terminal, and US$ 80 million was required to restructure
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OMG’s debts. BNP Paribas said it would need to go through a due diligence and
financing process with Western Terminal. It set out its various requirements, and
suggested that if an advanced business plan was ready due diligence could take 3 to 4
months.
200. Oxus replied to BNP Paribas on 19 September 2008, saying:
“As an overview, OMG would be delighted if you were to take
the lead in a syndication of the debt, subject to the normal due
diligence and contract…”
201. On 25 September 2008, BNP Paribas provided to Oxus a formal proposal to act as a
structuring and arranging bank in connection with the financing of the development of
Western Terminal. The letter noted:
“…although we are confident that the Project will be able to raise
limited recourse debt, we believe that given the local
environment and the limited precedent in infrastructure project
financing in Russia, a number of structuring issues will need to
be carefully reviewed and addressed before providing a
comprehensive arranging offer. We believe also that commercial
bank’s debt market cannot be the only financing route and other
financing sources (Multilateral Institutions and/or ECAs) will
need to be implemented in order to reach a successful financing.
We believe therefore that significant preliminary works need to
be carried out at this stage in order to elaborate the most
appropriate financing structure for the Project…”
202. BNP Paribas set out its proposals for its services, including a monthly retainer fee of
€25,000 plus a success fee for its services. The proposal stated:
“When appointed, we will start reviewing the financial model
prepared by Oxus and providing comments to ensure that it
answers lenders usual requirements. On the basis of our
preliminary review, the model may need to be substantially
amended and we would like to discuss the most efficient process
to do so with you.”
203. The letter also stressed the need for due diligence and a detailed risk analysis:
“We also suggest that the due diligence related to the market be
undertaken as a matter of priority. We would therefore need to
be advised by an independent technical consultant, which will in
term also opine of the technical aspects of the Project…
The above activities will culminate in the fatal flaw analysis and
a detailed risk analysis of the Project and related mitigation
strategy as may be deemed necessary in the context of raising a
long term project financing.”
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204. It is quite clear from the exchanges of correspondence between Oxus and BNP Paribas
that the latter, whilst still wishing to encourage some involvement for which it would
be remunerated, had fundamental concerns about the viability of the underlying
proposition. Thus:
(1) It was clear that BNP Paribas did not accept any of the previous modelling which
had been provided to it by Oxus/OMG. In his oral evidence, Dr Arkhangelsky was
reluctant to concede this, but the letter speaks for itself. Mr Bromley-Martin
acknowledged that “clearly they wanted to go into considerably more detail than
the model we had.”
(2) BNP Paribas wanted further market due diligence. Dr Arkhangelsky referred to the
market study by EC Harris which had been commissioned for the Vyborg Port
project, which he had given Oxus, to suggest that “all these things [had] been done”.
That is not correct. BNP Paribas wanted further market due diligence which was
independent of OMG. OMG could not in any event, rely on the EC Harris report
from August 2008, not least because it related to Vyborg Port, not Western
Terminal.
(3) BNP Paribas wanted there to be advice from an independent technical consultant.
(4) BNP Paribas was not satisfied with the Lair valuation of Western Terminal, and
wanted its own valuation “produced by an internationally recognised valuer”.
(5) BNP required (not unusually) that after the due diligence works had been carried
out, there would be a fatal flaw analysis and detailed risk analysis.
205. Dr Arkhangelsky did not proceed with the BNP Paribas proposal. His evidence in his
witness statement was:
“In October 2008 Oxus and BNP continued to negotiate the
detailed terms of the mandate letter. The terms were essentially
agreed, but BNP required the Group to pay a monthly retainer
fee of €25,000 for their services in addition to all the other fees
and expenses related to other professional advisers and
consultants. October 2008 was a time of enormous uncertainty
in the markets and I did not think that the Group could commit
to this expenditure at that time. I expected that the cash flow
position would improve over the coming months and intended to
take the project forward as soon as we were able to do so.”
206. The glib suggestion that “the terms were essentially agreed” thus gives a false picture.
BNP Paribas may have been prepared to start the fundraising process if OMG paid it a
retainer, but there was no deal without payment. Indeed, to explain away his nonpayment
of the retainer, his oral evidence suggested that terms had not been agreed with
BNP Paribas.
207. Even more striking is the fact that, by that time, it would appear that Dr Arkhangelsky
could not spare a monthly retainer fee of just €25,000 for assistance in raising loan on
better terms which could have saved OMG (by its expert Mr Bromley-Martin’s
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calculation) roughly $50,000 per day in interest charges. This throws a stark light on
the dire cash position in OMG and Western Terminal by autumn 2008. Dr
Arkhangelsky vividly accepted this in his oral evidence:
“…We had 50 companies, quite a number of companies been in
a difficult situation due to the most difficult timing of the world
financial crisis. So my target was really the target of a crisis
manager, just to understand the priorities and — you know, each
rouble, or each dollar, whatever you want, we’ve been
considering very seriously. So that was really a very difficult
time.”
208. It may be, as the Bank suggested, that there was another reason for Dr Arkhangelsky
shying away from any commitment. He may have appreciated that if BNP Paribas went
ahead and carried out the independent due diligence that it required, that would have
focused forensic investigation on the Western Terminal project which would have
exposed unpalatable features about his and OMG’s business practices, and especially
the payment of huge bribes. Thus, the Bank argued, Dr Arkhangelsky knew that the
project would never pass the requirements of lenders, and so was not going to spend
any of his money on it.
209. I return later to that too: for the present suffice it to say that no bank ever did make an
offer to or in fact provide any such funding for Western Terminal.
Dr Arkhangelsky’s alleged efforts to fund his expansion plans for Onega Terminal
210. In addition to his plans for Western Terminal, Dr Arkhangelsky’s witness statement
speaks of his efforts also to acquire additional land and cargo handling and other
facilities at Onega Terminal in accordance with another business plan which Dr
Arkhangelsky said was prepared by Lair in October 2008 (see paragraph [119] above).
211. As with his avowed plans for Western Terminal, these were nothing if not ambitious;
but his evidence as to their funding was markedly more vague and problematic, not
least because (as previously explained) the part of Onega Terminal that OMG owned
did not have its own berth, OMG was reliant on co-operation agreements with the
owners of the only berths, namely SFP, the holding company of ROK No. 1 Prichaly,
which thus had a strong negotiating position.
212. The plans envisaged the expenditure of RUB 2.3 billion to acquire additional land at
the terminal (which was needed to give it is own berth), RUB 5.9 billion to purchase
cargo handling and other equipment and RUB 9 billion to develop the land and
construct the necessary port facilities.
213. It is the Claimants’ case that these plans were always entirely fanciful or ‘pie in the
sky’. Dr Arkhangelsky’s witness statement was vague and unsupported by any
compelling documentary evidence, and his cross-examination increased its fragility
rather than its substance. He rattled off names of third parties with whom he said he
was conducting negotiations; and he referred to having signed, in September 2008, a
contract on behalf of Scandinavia Trading Company (in the OMG) to acquire 100% of
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the shares in a company which owned the largest parcel of neighbouring land (11 acres)
which OMG wanted to integrate and develop, and to having paid a deposit to acquire a
freight forwarding company also. Most significantly for the prospect of development,
he said that throughout 2008 there were negotiations through Onega for the acquisition
of 100% of the shares in either SFP or ROK No. 1 Prichaly. But in no case was a
contract signed; and Dr Arkhangelsky depicted his efforts as having been “frustrated
and overtaken by the events of early 2009”.
214. Two evidential details provide an insight into the reality (or unreality) of these grand
expansion plans. One is that a potential mandate agreement with Mr Bromley-Martin’s
company, RBM Resources Ltd (“RBM”) under which RBM was to manage the
development, was never finalised or signed “for the same reasons that prevented me
from signing the mandate with BNP”. The second is Dr Arkhangelsky’s reliance on a
couple of documents which he described as constituting “written expressions of
interest”, but which on inspection constituted no more than acknowledgments of Dr
Arkhangelsky’s overtures and requests for more detailed information for “preliminary
due diligence”. That this is as far as Dr Arkhangelsky had got by February/March 2009
speaks for itself.
Similar plans for expansion of Vyborg Port
215. A similar picture emerges in relation to the plans for the development of Vyborg Port.
Dr Arkhangelsky maintained that the EBRD was willing to provide that funding, and
further that OMG also had productive discussions with a Russian bank called KIT
Finance about a US$150 million bond issue. Neither eventuated, and both were
dismissed as pipe-dreams at best by the Claimants.
216. Dr Arkhangelsky’s propensity to read as constituting virtual commitment bland
communications indicating little or no more than that potential investors or financiers
were considering a proposal is illustrated by his reliance on a letter from the EBRD to
Mr Yuri Novikov, Deputy Chairman of V-Bank, dated 21 January 2009. This simply
informed him that EBRD was “considering a project finance of up to EUR 115 million
to OMG for the reconstruction and modernisation of Vyborg Port”, and referred to
information on its website (of which no record was provided to me).
217. Dr Arkhangelsky’s assertion that thereafter, in March 2009, EBRD “approved
financing” is not supported by any evidence, and is inconsistent with his witness
statement that as at March 2009 EBRD had not yet conducted its final review and due
diligence. His assertion that the EBRD website in March 2009 published a confirmation
of its intent to finance the project was not substantiated.
218. Furthermore, Mr Lord referred Dr Arkhangelsky in cross-examination to a draft basic
term sheet which not only expressly stated at the top that it did “not constitute an offer
or commitment by EBRD” but also provided for all the assets of the proposed borrower
(Vyborg Port) to be pledged: but all those assets had already been pledged to another
bank, namely V-Bank. I should record that I did not find at all convincing Dr
Arkhangelsky’s attempt to explain this as being likely to be resolved with V-Bank.
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219. As to Dr Arkhangelsky’s parallel discussions with KIT Finance, which also undertook
an interesting and revealing review and modelling exercise of OMG’s financial position
(see below), it emerged that EBRD and KIT Finance were not informed or aware of the
other’s involvement. It is clear that OMG’s alternative fundraising projects would each
have destroyed and cancelled out the other because lenders would have been concerned
if it transpired that the borrower was also trying to obtain finance for other projects at
the same time.
220. The same goes for the other track being pursued with BNP. It seems likely that Dr
Arkhangelsky appreciated this: an indication of that being that he baulked at any
suggestion of an inter-creditor deed which would instantly have revealed the position.
221. As it was, neither EBRD nor KIT Finance ever committed to raising any funds for
OMG.
Failure to obtain outside financing for development plans left OMG dependent on the
Bank
222. The broader fact is that OMG never obtained financing for its development plans from
any of V-Bank, Sberbank, VTB, Vnesheconombank, or any of the other some 25 banks
and other lenders whom Dr Arkhangelsky (allegedly) approached in 2008 and 2009 (or
at any other time).
223. This was entirely at odds with Dr Arkhangelsky’s claim in his witness statement for
trial that “The banks took the Group very seriously and invariably expressed interest in
supporting it” and that he could “see no reason” why he should not have been able to
refinance his debts to the Bank.
224. Had that been true, there would have been every reason for Dr Arkhangelsky to keep
the Bank informed about his negotiations with prospective lenders. It would have given
him leverage in his dealings with the Bank to show that he had alternative sources of
finance. But it was not; it was a delusion, and his claim in the same witness statement
to have “kept the Bank apprised in relation to the development plans partly to
demonstrate that the Group had a bright future and that its debts would be repaid” was
likewise false.
The OMG business was built on sand
225. 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.
226. In addition to the proof of the pudding being in its inability to even begin to service its
loans, this is also revealed by an analysis of OMG’s financial statements, and, in
particular, OMG’s combined audited accounts for the year ended 31 December 2007
dated 14 August 2008.
227. Dr Arkhangelsky was cross-examined on these at some length, despite his quite
vehement protests that this was not fair or helpful since neither he nor his examiner
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could be expected to fathom the intricacies of IFRS accounting. This culminated later
(after his cross-examination had concluded) in him urging me:
“to be very careful in any suggestion done by Mr Lord in respect
to IFRS accounts considering the fact that he’s absolutely not a
specialist in this area…”
228. He had earlier said this:
“I am very much concerned on all the discussions we had here
in respect to IFRS accounts. So it’s really a very complex matter
and you cannot judge it, you know, from the point of view of
standard logic.”
229. I accept that IFRS accounting has its complexities, and, at least to the uninitiated, its
mysteries. Further, Dr Arkhangelsky exhibited both the 2007 OMG consolidated
accounts and the Scan accounts to his first BVI affidavit and had given an explanation
of the main figures, and his reluctance before me to answer questions that plainly arose
was unsatisfactory. In any event, the audited accounts are intended to speak to, as it
were, the world; and they tell a story that in basic outline is beyond neither logic nor
understanding.
230. The Combined Income Statement for the OMG 2007 shows as follows:
(1) Income appears to have been US$ 116 million, of which the bulk (US$ 85 million)
was from sale of goods.
(2) Gross profit was only US$ 3.8 million.
(3) Interest received (Financial income) was US$ 1.725 million, but interest paid
(Financial expenses) was US$ 14.913 million, meaning OMG had net interest
payments out of group of US$ 13.188 million.
(4) There was an entry for ‘Negative goodwill’ of US$ 50.857 million. Note 6.19 gave
further details.
(5) There was an entry for ‘Change in fair value of investment property’ of US$ 5.12
million.
(6) Net profit was said to be US$ 45.767 million.
231. That figure for net profit, however, requires, and duly received at trial, some further
analysis of its derivation. As to that, Note 6.19 shows that for 2007, OMGP acquired
Western Terminal LLC for US$ 40.289 million, but the business’s total fair value was
put down as US$ 85.813 million, giving a figure for negative goodwill of US$ 44.524
million. Other acquisitions associated with Western Terminal were also re-valued, to
give a total negative goodwill figure of US$ 50.857 million. ‘Negative goodwill’ arises
when a business is purchased below what is said to be its fair market value, such that
the buyer makes a resulting gain and it can be accounted as income. Almost all the
‘profit’ was thus derived from the accounting ‘gain’ represented by the apparent
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doubling of the value of Western Terminal over the space of 8 months from the date of
its acquisition.
232. But the ‘gain’, even if substantiated by proper valuations, is a one-off gain, not an
operational or recurring item, and it cannot support the buyer’s ability to meet any of its
monetary liabilities in the short term.
233. Similarly, the change in fair value of investment property which results from the
revaluation of real estate is a ‘one-off’ event which does not indicate trading
performance and should also be treated as a non-operational item on the profit and loss
statement.
234. As the Claimants pointed out, if negative goodwill is removed from the Combined
Income Statement, i.e. if the ‘income’ attributable to the acquisition of certain
businesses was removed, then OMG’s net profit for 2007 of US$ 45.767 million would
have been wiped out, and OMG would have made a substantial loss. The same is true
of the removal of the entry for change in fair value of investment property.
235. Dr Arkhangelsky had no substantive answer to either. His attempt to deflect the point
by suggesting that it was the product of IFRS accounting beyond logic or lay
explanation was entirely unpersuasive. As again the Claimants noted, the point is
neither mysterious nor anything to do with any peculiarity of IFRS accounting. The
simple point is that OMG only made a ‘profit’ in 2007 because it acquired businesses
which were then re-valued and the resulting ‘gain’ booked in the accounts. If these
‘gains’ from business acquisition and revaluation were to be removed, the accounts
show the following:
(1) As at 31 December 2007, OMG’s net interest liabilities of US$ 13.188 million
exceeded its operating profit of US$ 3.799 million, and therefore the Group could
not cover those interest payments from its operating income.
(2) As at 31 December 2007, OMG’s operating activities were loss-making on a cash
basis.
(3) Once the accounts are adjusted to remove negative goodwill and the charge in fair
value of investment property, as at 31 December 2007 OMG made a net loss of US$
10.21 million.
(4) In the light of the above, as at 31 December 2007, OMG was unable to service its
debt obligations.
236. Properly analysed, therefore, the accounting information confirmed the increasingly
obvious reality that, whatever might be its potential, for the present OMG was
borrowing to survive and had to go on doing so without any real prospect of servicing
its increasing debt burden.
OMG’s financial difficulties: autumn 2008
237. That then is the background of OMG’s rapidly developing cash crisis, and its almost
total dependence on the Bank (and V-Bank), towards the end of 2008. By then, and
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probably throughout, the reality was that OMG was substantially, if not completely,
reliant on the Bank for financial support; and the Bank was aware of that, regarding it
both as its exposure and its opportunity.
238. By autumn 2008, and in addition to loans from other banks, OMG had 15 loans
(including overdrafts) from the Bank, amounting to RUB 3.7 billion. Dr Arkhangelsky
said:
“…the majority of the Group’s debts at that time were owed to
the Bank and Vozrozhdenie Bank [V-Bank]. The Group’s debt
to the Bank stood at approximately RUB 3.7 billion, while
around RUB 2 billion was owed to Vozrozhdenie.”
239. Although Dr Arkhangelsky’s position was that OMG “continued to be in a sound
financial position and was able to service its loan obligations in a timely manner” until
November 2008, 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.
240. The first ostensible sign of trouble from the point of view of the Bank came in midSeptember
2008 when (as recorded in an email dated 15 September 2008 from Ms
Prokhor to Mr Belykh) PetroLes failed to comply with its financial covenants. (I return
later to the curiosity that the table attached to that email does not list some of the
Personal Guarantees now asserted by the Bank to have been provided by Dr
Arkhangelsky.)
241. A vivid illustration of OMG’s difficulties is that, whereas the amounts coming into the
OMG accounts before September 2008 were in the millions of roubles, by the autumn,
they were only in the thousands of roubles, and were insufficient to cover any
substantial part of the interest due on the OMG loans.
242. In his evidence, Mr Belykh confirmed that, by around October 2008, he was hearing
from a number of sources within the Bank, and Ms Volodina and Ms Mironova in
particular, of growing concerns regarding OMG’s financial position.
243. Mr Belykh said that in response he had had at least two meetings with Dr Arkhangelsky,
who had sought to reassure him that the problems were there, but that they were only
temporary, and had brought letters of comfort from other Russian banks (in this context
Mr Belykh mentioned, in particular, Vneskekonom Bank and VTB Bank) to support
his position and request for temporary facilities.
244. OMG’s gathering difficulties were further described in Ms Blinova’s evidence:
“Up until autumn 2008…the OMG companies appeared to be
good borrowers and made their repayments on time. However, I
remember that OMG began to have financial difficulties during
the second half of 2008, and started to default on its lending
obligations.
In early October 2008, I emailed Ms Krygina in relation to the
failure by Vyborg Shipping to maintain the minimum turnover
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in accounts with the Bank as set out in the Vyborg loan
agreements. Another OMG company, PetroLes, had similar
difficulties. On 27 October 2008, I emailed Mr Berezin and Ms
Kirikova [at OMG, see below] noting that the turnover of LPK
Scandinavia…was RUB 73.4 million where it should have been
RUB 362.5 million. Because of the failure to maintain the
requisite turnover levels, the Bank increased the interest rates on
the loans.
By the end of October [2008], I recall that the OMG companies
were continually failing to comply with their obligations under
the loan agreements…I therefore prepared draft notices of
demand to Mr Arkhangelsky in respect of his guarantee
obligations in relation to each of the loans…
It also started to become difficult to get information from the
OMG companies…”
245. Dr Arkhangelsky blamed this cash crunch on two factors. First and foremost, he
depicted this as an inevitable consequence of the global crisis, and the uncertainties in
the international freight market which it occasioned, rather than anything particular to
OMG. Dr Arkhangelsky said this:
“…the global financial crisis which followed the collapse of
Lehman Brothers on 15 September 2008 had an immediate
impact on many businesses worldwide, including those in the
shipping and ports sectors. I had many contacts in the port
business all over Russia through the Russian Ports Association,
and I was aware that the problems the Group was facing were by
no means unique.”
246. Secondly, he cited seasonal cash flow difficulties:
“…the Group’s cash flow in the winter months was invariably
weaker than during the rest of the year because of the extreme
weather conditions which limit access to the port of St
Petersburg.”
247. The fact that OMG was already in difficulty by September 2008, and the fact that winter
weather in St Petersburg’s Port cannot explain the cash collapse of all the OMG
companies across the board, both suggest that there were other underlying and systemic
difficulties, more particular to OMG.
OMG’s need by the end of 2008 to reschedule its borrowings
248. Dr Arkhangelsky accepted that by late November 2008 he anticipated that OMG would
be unlikely to be in a position to resume servicing its loans, which by then exceeded
some RUB 3.7 million to the Bank, and some RUB 2 billion to V-Bank, which had a
mortgage over the land at Vyborg Port), “until the spring of 2009 at the earliest.”
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249. The need for both temporary facilities to avoid default, and for a longer term
rescheduling of OMG’s obligations, was by this time, therefore, unavoidable and acute.
Two disputed transactions
250. Even so, Dr Arkhangelsky was reluctant to admit that it was necessary for him to enter
into two transactions as a matter of urgency at the end of October 2008 to enable GOM
to cover interest payments due by OMG at the end of October and November 2008.
251. The transactions were (a) a loan of around RUB 30 million to Dr Arkhangelsky from a
client of the Bank called Tekno SPb (“the Tekno loan”); and (b) a loan of RUB 130
million to Dr Arkhangelsky (personally) from the Bank, i.e. “the Personal Loan”.
Tekno loan
252. Dr Arkhangelsky has never accepted that he entered into the Tekno loan.
253. There are, I must say, odd features in relation to it. There appears to have been no formal
agreement in writing, and it seems to have been arranged by Mr Platonov (who had
taken over as Director of Investrbank from Ms Shabalina) without reference to others
in the credit department (including Ms Volodina). Further, whilst in the BVI
Proceedings, Ms Mironova, who was at the time Deputy Director of Investrbank, gave
evidence that it was she who organised the loan, she later had to clarify that she had not
done so, confirming that it was Mr Platonov’s doing.
254. However, there is no doubt (and I find) that Dr Arkhangelsky did receive from Tekno
funds in the sum of RUB 33 million, and (since the contrary was not put to either Ms
Volodina or Ms Mironova, who appeared to accept its accuracy) I accept that this was
on the terms described in what Ms Volodina described as “an information note”
provided by Mr Platonov on 2 December 2008 (“Mr Platonov’s note”).
255. Mr Platonov’s note casts an interesting light on both sides. It appears that Mr Platonov
arranged the loan in the context of a likely non-payment of loan interest by Vyborg
Shipping at the beginning of November 2008 and:
“to prevent the Bank from having [to make] a significant amount
of provisions, and [was] used not to cover the needs of
companies but oriented towards Bank’s revenue. Initially, the
loan was obtained for 7 days since V.D. Arkhangelsky expected
inflow from sales of a plot of land in the amount of RUB 1
billion, as well as a loan from Petrokommerts Bank in the
amount of RUB 2 billion. Due to a delay in the said financing,
the term of the loan was extended for 21 days. During this time,
the client [Dr Arkhangelsky] paid a portion of the loan in the
amount of RUB 18 million independently; final deadline for
repaying the loan also was on 28 November 2008.”
256. That date, 28 November, was also both the date on which several interest payments
became due from OMG, and the date of the (disputed) Personal Loan (as to which see
further below).
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The risk to the Bank in November 2008
257. By November 2008, the signs of OMG’s serious and systemic financial difficulties were
beyond disguise. Although OMG was only one problematic client in the difficult
circumstances as they were then, it was Investrbank’s largest borrower at the time,
owing approximately RUB 4 billion, and its difficulties increasingly took up time for
Investrbank’s staff to address.
258. Ms Mironova described in her witness statement the growing nervousness within
Investrbank that OMG would default on its collective debts, but also recalled that:
“Mr Arkhangelsky was very quick to remind the Investrbank’s
employees of his apparently impeccable repayment history and
just as quick to reassure everybody that this was a short term
cash-flow problem and that the monies would soon be flowing
in the large amounts as they had been before.”
259. This did not tally, however, with the fact that the cash shortfalls were spread across the
group. As Ms Mironova (who took over from Ms Prokhor as Deputy Director of
Investrbank on 30 October 2008) put it in her witness statement:
“Once I began to examine the OMG loans and review OMG’s
financial information in around mid-November 2008 I identified
that OMG appeared to be in financial difficulty. I could see from
the group’s cash flows into their accounts held at the Bank (from
monitoring those accounts), that during the autumn there was a
material decrease in the monies being received into the accounts
of OMG companies. I knew that OMG, on its face, was a
diversified group, with timber, shipping, leasing, insurance and
port services businesses and it seemed to me very odd that
payments into all OMG’s accounts that I had seen statements for
had decreased. One company of OMG could suffer some cash
flow difficulty, but for this to happen…across the group and at
the same time was worrying.”
260. Ms Mironova (after discussion with her immediate superior at the time, Mr Platonov,
and Ms Volodina who was in charge of the Bank’s Credit Risk Directorate) decided to
escalate the concerns in relation to OMG to central office.
261. At that time, it seems from her evidence that there was no department dedicated to
dealing with problem debts and so the natural reporting structure was to the senior bank
management. Ms Mironova therefore contacted Mr Belykh, as a Director of the
Corporate Clients and Branches Department. Ms Mironova knew Mr Belykh from their
time working together in Moscow.
262. Mr Belykh confirmed that he had also become aware by now of the Tekno loan, and
though he was not able to recollect when or how, and emphasised that he had no
involvement in its arrangement, the fact that such a loan from a client of the Bank had
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apparently been perceived (by Mr Prokhov) to be necessary further highlighted the
growing urgency to find some solution for OMG’s immediate needs.
263. Through the second half of November, Mr Belykh told me, he regularly spoke to Dr
Arkhangelsky, both to try to monitor OMG’s position and to understand the support
that OMG would be likely to need.
264. The immediate risk to the Bank concerned OMG’s repayments (both interest payment
obligations and other debts) that fell due at or shortly after the end of November 2008.
These were outlined by Ms Mironova in an email dated 24 November 2008 which she
sent to Ms Volodina and also copied to Mr Belykh, as follows:
(1) An overdraft granted to LPK Scandinavia of RUB 145 million which had been
extended to 10 December 2008 was due for payment but seemed unlikely to be
repaid on the due date.
(2) Promissory notes from Scandinavia Insurance falling due for repayment had not
been repaid, exposing the Bank to the requirement to form reserves of 21% of the
total value of the notes, being no less than RUB 25.2 million.
(3) The interest on all OMG loans from the Bank for the month of November amounting
to RUB 45 million, would not be repaid and there seemed to be equally little
prospect of the interest payments for December (in the sum of RUB 55 million)
being met either.
(4) Thus, there was currently due for payment some RUB 370 million, for which OMG
appeared to have no funds to repay.
265. The last substantive paragraph of that email reads as follows:
“The Borrower invokes the permission granted by the CAB [to]
receive financing to an amount covering all their problems and
declares the necessity of such refinancing.”
266. Ms Mironova could say only this in that regard:
“I did not have direct knowledge of any such permission, and I
do not now recall the reason for including this statement in that
email but suspect that it reflects something that Mr
Arkhangelsky had said to one of my subordinates.”
267. No different explanation was offered on behalf of Dr Arkhangelsky, but he relied on it
as further demonstrating his openness with the Bank and his understanding that the
Bank (including Mr Savelyev himself) had indicated support.
The Personal Loan
268. The Bank had calculated that OMG needed RUB 130 million by 28 November 2008
(the date the interest fell due) to avoid default. On 26 November 2008, Mr Belykh
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reported that after discussions with Dr Arkhangelsky, OMG would not be making
repayments before 1 December 2008.
269. The options for the Bank were either to defer the next interest payments, or to grant an
emergency RUB 130 million loan before 28 November 2008 to cover the payments.
270. According to its case, the latter was perceived by the Bank to offer the easier and
quicker holding solution. Ms Mironova explained:
“The Bank was prepared to grant Mr Arkhangelsky an additional
loan to cover OMG payments due at the end of November, and
to do so by way of a personal loan. I do not remember who had
initiated the idea of a personal loan, I only recall that at the end
of November 2008 it was the loan structure which was being put
in place to assist the OMG companies in avoiding default on their
facilities. A personal loan would be much quicker and more
straightforward for the Bank to process and approve than a
corporate loan. If a loan had been made to an OMG entity for the
purpose of enabling another OMG company to pay interest to the
Bank, then the Bank would have had to create a considerable
percentage of reserves in its accounts for this loan, as the Bank
would be lending money to a member of the borrower group to
enable a company in the group to meet its interest payments.”
271. Mr Belykh explained further that it was far easier to arrange a personal rather than
corporate loan, and this was important because of the pressures of time; he told me:
“…as long as we were really pressed in time, as I’ve said, that
was the last working day in terms of documentation for both
sides, for Mr Arkhangelsky and for the Bank, it was easier to
arrange as a personal loan. An application for a personal loan
takes several pages, but not too many, two, three, four,
depending on the borrower, while an application for a
corporation demands an updated financial analysis to be
included into that, and it was much easier, as long as we were
pressed, just to find finalise that in this way. And also, as long as
for Mr Arkhangelsky that was practically the same, which type
of risk to accept, we would definitely request his personal
guarantee anyway. So for him to have a personal guarantee on
whatever cooperation he could provide to us, or to have a
personal loan himself, was absolutely the same. So we just tried
to save time and to resolve the problem of outstanding interest
as soon as possible.”
273. Mr Belykh’s evidence was that the meeting at which (it is the Bank’s case) the Personal
Loan was agreed in principle took place on 28 November 2008. It appears from his
witness statement that although he had no direct recollection of the meeting being on
that date, it coincided with his receipt (under cover of an email from Mr Berezin) of an
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unsigned letter from Dr Arkhangelsky, addressed to Mr Savelyev and dated 28
November 2008, receipt of which he told me he does recollect.
274. In that letter, Dr Arkhangelsky, having referred to “the financial crisis” and OMG’s
difficulties in “servicing its debt”, asked Mr Savelyev:
“for your endorsement of the refinancing of Oslo Marine Group
companies’ debt to the Bank…in full, including
1. Payment of monthly interest on loans of the Oslo Marine
Group companies (LPK Scandinavia, LLC, Onega, LLC,
Vyborg Shipping Company, LLC and Scandinavia
Leasing Company, LLC). A 1 year concessionary period
for interest payment (grace period);
2. Closure of the overdraft in the sum of 145 million roubles
(LPK Scandinavia, LLC);
3. Closure of the promissory note program in the sum of 120
million roubles (SO Scandinavia, LLC)
4. Extending the existing loans of the Oslo Marine Group
companies [as above] for a 3 year term.
The collateral for the proposed measures will be subsequent
pledge of the land parcel owned by Western Terminal, LLC
located at 25 Doroga na Turukhtannye Ostrova Road. The
market value of this asset is 4,402,280,000 roubles (Collateral
value is 201,140,000 roubles). In addition, I offer as collateral
75% of the shares of Vyborg Shipping Company, LLC.”
275. Mr Belykh’s recollection (reinforced, as I took him to accept, by a process of
reconstruction from the documentary record) was that Dr Arkhangelsky brought a
signed top copy of that letter to the Bank for the purposes of a meeting he had asked for
with Mr Savelyev to discuss OMG’s difficulties and its need to reschedule its debts.
276. Mr Belykh, in addition, reasoned that the likelihood that there was a meeting on that
day was that 28 November 2008 was a Friday, and thus the last day of the business
month, when repayment of interest was due. He explained:
“… if you look on the calendar, 28 November was the last day
of the month, and the Bank needs to close its account of the
month and, therefore, it was really necessary to do something on
28 November so that November reporting would be clear for the
Bank and for the Central Bank, and that was the reason of the
temporary solution which was supposed to be done. Because that
was Friday, and because that explained certain things, that was
necessary to go ahead really fast…”
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277. Mr Savelyev, who told me that this was his first business meeting with Dr Arkhangelsky
(contrary to Dr Arkhangelsky’s insistence that they met regularly both before and after
that date), likewise recalled its date as being 28 November 2008, and cited personal
diary entries in support of this. Mr Savelyev could not, however, recall being referred
to the letter referred to above at the meeting or indeed ever having received it.
278. Mr Savelyev’s evidence was that discussion at the meeting (for which he was quickly
briefed by Mr Belykh and which Mr Belykh attended for a short time before leaving to
allow the two ‘principals’ to discuss matters) was of the possibility of the Bank granting
as matter of urgency a short term personal loan to Dr Arkhangelsky for him to use to
enable OMG to meet its immediate financial commitments and thus avoid default.
279. Mr Savelyev’s evidence was that this was indeed the outcome of the meeting: according
to him, the Personal Loan was agreed in principle and its processing as a matter of
urgency to avoid OMG going into default at the end of the month was entrusted to Ms
Mironova as the Deputy Director of Investrbank at the time.
280. Ms Mironova confirmed this account. She told me that she specifically made sure that
the documents were taken to OMG to be signed in the presence of a Bank employee
before being returned to the Bank. One of the credit department’s employees, Ms
Patrakova, told me that she took the documents relating to the Personal Loan to OMG’s
offices, and saw Dr Arkhangelsky sign all the documents.
281. Dr Arkhangelsky, however, denied that there was such a meeting at the end of
November 2008. He insisted that while he had “a lot of meetings with Mr Savelyev”,
“there were no meetings at the end of November”.
282. Further, he was, at least until trial, adamant in his denial of being a party to, or even
being aware of, the Personal Loan. Like the disputed Personal Guarantees, he described
the Personal Loan documentation as “bogus” and suggested it had been fabricated by
the Bank as part of “the scheme to defraud [him].” Thus, in the BVI Proceedings he
said:
“I have no knowledge of any such loan and certainly did not
sign any loan agreement or receive any draw down of this
amount or any other sum.”
283. Nevertheless, in the event, the Defendants/OMGP only weakly disputed the Personal
Loan at trial: they did not, in cross-examination, challenge much of the Bank’s witness
evidence as to the Personal Loan, and in his witness statement for trial, Dr
Arkhangelsky reluctantly accepted that he might have signed it (and see paragraph
[709] below).
284. In the end, the Defendants’ case became in effect that Dr Arkhangelsky might
unwittingly have signed the Personal Loan, but was not conscious of having done so,
and that it was probably something agreed by his subordinates and put before him
without his attention being directed to it. In his oral closing, almost at the end of Day
45 of the trial, Mr Stroilov sought to put forward the suggestion in relation to the
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Personal Loan that, although (he accepted) “it is clear on the evidence that it was not
entirely an invention”, it is a:
“…different question whether, in fact, it was arranged with his
knowledge, and one can easily see this being done between the
Bank and Mr Berezin, who would be an obvious contact point
who would be handling the question of outstanding interest
payments at the end of each month…

…at the time Mr Arkhangelsky was approaching the Bank not
with a request for a personal loan, as it was initially suggested
on the Bank’s side, but asking for a much more long term and
comprehensive restructuring of the entire loan portfolio. It is not
credible that in response to a letter where Mr Arkhangelsky
asked Mr Savelyev for a one-year moratorium on all payments
and a three-year extension on capital payments, that what he got
in response was a loan of, I think, 130 million for one month…

So what we would invite your Lordship to find is that Mr
Arkhangelsky was dealing with restructuring and was trying to
negotiate a restructuring with the Bank, whereas these monthly
payments were dealing with underlings, most likely by Mr
Berezin, and in this way the personal loan was something that
was arranged and, well, frankly, fabricated without Mr
Arkhangelsky’s knowledge in this way…”
These submissions were valiantly made; but did not appear to me to be sustainable.
285. For reasons which I elaborate later, I do not think there can be any real doubt that Dr
Arkhangelsky did sign the Personal Loan agreement and did receive the sums expressed
to be borrowed by him pursuant to it.
286. However, I would accept that the Personal Loan may well have been devised, as much
in the Bank’s interests as OMG’s, to enable the Bank to avoid provisioning against the
outstanding loans (Mr Platonov’s estimate of the possible provision if Vyborg Shipping
failed to pay its loan interest at the end of November 2008 being some RUB 1,031,300)
and to repay Tekno. The reality is that the Bank needed to avoid provisions just as much
as Dr Arkhangelsky wanted funds with which to repay.
287. Mr Platonov said as much in his Information Note, where he also explained that the
amount borrowed (RUB 130 million) was used to cover (a) discounted bills of Scan
carried to ‘on demand’ accounts in the amount of RUB 65 million, (b) partial repayment
in the sum of RUB 2.3 million of a loan to Onega, and (c) loan interest payments for
November, including RUB 29.4 million on account of Vyborg Shipping, RUB 5.7
million on account of PetroLes, RUB 7.2 million on account of LPK Scandinavia and
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RUB 5.5 million on account of Onega. A further RUB 15 million was earmarked and
paid to Tekno.
288. In its Closing Submissions, the Bank presented both the Tekno loan and the Personal
Loan as demonstrating that the Bank was going out of its way to assist OMG in late
2008. As I have said, I think that there can be no real doubt that Dr Arkhangelsky did
agree the short-term measures of the Tekno loan and the Personal Loan to avoid
imminent default.
Context of discussions on rescheduling OMG debts: the Bank’s wish to avoid reserves
289. Pausing there in the chronological sequence, it is convenient at this point to describe an
important element in the context in which the subsequent discussions relating to rescheduling
OMG’s debts took place: that is to say, the regulatory rules which required
the Bank to make reserves against bad or doubtful debts. I take the following summary
very largely from the Claimants’ Closing Submissions.
290. The various regulations are usefully summarised in prospectus documents issued by or
on behalf of the Bank. The Claimants’ Closing Submissions quoted from the 2013
Prospectus which provided as follows:
“Provisioning and Loss Allowances
The CBR put in place certain rules concerning creation of
provisions for loan losses in respect of loans extended by banks.
The CBR’s Regulation No. 254-P dated 26 March 2004 as
amended (“Regulation No. 254-P”) requires the banks to adopt
procedures for calculation and posting of provisions for loan
losses and continuously monitor the financial position of the
banks’ borrowers.
Regulation No. 254-P is applied subject to the order of the CBR
No. 2459-U “On Peculiarities of the Credit Risk Assessment in
relation to Single Loans, Loan and Similar Indebtedness” dated
3 June 2010.
Regulation No. 254-P requires credit organisations to rank their
loans into five categories instead of four, as prescribed by the
earlier regulation and the range of loans that must be provided
for has been extended to include rights assigned under contracts,
mortgages acquired in the secondary markets, claims relating to
the purchase of financial assets with deferred payment, rights
under repo contracts and some other operations. The five
categories of loans are as follows: quality I category (standard
loans) – no credit risk; quality II category (nonstandard loans) –
moderate credit risk; quality III category (doubtful loans) –
considerable credit risk; quality IV category (problem loans) –
high credit risk; quality V category (bad loans) – no probability
that the loan will be repaid. The allocation of the loan into a
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particular category is based on the “professional judgement”,
which is a special procedure set out in Regulation No. 254-P.
Regulation No. 254-P established that credit organisations do not
need to make provisions for category I loans (standard loans).
Category II through V loans entail the following provisions,
respectively: (i) 1 to 20 per cent.; (ii) 21 to 50 per cent.; (iii) 51
to 100 per cent.; and (iv) 100 per cent. Additionally, credit
organisations will be required to classify their loan security into
two groups on the basis of its quality. Finally, Regulation No.
254-P provides for a simplified procedure in respect of writing
off bad debts, especially minor debts, as compared to former
procedures.
Provisions for loan losses are calculated at the end of each
calendar month in roubles, and then adjusted each month. Such
provisions are only used to cover losses relating to the principal
amount of the loans and exclude interest and any discount. The
CBR and its regional units have the right to audit the banks’
compliance with the requirements relating to provisions for loan
losses and check the correct calculation of such provisions in
order to balance the need to create provisions on the one hand
and ensure the correct preparation of the banks’ financial
statements for tax purposes on the other.
Russian banks are required to make provisions for loans of the
same kind granted to individuals depending on whether the loans
are secured and in respect of the period of time the loans are in
arrears. Banks are equally required to make provisioning for
loans to individuals which are not overdue. These include 0.5 per
cent. for portfolios of loans secured by mortgage and auto loans,
1 per cent. for portfolios of other loans to those individuals who
maintain bank accounts with lending bank and 2 per cent. for
portfolios of all other loans. Regulation No. 254-P also sets a
maximum level for provisioning of loans granted to individuals
which are overdue for more than 180 days but less than 360 days
at a rate of 75 per cent and at a rate of 100 per cent. for loans
granted to individuals which are overdue for more than 360 days.
…”
291. Similar wording is found in the 2007 Prospectus, and the 2008 Prospectus.
292. As explained in the regulations, loans that fell into “Quality III category (doubtful
loans) – considerable credit risk”, (i.e. the category before “problem loans”), required
the Bank to make provisions of between 21-50%.
293. The witness evidence was in line with the above. Much of Ms Volodina’s evidence was
concerned with explaining the position on reserves, and distinguishing the different
categories. Mr Savelyev set out the stages by which the Bank made reserves when there
was a default. There was no automatic provision of a full 100% of reserves in the event
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of default. Instead, it was a graduated scheme in accordance with the Central Bank
rules.
294. From the Bank’s point of view, all that was required to meet its objective of preventing
a default that would give rise to a reserving obligation at year-end 2008 was to extend
the time for interest payments. Except in the case of the overdraft and the Personal
Loan, no capital repayment was due under any of the relevant loans until 2009: for the
purposes of any concern about reserves for the year-end capital repayment was,
according to the Bank, therefore irrelevant. As Ms Volodina explained in her witness
statement:
“However, the Bank was not prepared in general to extend the
time for capital repayments on loans beyond the maturity dates.
As at December 2008, it would have been possible for the Bank
to extend the existing maturity dates, but I was very much against
this. This was not a prudent or sensible course for the Bank to
take. Insofar as any loan maturity dates had not been reached, it
was not necessary in late December to extend those capital
repayment dates because there was no risk of imminent default.
More particularly, my view was that the Bank needed to make
sure that OMG still had milestones in place over the coming
months. This was because I wanted to keep some earlier
obligations to act as indicators to signal whether OMG’s
financial position was improving. If OMG’s finances started to
improve, and the companies started to perform any of their
obligations then the position could be reconsidered in early 2009.
If the causes of OMG’s financial difficulties had been the short
term cash flows which Mr Arkhangelsky represented to us, then
OMG would have been expected to have been able to discharge
those obligations by March 2009. However, my view in
December 2008 was that we had already afforded Mr
Arkhangelsky and OMG various allowances in the hope that
time would allow the group to recover its financial state, and I
did not trust by that time that Mr Arkhangelsky would be able to
improve OMG’s condition. I therefore considered that any
extension of the loans beyond their existing maturity dates was
not sensible from the Bank’s perspective.
I should add in this context that the Bank typically prefers to give
loans of one year terms, and then at maturity to consider whether
to agree an extension for another year (rather than granting loans
for longer terms). The Bank prefers the “staging” of loans (where
they are advanced for one year plus one year terms) for two main
reasons. The applicable banking regulations provide that the
Bank is not required to create reserves for loans of less than one
year. It also allows the Bank to monitor on a shorter time frame
the borrower’s financial performance and ability to discharge
their indebtedness.”
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295. The Bank’s position, therefore, was that there was no incentive, let alone imperative,
for it to agree to extend any date for capital repayment, and that all that was ever agreed
was deferment of interest.
296. Dr Arkhangelsky, on the other hand, appears to have viewed the matter more generally.
On his view of things, the Bank could not afford to take any risk of default, and needed
to reschedule not only interest but capital repayments to remove it. His stated perception
was that it was the Bank which needed a deal, and in particular a moratorium in respect
of OMG’s obligations, since:
“if the loans were in default, the Bank would have to transfer a
sum equivalent to the outstanding indebtedness to the Central
Bank which would result in a reduction of its capital base and
worsen its own financial position.”
297. He elaborated on the dangers for the Bank, with some insistence in the course of his
cross-examination:
“So it was actually a two-sides problem. So for me, you know,
non-payment of interest, yes, it might cause, later on, in three,
four, five, six months, any court investigations and so — court
discussions, so that they could claim that I have to pay and repay,
pay and repay loans and so on. But for them, it was immediate
trouble with the Central Bank and their accountancy. So for
them, it was much more stronger problem than with me. And the
most important, that by that time the Bank of St Petersburg faced
that bank had problems with all the clients, and my share in their
portfolio was about 4 per cent of their whole loan portfolio. So
for them, default on 4 per cent of their loans was nearly — they
could lose their licence, so they can cease their operations. So
for me it was just technical non-payment, and its arbitration and
so on. But for them it could cause immediate cease of the
operation for them as a bank. So for them it was immediate
trouble.”
298. Thus, in the Bank’s perception and presentation, the discussions with Dr Arkhangelsky
in the last months of 2008 were for it an exercise in patient client handling and
assistance, with Dr Arkhangelsky in effect as supplicant. Whereas in Dr
Arkhangelsky’s depiction, it was the Bank which most needed a deal before year-end:
in his perception, in effect, his weakness was his strength, and the Bank’s exposure.
Efforts to re-schedule debt in November through December 2008
299. That brings me to the chronology relating to Dr Arkhangelsky’s efforts in late
November and December 2008 to reschedule OMG’s debts to the Bank, which by then
exceeded RUB 3.7 billion (there being owed also some RUB 2 billion to V-Bank).
300. This chronology is in part disputed, as is the upshot of what was agreed. Whereas Dr
Arkhangelsky’s evidence depicts a collaborative style of engagement, with frequent
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meetings between himself and Mr Belykh and others “from time to time” with both Mr
Guz and Mr Savelyev to address a shared problem, Mr Savelyev and the Bank’s
witnesses depicted more formal meetings, with repeated assurances on the part of Dr
Arkhangelsky that OMG’s difficulties were the consequence of short-term cash flow
problems, rather than systemic problems, and few incentives to the Bank to do more
than the minimum necessary to help OMG to avoid immediate default.
301. The key dispute relates to whether there was a meeting between Dr Arkhangelsky and
Mr Savelyev in December 2008, as alleged by Dr Arkhangelsky, at which (so he asserts)
Mr Savelyev agreed to a moratorium for capital payments (which Mr Savelyev and the
Bank deny).
302. Dr Arkhangelsky, though he denied any meeting in November, asserted that there was
a meeting with Mr Savelyev in the Bank’s offices in early or mid-December. In oral
evidence he variously suggested “something around the middle of December” but later
changed this to “around 10 December 2008”.
303. The flavour of Dr Arkhangelsky’s version of events appears from the following extract
from his witness statement:
“At this meeting, I informed Mr Savelyev that the Group needed
to restructure its loans because it would struggle to make the
interest payments for the month ended 31 December 2008 and
through the winter months. I explained that the Group was
having severe cash flow issues because the clients of the group
had stopped making payments, then the freight market had
totally crashed and that port dues were not being paid. I also
explained that, anticipating the annual extreme weather
conditions, I did not envisage the Group’s situation improving
until, at the earliest, spring 2009. It was for this reason that I
explained that the Group needed to restructure its loans and have
a moratorium on further monthly interest payments for a period
of at least six months.
A number of the outstanding loans fell due for repayment during
the first six months of 2009. As the borrower companies were
unable even to make periodic interest payments at that time, they
obviously had little prospect of repaying these loans on their due
dates. It was therefore necessary to extend the repayment dates.
I did not expect this to be a problem, because it was very
common in Russia for banks to grant short-term loans even when
the purpose of the loans was clearly a long-term one. The banks
would then repeatedly extend the loans as necessary, typically
for six months at a time. This is what happened with
Vozrozhdenie Bank [V-Bank]…
I made it clear to Mr Savelyev that both elements of the proposed
moratorium – a suspension of interest payments until the end of
June 2009 and a restructuring of all debts which matured before
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that date – were equally important for the Group; and that I did
not expect sufficient improvements of the Group’s position
much sooner than in six months. On the other hand, I felt that a
suspension of payments for six months would enable the
businesses either to recover sufficiently to resume paying
interest to the Bank or, if that did not prove possible, to explore
what refinancing options were available with other financial
institutions. I remember at the time of the liquidity crisis
President Putin had made a statement that the Russian Central
Bank had to support strategic industries, so I was confident,
given the strategic importance of the Group, that a refinancing
package would be achieved either with the Bank or elsewhere.

At the meeting, it appeared to me that Mr Savelyev understood
the position that the Group was facing as a result of the global
liquidity crisis and was generally sympathetic to our position.
His primary concern was to avoid the Bank encountering
difficulties with the regulator, the Central Bank of Russia. He
explained that if the loans were in default, the Bank would have
to transfer a sum equivalent to the outstanding indebtedness to
the Central Bank which would result in a reduction of the Bank’s
capital base and worsen its own financial position. It was
therefore in the Bank’s interest, as well as the Group’s, for the
loans not to go into default. Accordingly, Mr Savelyev indicated
that he was in principle prepared to agree to a moratorium for six
months to allow the Group companies’ cash flow to improve to
the point at which they could resume making interest payments.
At the end of the meeting he indicated that he would discuss the
matter internally within the Bank and come back to me.”
304. Mr Savelyev, having asserted the fact of a meeting on 28 November (culminating
according to his evidence in an agreement for the Personal Loan), in his witness
statement for trial denied Dr Arkhangelsky’s assertion that there was a meeting between
them in early December. By the time of trial he was adamant that he only had two
meetings with Dr Arkhangelsky in 2008, one in late November and the other in late
December.
305. This was contrary to his evidence in the BVI Proceedings, but he sought to explain that
“on reflection I now believe that to be incorrect”. On that basis and in any event, Mr
Savelyev also fulsomely rejected Dr Arkhangelsky’s contention that at that December
meeting they made an agreement in principle on a 6-month moratorium for capital
repayments.
306. As to the disputed meeting, it was also the evidence in the BVI Proceedings of Ms
Mironova, who Dr Arkhangelsky placed as having been present (together also with Mr
Guz), that indeed there was a meeting in early December (as well as at the end of
November), thus further corroborating to that extent Dr Arkhangelsky’s version. But
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she too, in her witness statement for trial, pronounced this “on reflection…to be
incorrect” and sought to correct this to state that the only two meetings directly between
Dr Arkhangelsky and Mr Savelyev were in late November 2008 (which she did not
attend, but of which she was informed) and in late December 2008 (which she did
attend). She confirmed her evidence that she also met Dr Arkhangelsky in early
December (she stated the date as being 8 December 2008), which she describes as “an
introductory meeting” for her to meet Dr Arkhangelsky in person, at which no
substantive discussions took place. Ms Mironova thus sought to endorse Mr Savelyev’s
evidence that there was no discussion of a moratorium with Mr Savelyev nor any other
restructuring until late December 2008.
307. It is odd that both Mr Savelyev and Ms Mironova should have had the same initial
recollection and then both have had to correct it. One such mistake corrected on
reflection might be understandable; two is more concerning, especially since it is to
their advantage now (see paragraph [310] below). This was one of various instances
when I formed the impression that, albeit in this instance in the heat of the BVI
Proceedings, the Bank’s witnesses signed what was put in front of them without
sufficient carefulness as to the truth.
308. However, I have not been persuaded of the Defendants’ submission that it was the BVI
evidence as to the early December meeting with Mr Savelyev which constituted the
truth, whereas the later correction was a contrivance crafted to give more veracity to
the denial of any moratorium; and even if I had been so persuaded, I would not have
found that it resulted in any agreement, whether in principle or otherwise, for a general
moratorium as Dr Arkhangelsky has alleged.
309. In reaching that conclusion I have taken into account Mr Stroilov’s fair points that (a)
Mr Savelyev’s memory was notably selective and remarkably frail on inconvenient
issues, allowing him to be curiously categorical in his denials and yet notably, almost
painstakingly, vague as to what did happen; and (b) Mr Savelyev’s evidence as to
having had only two business meetings with Dr Arkhangelsky seems inconsistent with
his evidence that “he would be well acquainted at least with the biggest borrowers of
the Bank.” However, these points have seemed to me to be outweighed, as regards the
point in issue, by the following:
(1) It is clear, as recorded in an email exchange, that the purpose of the meeting on 8
December 2008 was to introduce Dr Arkhangelsky to Ms Mironova as “our new
Deputy Director on economic matters”. There is no mention in the exchange of Mr
Savelyev’s attendance, nor any sign of circulation of the exchanges to him.
(2) As part of Ms Mironova’s review of OMG’s situation, Ms Blinova emailed Ms
Mironova a list of all the various loans which the Bank had made to OMG. If a
moratorium had been agreed ‘in principle’ with Mr Savelyev it seems likely that
some record or note to that effect would surely have been made: but there is no
mention of any such agreement in any of those contemporaneous documents in
early December 2008.
(3) The contemporaneous documents and evidence of Dr Arkhangelsky’s continuing
discussions with Ms Mironova about OMG’s difficulties in the period leading up to
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the meeting on 25 December 2008 (see below) make no reference to and convey no
sense of any agreement in principle: it seems unlikely that if Mr Savelyev had
already indicated that there would be a moratorium Dr Arkhangelsky would not
have referred to it at all.
(4) None of the available documentary evidence seems consistent with any prior
agreement in principle for a moratorium. When, on 19 December 2008, Ms Blinova
emailed OMG an update of its upcoming loan repayments at the end of the month,
her email also included three draft letters from Dr Arkhangelsky to Mr Savelyev
seeking loan extensions. I agree with the Claimants’ contention that if there had
been by this point any proposed moratorium in the terms alleged by Dr
Arkhangelsky, even one in principle only, then OMG and/or Dr Arkhangelsky
would surely have made some reference to it in the extension letters and/or would
surely have queried their contents when Ms Blinova sent back the drafts in a form
which did not take into account any such agreement by the head of the Bank.
(5) I did not find Dr Arkhangelsky’s evidence persuasive, despite the detail he sought
to paint in about the alleged meeting. It did not ring true to me. Further, Dr
Arkhangelsky’s convoluted attempts, when cross-examined on this point, to dismiss
the correspondence as being between two “low level” employees (“two girls…Two
young girls”) and then to cast unspecified doubt on the authenticity of the exchanges
was not at all impressive. Nor was his explanation as to the absence of any response
referring to the agreement in principle now alleged, which amounted to saying that
he felt no need to correct her because “Ms Blinova was the most lowest employee
in the Bank…” and it was not for him to correct her.
310. As I explain at greater length later, the real relevance of this factual dispute is to the
obviously important issue, which is central to both the Bank’s claim and the
Counterclaim, as to whether there was ever any finally agreed 6-month moratorium for
OMG’s indebtedness across the board (as Dr Arkhangelsky insists there was). If there
had been an agreement in principle in early December, that might have added credence
to Dr Arkhangelsky’s version of events, which is that the meeting later in December
2008 was one at which a full agreement was made for a moratorium; whereas if there
had not been, the Claimants’ version, to the effect that no definitive agreement was
achieved in December 2008 beyond one for some indefinite extension to be clarified
later in formal documentation which the Bank agreed to prepare, is more plausible.
Crisis in December 2008
311. Returning then to the chronological sequence, it is clear that throughout December 2008
OMG’s position continued to deteriorate substantially: indeed, receipts had all but dried
up.
312. Dr Arkhangelsky continued to present the problem to his creditors as a short-term cashflow
difficulty, as a result of customers delaying payment due to their own economic
difficulties. He sought to reassure the Bank, and especially Ms Mironova and the credit
department at Investrbank, that this was a temporary problem; and, for example, he
repeatedly expressed confidence that a large payment from certain Finnish customers
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of timber deliveries would be made imminently. But none was; nor indeed was any
proof put forward, then or ever, of any such receivable.
313. Ms Mironova’s evidence was that as OMG’s financial problems became increasingly
apparent through December 2008, and some wider restructuring of OMG’s debt
appeared inevitably to be the only solution to avoid default, the Bank turned more
attention to ways in which it might safeguard its existing security and, if possible,
enhance it.
314. In particular, and not least because (a) according to the valuations (those by Lair) it was
then relying on (see below) the value of the pledged assets comfortably exceeded its
loans; and (b) OMG had few other assets to offer anyway, the Bank’s focus appears to
have been on devising ways of ensuring that its existing security would not be put at
risk or devalued. A theme of the evidence on both sides is that it is a fact of commercial
life in Russia that default usually leads to a hard-fought war between lender and
defaulting borrower.
315. In that context, the Bank’s case is that it began to look at ways of preventing steps being
taken by Dr Arkhangelsky, if and when OMG went into default, to use his control of
the legal entities holding the mortgaged assets to dissipate those assets or to take other
steps (whether by frustrating legal action or otherwise) to defeat, delay or dilute the
value of enforcement proceedings.
316. Possibly building on Dr Arkhangelsky’s own suggestion in his letter of 28 November
2008 of a transfer of shares in Vyborg Shipping, it seems (especially from the evidence
of Ms Mironova and Mr Belykh) that the Bank began to focus particularly on some
form of “repo” transaction under which the Bank would acquire (for a nominal
consideration) the shares in the relevant companies, subject to a provision for the shares
to be repurchased (likewise for a nominal consideration) upon timely repayment of the
debt. That would secure for the Bank control over the debtor companies (or the means
of achieving it) so that it could more easily enforce its security without obstruction from
the defaulting borrower or shareholders trying to block or impede the realisation of
security. (It also, of course, gave the Bank potential access to the business value of the
entire group; and a central issue between the parties is whether that was in truth its
objective from inception.)
317. Ms Mironova turned, therefore, to consider which shares or companies might be the
most useful and appropriate for these purposes; and her evidence was that she:
“identified two companies which were potentially suitable for a
repo arrangement: Western Terminal and Scandinavia
Insurance. This is because these two companies had no loans
from any other banks and nearly all their assets had already been
pledged to the Bank.”
318. According to her evidence, Ms Mironova discussed this possibility with both Dr
Arkhangelsky and Mr Berezin on a number of times on the telephone in the period
between 8 December and 25 December 2008. On 22 December 2008, she emailed Mr
Berezin (copying Dr Arkhangelsky) a pro-forma ‘Securities Purchase Agreement’
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(which did not specify either the relevant shares or the parties), with a view to a
discussion with them about this possible additional security.
319. Dr Arkhangelsky did not deny receipt of these pro forma documents, but sought to
shrug this off as “one of the examples of the possible transactions”, adding
“I [can] clearly remember that she hasn’t had anything in mind
by that time. So she sent this securities sale and purchase
agreement because I think it was on the files of the Bank, but
there was not any suggestion what and how to be so – that was
just one of the examples. And to be clear, in Oslo Marine Group
we haven’t any shares or anything which could be bought. We
had a participation. So we haven’t any securities. We had only
limited liability companies, so for sure it was not relating to us
in any respect. It was just as an example.”
320. Pressed in cross-examination as to whether he accepted that at least there had been some
discussion about some repo agreements prior to a meeting on 25 December 2008 (see
below) he answered:
“Not really. Not really. I don’t think so…
Maybe [Ms Mironova] discussed it with Berezin, but no any
conference calls for sure, because in Russia at that time we
haven’t had such a technology…So I don’t remember that I have
ever been discussing it with her…
And it would be really strange for me to discuss anything with
her by telephone, because at least twice a day I’ve been passing
her office and…if I want to speak to the Bank, or, especially, you
know, quite an important issue for me, I would stop in on the
way and meet her and discuss that because, you know, it’s – any
repo, whatever, transactions, consider that you have to make a
picture as to whom and what and so on, so I don’t think that’s
true.”
321. Ms Mironova’s evidence was that there was in fact just such a meeting on 24 December
2008 between Ms Mironova and Dr Arkhangelsky and Mr Berezin, as a precursor to a
meeting arranged for and which it is common ground took place on the following day,
25 December 2008, between Mr Savelyev and Dr Arkhangelsky. She stated that at the
meeting on 24 December, the discussions were specifically focused on repo
arrangements identifying Western Terminal and Scandinavia Insurance as the subject
entities. She said this:
“I specifically recall that Mr Arkhangelsky asked about the risks
that the OMG companies or he would face with such repo
transactions. I replied that I was an economist and not a lawyer
and he should ask his own lawyer this. I do not recall any other
specific details about the discussions concerning the proposed
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repo. I certainly do not recall the conversations being difficult or
Mr Arkhangelsky raising objections to the proposal.
Mr Arkhangelsky also asked whether the repo would be enough
to secure the restructuring of OMG’s loans. I replied that this
would be a matter for Mr Savelyev and the other members of the
Management Board. I had no authority to agree anything on
behalf of the Bank.”
Meeting on 25 December 2008
322. It is common ground that there was a meeting between Dr Arkhangelsky and Mr
Savelyev on the next day, 25 December 2008, at which Mr Guz, Ms Volodina and Ms
Mironova (for the Bank) and Mr Berezin (for OMG) were also present.
323. However, there is (perhaps inevitably given the dispute as to whether there had been a
meeting in early December at which matters of substance were agreed at least in
principle) substantial disagreement as to the context, content and consequences of the
25 December meeting.
324. The Bank’s case in relation to this meeting was summarised in its Closing Submissions
as follows:
(1) Dr Arkhangelsky requested more time to pay back OMG’s loans. Mr Savelyev
asked Dr Arkhangelsky about the promises he had previously made which had not
been kept. Ms Volodina recalled Dr Arkhangelsky referring to an expected payment
of RUB 300 million for a timber contract (and see paragraph [312] above). Mr
Savelyev’s evidence was that Dr Arkhangelsky assured him that this outstanding
timber payment was to be paid shortly.
(2) The Bank considered with Dr Arkhangelsky the possibility of restructuring OMG’s
loans. No specific details were discussed at the meeting. Instead, details of the
specific extensions were left to be arranged between OMG’s lawyers and the Bank
after the meeting.
(3) The outcome of the meeting was that steps would be taken to ensure that there
would be no OMG default in December 2008, and that the precise scope and terms
of the future restructuring would be considered by the Bank and discussed and
agreed with OMG.
325. The Bank also stressed that, as far as it was concerned, it was not legally required to do
anything as at 25 December 2008. It maintained that it was under no obligation to
extend any of OMG’s loans and could have permitted OMG to go into default; and that
under the reserves rules, if OMG had defaulted, the Bank would not have needed to
create 100% reserves immediately, but a lesser amount to reflect the categorisation that
there was ‘considerable credit risk’ for ‘doubtful loans’.
326. Further, and of central importance, the Bank insisted that it did not agree to any sixmonth
moratorium on all payments as alleged by Dr Arkhangelsky. While the Bank did
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not dispute that Dr Arkhangelsky may have asked for such a ‘moratorium’ at the
meeting, its case was that it did not agree to one.
327. The Bank’s position was that it was prepared to assist OMG if it could. Mr Savelyev
put it this way:
“there was a request from Oslo Marine Group to avoid default,
and we kindly accommodated him.”
328. What, according to the Bank, it did make clear in that context was that it needed further
protection in return. It was in that context (according to its case) that (as the Bank
viewed the matter) the Bank took up Dr Arkhangelsky’s offer of some sort of repo
transaction, such as he had himself proposed in discussion with Ms Mironova earlier in
the month, under which he would transfer shares in OMG companies to the Bank or its
nominees, in effect as collateral for a longer term restructuring.
329. As to this, the only one of the Bank’s witnesses to offer any detailed account was Ms
Mironova. Ms Volodina says she was not present at the time; Mr Belykh offered
nothing, and Messrs Savelyev and Guz were vague in their witness statements, although
both confirmed that there were discussions in broad terms. Mr Savelyev stated the
following under cross-examination:
“He asked whether we can help him to avoid the default. We
said: can you offer some additional security? Yes, and in that
additional security Mr Arkhangelsky said: look, I do not have
any other kinds of security to offer, all I can do is organise a repo
transaction.”
330. Ms Mironova’s evidence, on which she was not specifically challenged, was as follows:
“As to the discussions at the meeting regarding the repo, Mr
Savelyev did not himself propose the repo arrangement. He
asked Mr Arkhangelsky what he proposed in return for the
restructuring. I believe that Mr Arkhangelsky was not expecting
such a turn of events, he mumbled something like “Kristina
[Mironova] and I agreed on two companies” and asked Mr
Berezin to name the deal, as if he forgot their names. He told Mr
Savelyev that the proposed transfer of shares in Western
Terminal and Scandinavia Insurance showed how serious he was
about ensuring the debt to the Bank was repaid, and I recall that
he referred to the fact that he had already pledged his assets and
had granted personal guarantees.
I understand that Mr Savelyev said that he thought that the Bank
would, in principle, consider restructuring of OMG’s loans, in
return for a repo arrangement as additional collateral. Mr
Savelyev then asked me to take Mr Arkhangelsky to Mrs Irina
Malysheva in order to prepare the relevant documents for the
transfer of shares, after which Mr Arkhangelsky’s request would
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be out to the Management Board for consideration. Mrs
Malysheva was a member of the Management Board and was
responsible for corporate finance. In her role she was an expert
in corporate restructuring deal with clients.”
331. As to the aftermath, she continued:
“I understand that Mr Arkhangelsky has made a number of
allegations about the meeting. I am told that he has accused the
Bank and Mr Savelyev of threatening him at the meeting and
forcing him to agree the repo arrangement. This is nonsense.
Neither Mr Savelyev, nor anyone else, made any threats against
Mr Arkhangelsky or his family at that meeting. The meeting took
place in a friendly atmosphere, in keeping with the approaching
New Year holiday period. I witnessed Mr Arkhangelsky
voluntarily agreeing to the repo arrangement which he had
indicated to me in advance of the meeting that he was prepared
to do; in my view he did so because he realised that it was the
only way to have the restructuring of OMG’s loans and avoid an
immediate default by OMG.
I understand Mr Arkhangelsky has alleged that the Bank agreed
at the meeting to give the OMG companies a six month
moratorium on all payments that were due to the Bank. This is
also wrong. There was no such discussion at the meeting.
I recall that the precise details of the restructuring were not
discussed at the meeting. This is customary of meetings with Mr
Savelyev where agreements in principle are reached but he
leaves his deputies to deal with the detail. The detail of the
restructuring was worked out and agreed after the meeting and
submitted to the Bank’s Management Board for discussion and
approval.”
332. As may be inferred from Ms Mironova’s account, Dr Arkhangelsky presented at trial a
very different and more malign picture of the meeting, which he described under crossexamination
as “a really terrible meeting”. According to him, Mr Savelyev’s attitude
had by that time changed significantly: he was “now very aggressive” and informed Dr
Arkhangelsky that the Bank would:
“only allow the Group a moratorium on its payments if the shares
in Western Terminal and Scan were transferred to the Bank. He
made clear that this was non-negotiable.”
333. Dr Arkhangelsky continued in his witness statement:
“The demand for the transfer of the shares (and it was clearly a
demand, not a request or proposal) came as a shock. It was a
vastly different proposition to what had been discussed at our
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first meeting. It was in my view disproportionate and
unacceptable and I explained this to Mr Savelyev. I emphasised
that the Group’s underlying assets covered the Bank’s
outstanding loans very comfortably and that there was no need
for the Bank to take such an extreme position.
Mr Savelyev quickly made it plain that this was not a commercial
discussion. He began to make personal threats against me and
my family. In particular he told me “you won’t get out of here
until you agree to sign the contracts”, “think of your children’s
future” and “you want to celebrate New Year, don’t you?”
Until that point I had had faith in Mr Savelyev as a partner who
would support my businesses. I was taken aback by this change
of attitude and did not know what to make of it. I had no
opportunity to reflect on the terms he was insisting on. I simply
felt I had no choice but to comply with his demands, because I
needed a moratorium on payments for the Group. I was well
aware of Mr Savelyev’s power in St Petersburg, and the control
he could exercise over the police…Until this point I had not
considered this power to pose a threat to me – if anything I
thought the opposite – but now I had no doubt that he and his
associates had the ability to cause serious problems for me and
my family if I failed to do what was asked of me. Accordingly, I
felt I had no choice other than to comply.”
334. Dr Arkhangelsky was adamant under cross-examination that it was this threat to his life
and family, and his appreciation of the forces that had been brought against others in
similar positions and could be brought to bear against them, which had convinced him
he had to agree to arrangements that he considered to be one-sided in the interests of
the Bank. When it was suggested to him that the real pressure was simply that inherent
in the predicament of his companies and the imminence of default Dr Arkhangelsky
said this:
“…in Russia…you cannot do any enforcement. So the first step
for the Bank would be to go to the arbitration court. Normally,
before you start this, I mean before the first court sitting, it would
take minimum three months, minimum three months for the first
sitting, and then the proceedings before any enforcement, I think
would have taken between 6 and 12 months minimum. So
theoretically speaking, for me it was much more interesting that
I don’t pay these loans at the end of the year, they go to the court,
start the proceedings, and then I have one and a half years for the
first stage of the court, and then I have a Court of Appeal, which
is one more year. So theoretically for them, absolutely minimum
is two years to get the court decision which would allow them
for enforcement proceedings, and that would really help me, and
I could get refinancing by that time, or find any other player. But
I, instead of going in any litigations, I agreed that I open all my
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business, give them all my business, just to save their licence and
save the Bank. Actually what I should say, that I saved the Bank
of St Petersburg from ceasing their operation, because they have
not had the resources to pay for their reserving. So that’s what I
am telling. So I’ve been open to the Bank not to create problems
for them because the Bank was rather weak compared to — whole
portfolio was defaulting, and I thought that this, my behaviour,
would only help to improve relations. And absolutely the same
was the case with V-Bank, because everybody understood that
it’s — the default at that time, it’s not a problem for the client. It’s
major the problem for the Bank, because Russian banks are weak
banks and they were not able to — in case most of the loans are
defaulting, they were not able to have all these reserves in place
by the end of the year.”
335. I address the allegations of intimidation and duress further below.
336. It will also be necessary to determine the circumstances in which Mrs Malysheva,
(whom Dr Arkhangelsky said (without contradiction) he met for the first time after the
meeting with Mr Savelyev on 25 December), came on the scene and took over personal
and direct responsibility for the Bank’s relationship with OMG. It was Dr
Arkhangelsky’s evidence and apparent conviction that the introduction of Mrs
Malysheva, for no logical reason since she was at the time overseeing the Corporate
Finance Department and would not ordinarily have been involved, marked and
evidenced the commencement of the ‘raid’ on OMG assets which he alleges was
orchestrated by Mr Savelyev and Mrs Malysheva and is the substance of the
Counterclaim.
The Memorandum and paperwork post the 25 December 2008 meeting
337. Returning once more to the chronological sequence, it is common ground that it was
agreed that the requisite paperwork to record formally the arrangements for OMG to
have some time to meet its payment obligations should be drawn up and signed before
the end of December, even if the effectuating documentation might well take longer to
finalise. The documentation needed to be completed (to that extent at least) by the end
of the month, because if it was not, and the interest instalment dates were not extended,
OMG would go into default.
338. The resultant Memorandum, which was dated 30 December 2008, was prepared (after
the meeting on 25 December) largely by Mrs Malysheva with the assistance of Ms
Stalevskaya, the deputy director of the department of Corporate Finance, who could
offer no explanation why either she, or for that matter Mrs Malysheva, was chosen to
be involved.
339. Dr Arkhangelsky’s evidence was that the content of the Memorandum was in effect
dictated by the Bank, and that he had little or no input in the drafting process. He was
at particular pains to emphasise his lack of involvement, and what he portrayed as the
rush of it all in the context of the fact that the Memorandum refers to the Personal Loan,
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of which, as explained previously, he has until recently disclaimed any cognizance.
Further:
“everything was done in a rush and I did not take legal advice
on the Memorandum, nor can I even recall checking the terms of
the document”.
340. However, there is an email from Ms Stalevskaya to Mr Vasilev of OMG, circulated to
Mr Berezin (also of OMG) and dated 29 December 2008 which specifically refers,
amongst other documents (including “Sale and purchase agreements”) to
“Memorandum” and the gist of the email suggests that the document has been
previously discussed and circulated, awaiting only signature. Although under crossexamination
Dr Arkhangelsky sought to explain this away, his explanation appeared to
me far-fetched: and see paragraphs [809] to [810] below.
341. As to the terms of the Memorandum, which it is the Bank’s case was in the nature of a
framework agreement or an agreement in principle, rather than a binding contract:
(1) Paragraph 1 set out a list of all the OMG loan contracts (as well as the Personal
Loan) with the amounts advanced.
(2) Paragraph 2 referred to the repo arrangements contained in separate contracts and
said that “After the complete fulfilment of the Group’s obligations to the Bank”, the
shares in Western Terminal and Scan would be transferred back pursuant to
repurchase contracts.
(3) Paragraph 3 provided that the purchasers of the shares under the repo agreements
would not interfere in the companies (i.e. Western Terminal and Scan) “on
condition that the Group fulfils its obligations to the Bank under the said [loan]
contracts on time and entirely”.
(4) Paragraph 4 provided that “The sellers and the management of the companies on
sale” undertook, among other things, not to sell or transmit the companies’ assets
to anyone and “not to worsen in any other way the material and financial situation
of the companies”.
(5) In paragraph 5, the Bank undertook not to make demand for early repayment “on
condition that the Group fulfils its obligations to the Bank under the said contracts
on time and entirely”.
342. I address Dr Arkhangelsky’s evidence as to his understanding of the effect of the
arrangements provided for by the Memorandum in paragraph [375] below.
343. There is no dispute that the Memorandum was signed in Mrs Malysheva’s office by Dr
Arkhangelsky on behalf of “the Group” and by Mr Savelyev on behalf of the Bank on
30 December 2008. There are no other signatures. According to Dr Arkhangelsky, Mr
Savelyev:
“was also effectively representing the purchaser companies,
which seemed logical, because no distinction was drawn
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between the bank and the companies for these purposes. For the
security to be effective the Bank would obviously need to control
the companies and this is what I assumed the position to be. Mr
Savelyev certainly never suggested that the companies would be
owned by independent third parties…”
344. Dr Arkhangelsky’s recollection was that the final version of the Memorandum, dated
30 December 2008, was provided to him in Mrs Malysheva’s office, and that he was
required to sign it then and there, just before being also required to sign the various repo
agreements. Dr Arkhangelsky says that he did not take legal advice on the
Memorandum nor did he check its terms. He says that he signed it “on behalf of ‘the
Group’”. For the Bank, however, Ms Stalevskaya’s evidence was that the final draft
had been sent to OMG earlier and that Mr Vasiliev, OMG’s lawyer, brought back the
Memorandum signed by Dr Arkhangelsky on 30 December 2008.
345. There is some evidence in support of the Bank’s version, in that there is a copy of the
draft Memorandum which contains only Dr Arkhangelsky’s signature and the GOM
stamp. This suggests that the draft was taken to the Bank by Mr Vasiliev, which made
this copy, following which the Bank (by Mr Savelyev) signed. If Dr Arkhangelsky had
signed the Memorandum in Mrs Malysheva’s office, then it is not clear why there would
be a copy with only Dr Arkhangelsky’s signature and the GOM stamp.
346. Further, Dr Arkhangelsky accepted that Mr Vasiliev did bring back to the Bank signed
copies of the various agreements concerned with the repo arrangements, but not the
Memorandum. In his witness statement, he suggested that Mr Vasiliev returned those
“signed contracts” to Ms Stalevskaya on 31 December 2008. It seems unlikely that Mr
Vasiliev would have brought to the Bank the repo agreements, which Dr Arkhangelsky
says he himself signed on 30 December 2008, but not a copy of the Memorandum which
was also signed by Dr Arkhangelsky on 30 December 2008. It seems more likely (and
I find) that Mr Vasiliev returned all the documents to Ms Stalevskaya at one time, and
that he did so on 30 December 2008.
The provisions and effect of the Memorandum; Dr Arkhangelsky’s assertion of a collateral
moratorium
347. It was common ground that the Memorandum records only part of the deal reached
between the Bank and OMG/Dr Arkhangelsky at the meeting on 25 December (and, on
the Defendants’ case at the earlier meeting on about 10 December or thereabouts).
Indeed, it was necessarily accepted that it makes no express reference to the
restructuring of the loans; and there is no express provision for any specific extension
of time for payment of interest, let alone principal, in respect of the debts listed in its
clause 1.1.
348. The terms of the Memorandum were much explored and revisited in cross-examination,
and there was some debate as to whether it was in a form intended to be given
contractual effect; but the most basic dispute between the parties is not really as to its
content, nor as to its contractual effectiveness, but as to what the parties had agreed as
the quid pro quo for the repo arrangements which it envisaged and made provision for
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in broad terms. In other words, the most important issue is what were the obligations of
the Bank in relation to loan restructuring which underlay the Memorandum?
349. The Bank’s answer to this is that what had been agreed emerged in the form of the
detailed documentation which subsequently emerged. Its case is that it was always
envisaged and accepted that detailed documentation would be needed in respect of each
of the loans identified, that the extensions in each case would have to be considered
carefully by the Bank, and that any formal agreement on this would be unachievable
until after the new year (2009), so that it was not possible to make any express provision
in that regard; but that all that was ever contemplated was deferral of interest repayment,
and there was never any question of extending capital repayment obligations.
350. Dr Arkhangelsky, on the other hand, says that it was expressly agreed at the meeting
that all payments due from the Group companies to the Bank, including interest
payments and capital repayments, would be subject to a general six-month moratorium
until the end of June 2009. On the Defendants’ case, that was the only reason why Dr
Arkhangelsky sought a meeting with Mr Savelyev in the first place; that the repo
arrangement was only proposed as a condition of the moratorium; and that Mr
Savelyev’s promise of the moratorium was the reason why Dr Arkhangelsky agreed to
transfer the shares. Dr Arkhangelsky was adamant that, even though the “Memorandum
as drafted does not expressly record our agreement that there would be a moratorium
on interest payments and a prolongation of the loans”, nevertheless he and Mr Savelyev
had a clear agreement to this effect.
351. His case was, in effect, that this stood to reason, and was the only realistic rationale for
his agreement to the repo arrangements:
“It would have made no sense for me to have entered into the
December 2008 arrangements with the Bank if there had been no
agreement for the moratorium. The Group would then have
derived no benefit from the arrangements whatsoever: in effect,
it would simply be handing over Western Terminal and Scan for
the Bank’s benefit without getting anything in return. Even faced
with Mr Savelyev’s threats, I do not think I would have agreed
to a completely one-sided agreement of that kind. The whole
point of the agreement from my perspective was to obtain a
deferral of payments under the loans. Although the terms offered
by Mr Savelyev were unattractive, in the difficult circumstances
in which the Group found itself at that time they were clearly
preferable to the alternative of default.”
352. To my mind, the premise of this contention, which is that Dr Arkhangelsky would not
have given up control and the value of his companies “without some significant quid
pro quo” (to quote the Defendants’ written Closing Submissions), is unimpeachable;
and indeed I do not understand the premise to be contested. The real issue, however, is
not whether Dr Arkhangelsky and OMG would always have wanted something in
return, but what more specifically it was understood or agreed that they would get in
return, and in particular whether what was envisaged was loan-by-loan extensions of
varying lengths (as is the Bank’s case), or a general extension or moratorium of six
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Bank St Petersburg v Arkhangelsky
months on all payments due to the Bank from OMG companies across the board (as Dr
Arkhangelsky insists).
353. Given that the Memorandum is silent on this crucial point, the answers must depend on
the documentation signed pursuant to it and any collateral evidence.
354. Whether or not determinative of the issue (as the Bank contends it is) the fact is that,
rather than a single document or a standardised suite of documents providing for a
moratorium across the board, the Bank prepared documents, which were agreed and
signed on behalf of the various OMG companies concerned, providing for tailor-made
extensions, not all to June 2009.
355. There is no dispute that the documents were (a) prepared by Ms Blinova (then chief
specialist in the lending division of Investrbank) and Ms Yashkina (the “leading
specialist” in that division) on the instructions of Ms Borisova (who was Head of the
Credit Department at Investrbank) and Ms Mironova, (b) intended to reflect the
outcome of the discussions on 25 December 2008, (c) not finalised until January or
February 2009, and then (d) backdated to December 2008.
356. The purpose of backdating of the agreements concluded in January or February 2009
to 29 or 30 December 2008 was to be consistent with the Bank’s decision not to permit
a default of the OMG companies at the end of December 2008. In the meantime, the
relevant internal approvals were drawn up, and the Bank made the relevant entries in
its systems so as to avoid OMG going into default.
357. Ms Blinova explained:
“Because there were so many additional agreements to all the
OMG loans, I recall that I said that it was not possible to draft
them all by the end of December. Ms Mironova told me that the
Bank had agreed with Mr Arkhangelsky not to declare a default
while documents were being prepared and that all the necessary
documents could be prepared and signed in January 2009. I recall
that Ms Yashkina and I made the required internal entries so as
to avoid the borrower’s default under the OMG loans and the
Personal Loan.

I also prepared additional agreements to the guarantee contracts
to reflect the changes, including the additional agreements to Mr
Arkhangelsky’s personal guarantees. I would have emailed these
documents to Ms Krikova in the OMG financial department. I
cannot recall from my discussions with OMG at the time it ever
being suggested that Mr Arkhangelsky had not previously
provided personal guarantees in relation to these loans.
I recall that Mr Arkhangelsky did not visit the Bank’s offices to
sign the additional agreements. The signed documents were
delivered to the Bank’s offices by hand by an OMG driver…”
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Bank St Petersburg v Arkhangelsky
358. It seems likely that the same applied to revisions to the spousal consents.
359. Dr Arkhangelsky confirmed:
“The Bank also put forward individual addenda to be signed in
relation to each of the loans to implement the agreed moratorium.
These were sent to the relevant Group companies and were
signed by them without my involvement.”
360. However, these addenda did not cover all the loans, and, even as regards the loans
addressed, did not adopt a general 6-month moratorium. Dr Arkhangelsky could only
say in this regard (and I take this from his witness statement) that in view of his
agreement with Mr Savelyev he assumed that the other loans would be covered by “a
similar procedure”. He accepted that “this did not happen”. He could not point to any
contemporaneous complaint on the Defendants’ behalf.
361. I return to the issues relating to the alleged moratorium in paragraphs [793] to [837]
below.
The (backdated) repo documentation in the context of the Memorandum
362. Mrs Malysheva was in charge of the drafting and implementation of the repo
arrangements. Ms Stalevskaya assisted in some of the drafting of the documents. Again,
it is not obvious from their positions in the Bank why they were chosen for the task. It
is common ground that the agreements were not ‘off the peg’: they had to be specially
devised and drafted.
363. Ms Stalevskaya explained in her evidence that she prepared three sets of documents:
(a) a share purchase agreement to transfer the shares; (b) a preliminary or provisional
agreement for the future repurchase agreement; and (c) the repurchase agreements
themselves.
364. Ms Stalevskaya’s evidence is that she liaised with OMG, in particular its lawyer Mr
Vasiliev and his junior Ms Vasilenko, in relation to the preparation of the documents.
She recalls:
“I should say that Mr Vasiliev and Ms Vasilenko did not make
any complaint about the arrangements and they were not hostile
at any stage. At least from their conduct, I had no reason to
believe that Mr Arkhangelsky was unhappy with the
arrangement.”
365. That evidence was not contradicted, and I accept it. However, Dr Arkhangelsky
suggested that he had little, if any, input to the draft repo documentation. That may be
true as regards his personal involvement: but, as in the case of the Memorandum,
contemporaneous email exchanges indicate that OMG, through Messrs Vasiliev and
Berezin, and a lawyer, Ms Vasilenko, was kept fully involved. It seems clear, for
example, that on 29 December 2008 Ms Stalevskaya emailed Mr Vasiliev the share
purchase (‘repo’) agreements.
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Bank St Petersburg v Arkhangelsky
366. It is an important curiosity that the agreements provided not for the Bank, but for others
(the “Original Purchasers”) to be the counterparties and transferees of the shares which
were the subject of the repo arrangements. However, the identities of the Original
Purchasers of the shares in the repo transactions (named in the next paragraph), were
not hidden from OMG: they were identified on the face of the share purchase and
repurchase agreements.
367. These agreements, the authenticity and validity of which was not challenged, and which
set out the particular obligations between OMGP or GOM and the particular share
transferee, comprised the following:
(1) In respect of the shares in Western Terminal LLC, OMGP entered into a share
purchase agreement to transfer 99% of the shares to Sevzapalians LLC
(“Sevzapalians”).
(2) In respect of the shares in Scan, GOM, the 100% owner of Scan, entered into six
share purchase agreements to transfer the shares in Scan to the Original Purchasers
as follows:
(a) Agenstvo Po Upravleniyu Aktivami LLC, for 18% of the shares in Scan;
(b) CJSC Akva-Ladoga (“Akva-Ladoga”), for 18% of the shares in Scan;
(c) Gelios LLC (“Gelios”), for 10% of the shares in Scan;
(d) Graham-Bell LLC (“Graham-Bell”), for 18% of the shares in Scan;
(e) Medinvest LLC (“Medinvest”), for 18% of the shares in Scan; and
(f) Severo-Zapadnaya Agrarnaya Kompaniya LLC, for 18% of the shares in
Scan.
(3) Each share purchase agreement was accompanied by (i) a preliminary or provisional
agreement for the parties to enter a future repurchase agreement which was to be
concluded by no later than 1 January 2011 at the same price and on the same terms
as the sale agreement; and (ii) the ‘Master’ repurchase agreement itself for the
transfer back to the seller.
368. I address in more detail later (see paragraphs [924] to [960] below) the curiosities
relating to these arrangements (and especially the apparently absolute nature of the
sales, and the interpolation of the Original Purchasers in place of the Bank). Suffice it
for the present to say that it is the Counterclaimants’ case that they were devised by Mrs
Malysheva, and always intended by her and Mr Savelyev, to be the means of wresting
away control of OMG from Dr Arkhangelsky and obtaining access to the value of the
underlying businesses as well as the pledged assets.
The Original Purchasers under the repo arrangements and the Renord-Invest Group
369. The Original Purchasers (see paragraph [367(2)] above as to their identity) were
companies supposedly owned by Mr Mikhail Smirnov, the CEO of the Renord-Invest
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Bank St Petersburg v Arkhangelsky
Group, and another businessman, Mr Zelyenov. Agentstvo Po Upravleniyu Aktivami
LLC and Gelios were the companies supposedly belonging to Mr Zelyenov. The other
companies were in the Renord-Invest Group supposedly belonging to Mr Smirnov.
370. Mrs Malysheva had known Mr Smirnov and Mr Zelyenov for many years, and they
were well-established clients of the Bank. It is not disputed that it was Mrs Malysheva
who chose the Original Purchasers for the purposes of the Memorandum and repo
arrangements.
371. It was her evidence in the BVI Proceedings (in a witness statement dated 30 December
2011 which was introduced into the evidence in these proceedings under a Hearsay
Notice dated 28 August 2015) that:
“The Bank holds no direct or indirect ownership interest in the
Original Purchasers.”
372. The Bank’s case is that it was expedient for it to arrange for the Original Purchasers to
act as transferees of the shares (which were not listed securities) for a number of
accounting and commercial reasons, not least the fact that if the Bank held the shares
itself then it would have needed to consolidate Western Terminal and Scan in the
Bank’s own financial statements. (I come back to this in paragraph [933] below.)
373. As previously noted, there was no written record of the relationship between the Bank
and the Original Purchasers nor of the basis and terms on which they held the relevant
shares. I think it fair to say that the Bank’s presentation as to the legal nature and
commercial rationale of the arrangements between the Bank and the Original
Purchasers has varied over time, the Bank being consistent only in its reticence; and
much focus was accorded to it at trial.
374. Mrs Yatvetsky (formerly Ms Goncharuk), the legal advisor to the Renord-Invest Group,
who (it will be recalled) was called to give evidence when Mr Smirnov became
indisposed, described the position of the Original Purchasers as, in effect, holding the
ring between the Bank and OMG until OMG could pay back its debts. She said:
“… if you are looking at the very start of this arrangement,
Renord was a guarantor for the Bank, as it were, it was holding
those shares, and it was a sort of security to make sure that the
assets owned by those companies will not be lost, nothing will
happen to the assets. On the other hand you can also say that they
were holding those shares also on behalf or in the interests of
Oslo Marine Ports until such time as the Morskoy Bank story
began. After it began, what happened was that Mr Arkhangelsky
was in breach of the terms and conditions of the memorandum.
Had that not happened, had all the liabilities been extinguished,
the shares would have been transferred to Mr Arkhangelsky.”
375. Dr Arkhangelsky’s evidence was that he did not know who owned or controlled the
Original Purchasers, but that he “assumed that it was the Bank’ because “the whole
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Bank St Petersburg v Arkhangelsky
purpose of the transaction as far as I understood was to ensure that the Bank’s security
was protected”. His evidence was:
“The effect of the transaction, as I understood it, was that the
Bank would receive temporary ownership of the companies, but
I and my directors would retain control of the companies in the
interim and with ownership being returned either once the
security had been enforced. (I am aware that the Memorandum
refers to repayment of the loans being the trigger for the return
of the shares, but I would not have regarded that as materially
different, as there was no reason to believe that the security
would not be sufficient to redeem the loans.) The purpose of the
transfer of ownership, as Mr Savelyev represented it to me, was
therefore simply in order to give the Bank temporary control
over the companies and comfort that it would be able to enforce
its existing security. I did not intend or understand that the Bank
or anyone else would acquire full ownership of the companies if
there was a default, although I understood clearly that by
relinquishing the ownership of the shares I was exposing myself
to the risk of a raid. That was precisely why I was so aggrieved
at Mr Savelyev’s demand for the shares to be transferred.”
376. Dr Arkhangelsky’s case is that he was misled as to the reasons for the introduction of
the Original Purchasers, which he now believes was in reality part of the alleged ‘raid’
and indeed the first step in the appropriation by Renord-Invest and thus (amongst
others) Mr Savelyev and Mrs Malysheva, of the assets of OMG.
377. The Subsequent Purchasers, who acquired the relevant shares from the Original
Purchasers in late March/early April 2009, were also part of the Renord-Invest Group.
I return to the dispute as to the ownership and role of the Original Purchasers and the
Subsequent Purchasers later.
January and February 2009 and the restructuring documentation
378. Continuing the chronological sequence, Ms Blinova recorded that in January 2009 the
OMG companies sent the Bank formal letters, signed by their general directors, and
purportedly dated 18 December 2008, requesting amendments to the terms of the
relevant loans.
379. The letters are of importance especially in that the extensions requested are not uniform:
for example, the request on behalf of Onega was for an extension in the term for interest
from 21 November 2008 until 20 June 2009, and for capital repayment on 27 June 2009
in place of December 2008; whereas the request on behalf of Vyborg Shipping was in
one case for an extension of time for payment of interest from 21 November 2008 to 26
March 2009, in another case for such an extension from 21 November 2008 to 15 April
2009, in a third case, an extension from 21 November 2008 to 28 April 2009, and in a
fourth case, an extension from 21 November 2008 to 28 June 2009.
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Bank St Petersburg v Arkhangelsky
380. I did not understand these letters to be denied, or Ms Blinova’s account as above
described to be contested. As the Claimants were quick to point out, the terms of the
letters are difficult to square with a previous understanding of a uniform extension of
repayment dates to June 2009, especially since Dr Arkhangelsky never objected to
them.
381. As to the terms of the restructuring agreements as executed:
(1) LPK Scandinavia:
(a) Entered into an additional agreement (No. 2) dated 29 December 2008 with
the Bank in respect of the 2007 LPK Scandinavia Loan. This additional
agreement extended the date for monthly payments of interest until 28 June
2009. A previous additional agreement (No. 1) dated 28 November 2008
had extended the date for the repayment of the capital of the loan until 27
November 2009;
(b) Entered into (i) an additional agreement (No. 3) dated 30 December 2008
with the Bank in respect of the 2008 LPK Scandinavia Loan, and (ii) a new
Loan Agreement no. 0035-08-01499 dated 30 December 2008, which
replaced the 2008 LPK Scandinavia Loan. The new Loan Agreement
extended the date for the repayment of the capital of the loan from 25 June
2009 until 29 December 2009, and the additional agreement (No. 3) and the
new Loan Agreement extended the date for monthly payments of interest
until 28 June 2009;
(Ms Tarasova, General Director of LPK Scandinavia, signed these
agreements on behalf of LPK Scandinavia.)
(2) Vyborg Shipping:
(a) Entered into an additional agreement (No. 2) dated 29 December 2008 with
the Bank in respect of the First Vyborg Loan. This additional agreement
extended the date for monthly payments of interest until 26 March 2009,
which was the date for the repayment of the capital of the loan;
(b) Entered into an additional agreement (No. 2) dated 29 December 2008 with
the Bank in respect of the Second Vyborg Loan. This additional agreement
extended the date for monthly payments of interest until 15 April 2009,
which was the date for the repayment of the capital of the loan;
(c) Entered into an additional agreement (No. 2) dated 29 December 2008 with
the Bank in respect of the Third Vyborg Loan. This additional agreement
extended the date for monthly payments of interest until 28 April 2009,
which was the date for the repayment of the capital of the loan;
(d) Entered into an additional agreement (No. 1) dated 29 December 2008 with
the Bank in respect of the Fourth Vyborg Loan. This additional agreement
extended the date for monthly payments of interest until 28 June 2009. The
date for the repayment of the capital of the loan was 17 July 2009;
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(Ms Krygina, General Director of Vyborg Shipping, signed these agreements
on behalf of Vyborg Shipping.)
(3) Onega:
(a) Entered into an additional agreement (No. 4) dated 29 December 2008 with
the Bank in respect of the First Onega Loan. This additional agreement
extended the dates for (i) the schedule of monthly capital repayments and
(ii) the monthly payments of interest until 27 June 2009, which was the date
for repayment of the final capital instalment of the loan;
(b) Entered into an additional agreement (No. 3) dated 29 December 2008 with
the Bank in respect of the Second Onega Loan. This additional agreement
extended the date for monthly payments of interest until 28 June 2009. A
previous additional agreement (No. 2) dated 24 December 2008 had
extended the date for the repayment of the capital of the loan until 23
December 2009;
(Dr Arkhangelsky, General Director of Onega, signed these agreements on
behalf of Onega.)
(4) PetroLes:
(a) Entered into an additional agreement (No. 3) dated 29 December 2008 with
the Bank in respect of the First PetroLes Loan. This additional agreement
extended the date for monthly payments of interest until 5 March 2009,
which was the date for the repayment of the capital of the loan;
(b) Entered into an additional agreement (No. 2) dated 29 December 2008 with
the Bank in respect of the Second PetroLes Loan. This additional agreement
extended the date for monthly payments of interest until 26 March 2009,
which was the date for the repayment of the capital of the loan;
(Mr Shevelev, General Director of PetroLes, signed these agreements on
behalf of PetroLes.)
(5) The Bank’s case is that Dr Arkhangelsky entered into an additional agreement (No.
1) with the Bank in respect of the Personal Loan. This additional agreement
extended the date for the repayment of the capital of the loan until 31 December
2009 and extended the dates for the monthly payments of interest until 28 June
2009. The Bank also contends that Dr Arkhangelsky signed an additional agreement
(No. 2) which provided for further security in respect of the Personal Loan, namely
a subsequent pledge over certain of the Western Terminal Assets (i.e. those assets
pledged under the Fourth Vyborg Loan), although the pledge was never executed.
(6) A Scan promissory note, due to expire on 15 January 2009, was extended by a year.
382. Thus, in broad terms, if the loan was due to be repaid in the first half of 2009, before
June 2009, the Bank was prepared to defer interest payments until the date of maturity;
if the loan was to be repaid in the second half of 2009, the Bank was prepared to defer
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Bank St Petersburg v Arkhangelsky
interest payments until June 2009. For the Personal Loan, which was due for repayment
at the end of December 2008, the Bank was prepared to extend payment for a year. The
Bank also agreed that the overdraft facility be converted into a standard term loan
repayable at the end of 2009.
383. In short, as Ms Mironova said:
“pursuant to different loan agreements, depending on their initial
terms, different deferrals were agreed, both on interest and
principal repayment.”
384. The extensions provided for by these agreements, even though selective, provided a
lifeline to OMG and Dr Arkhangelsky: default was otherwise inevitable. But it is worth
remembering that they suited the Bank also. In that regard, there is no doubt that the
Bank was keen, perhaps (as Dr Arkhangelsky maintained) desperate, to ensure that
there was no OMG default to be reserved for at year-end (2008). The agreements,
backdated as they were to the end of the year, were required and relied on by the Bank
to avoid the need for such reserves.
385. The Defendants contend that this was the occasion also, not for the amendment, but for
the introduction, of documentation for personal guarantees, prompted by a review of
the existing documentation. The Defendants’ contention is that it was only at the stage
of this review that the Bank focused on the fact that no such guarantees were in place,
and the Bank determined to rectify the position. It was put to Ms Blinova in crossexamination
that the documents were “fabricated in January 2009 at the time there was
restructuring of OMG indebtedness, and backdated”, slipped into the loan records, but
were never actually signed by Dr Arkhangelsky. Ms Blinova denied this and stuck by
her written account.
386. To complete the repo arrangements, in early January 2009, stock transfer forms relating
to the agreements described above, and providing for the legal transfer of the relevant
shares to the Original Purchasers, were registered by the Bank with the Federal Tax
Service, and only then (under the Russian law) was the transfer of the shares to the
Original Purchasers legally effected.
Events immediately prior to the Bank calling OMG default
387. In his witness statement, Dr Arkhangelsky stated that during this time he “continued to
look for additional funding” to make repayment of its loans to the Bank. He recounted,
in notably general terms, the fact that his meetings with “a very large number of banks
all of whom were interested in doing business with the Group” continued in the new
year (2009).
388. More specifically, he referred to a meeting with BNP Paribas in Paris in January 2009
“to discuss technical aspects of the project”, expressing also his belief that:
“Had it not been for the Bank’s actions…a mandate would have
been signed shortly afterwards to enable BNP to start moving
towards financial completion in or around the third quarter of
2009.”
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Bank St Petersburg v Arkhangelsky
389. He acknowledged that OMG was even in some difficulty in finding the money to pay
the monthly retainer fee of €25,000 which BNP proposed (see paragraphs [202] to [209]
above), but his line was that he expected cash flow soon to improve. Further, he told
me:
“If it had been necessary to borrow the money to pay BNP’s
retainer and other fees then this is what I would have done…

…I have no doubt that I would have been able to raise short-term
financing from one or more of these banks to enable us to engage
BNP to get the financing of Western Terminal across the line.”
Reality by the end of 2008 was that there was no prospect of replacement funds
390. It is worth pausing there to consider whether that was so: whether, in other words, Dr
Arkhangelsky had any realistic prospect of short-term refinancing, or whether the
reality was that he was entirely dependent on whatever time or funds he could get from
the Bank. That obviously goes to the issue of whether he ever had any realistic prospect
of avoiding default, and that in turn is clearly relevant both to whether the Bank
engineered that default whereby to trigger the repo arrangements and to the whole case
alleging an illicit ‘raid’.
391. As to this, Dr Arkhangelsky also contended that even if “long-term financing” was not
forthcoming, he “would have arranged replacement short-term funding” with V-Bank.
In his witness statement for trial he went so far as to say:
“I believe it is therefore virtually certain that Vozrozhdenie [VBank]
would have provided funds to pay off the Bank’s loans in
mid-2009 pending the completion of the refinancing.”
392. If this was Dr Arkhangelsky’s belief, it was a triumph of hope over reality. The reality
was that V-Bank, in the credit crisis, was simply not extending new funds in early to
mid-2009, and there was never any prospect of it refinancing the loans from the Bank.
Dr Arkhangelsky, under cross-examination, was constrained to admit as much:
“… we have quite big limits with them already, and there were
not a question at that time of substitution of Bank of St
Petersburg loans by the loans from V-Bank. So we were
speaking about comparatively big amounts, and in the situation
of crisis, as I already just a few minutes ago told you, that none
of the privately owned banks in the middle of the crisis didn’t
want to increase their exposure and the new loans — new, big
loans.”
393. OMG already owed V-Bank at least RUB 2 billion at this time.
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The accelerating deterioration in OMG’s financial position
394. At the end of 2008 and beginning of 2009 OMG’s financial position continued to
deteriorate. According to Ms Mironova, by early 2009 no payments of any substance
were being made into OMG bank accounts, which were monitored by the Bank.
395. More particularly:
(1) Only one of the OMG companies, Scandinavia Leasing, was receiving any funds
(under certain leases it had granted) and so was able to pay the interest due to the
Bank under the two loans advanced to it;
(2) OMG’s timber business (carried on through both by LPK Scandinavia and
PetroLes) seemed to have come to a complete stop. The late payment on the timber
sale which Dr Arkhangelsky had mentioned never materialised, and indeed there
was no documentation in the evidence to confirm the transaction. By February 2009
Mr Shevelev, the Director-General of PetroLes, was in the position of having to
seek further deferral of interest and fees in anticipation of a further decrease in its
income;
(3) No funds at all had been received into the accounts of Vyborg Shipping at the Bank.
The Bank discovered from Vyborg Shipping internal accounts as provided to it that
such limited income as Vyborg Shipping was receiving was being paid directly into
accounts which it held with V-Bank. (This was in violation of the Bank’s loan
arrangements with Vyborg Shipping, which expressly required the borrower “to
maintain 100% turnover on settlement and currency accounts of the borrower”.)
Request and refusal to extend PetroLes loans
396. In this dire situation, in late February 2009, PetroLes sought to extend both the First
and Second PetroLes Loans for a year from their expiry dates on 5 March 2009 and 26
March 2009 respectively and to defer interest payments until 28 June 2009. Interest
under each loan had been deferred until maturity under the agreements made pursuant
to the meeting of 25 December 2008.
397. Thus:
(1) On 24 February 2009, Mr Shevelev wrote on behalf of PetroLes seeking to extend
the First PetroLes Loan by one year and defer interest payments until 28 June 2009.
In his oral evidence (though not before) Dr Arkhangelsky appeared to dispute the
authenticity of the document, but he provided no basis or evidence for doing so, and
I take it to be authentic accordingly.
(2) On 19 March 2009, Ms Krygina wrote on behalf of Vyborg Shipping, seeking to
extend the four Vyborg Shipping loans by one year and to defer interest payments
until 29 June 2009. Again, in his oral evidence (but not before), Dr Arkhangelsky
disputed the authenticity of the document, but again provided no basis or evidence
for doing so. Indeed, his witness statement had actually specifically referred to Ms
Krygina’s request, and he appeared to acknowledge that he had been aware of it at
the time. Again, I must take it to be authentic.
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398. The Bank has pointed out that the fact that the requests were to extend interest payments
for the extended loans from the old expiry dates until 28 June 2009 was not consistent
with any alleged general six-month moratorium which had been agreed in late
December 2008. On the contrary, the Bank contended, they were positively inconsistent
with it because they amounted to a request (i) to extend the loans by a year (to March
2010); and (ii) to defer interest payments for three months on the new extended loans
(until the end of June 2009). I return to this when discussing the issue as to the true
nature of the moratorium.
399. As it is, the request was first considered within the Bank by the MKK. The MKK
approved both requests and sought approval likewise by the BKK. The meeting of the
BKK took place on 2 March 2009, presided over by Ms Volodina (with, amongst others,
Mr Belykh also present).
400. The minutes of the meeting of the BKK meeting held on 2 March 2009 are not entirely
clear, which has led to a dispute between the parties of detail but potentially some
importance as to why the request was ultimately refused.
401. According to both Ms Volodina and Mr Belykh, the extensions of the repayment dates
were both refused, save only that it was resolved to extend the First PetroLes Loan for
a short period of days until it was coterminous with the Second PetroLes Loan on 26
March 2009. Ms Volodina explained short extension as being designed to enable the
question of any further extension to:
“be escalated to, and considered by, the Management Board as
the most senior body within the Bank, as the appropriate body
for a decision of this magnitude.”
402. However (and as Mr Stroilov put to both Ms Volodina and Mr Belykh in crossexamination),
the minutes themselves record an agreement to extend the deadline for
the payment of interest to 20 June 2009, and to provide some extension beyond 26
March 2009 for the Second PetroLes Loan also.
403. Neither Ms Volodina nor Mr Belykh offered any explanation of the drafting, simply
ascribing it (respectively) to a “technical mistake” and “clumsiness” for which Ms
Volodina suggested the person concerned should be “punished” (a word which may
indicate something lost or confused in translation, but may equally offer some insight
into the way the Bank was managed).
404. Mr Stroilov, on the other hand, has submitted that there was no mistake in the drafting,
only a misrepresentation afterwards concocted to disguise the truth that the BKK did
approve the extension and that the intervention of the Management Board is suspicious.
I return to this later: see paragraphs [1006] to [1009] below.
Management Board refuse to extend PetroLes loans
405. In any event, the issue as to the extension of the First PetroLes Loan was considered
too significant to rest at Investrbank branch level or with the BKK, and it was referred
on to the Management Board of the Bank for a final decision.
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Bank St Petersburg v Arkhangelsky
406. The Management Board met on 4 March 2009. Mr Savelyev presided. Ms Volodina
was present (amongst 9 others). It appears that the meeting lasted some five hours,
though Mr Savelyev suggested that this was because “the Bank had problems with
many other borrowers” as well as OMG.
407. The Management Board’s decision, which is recorded as having been unanimous, was
to deny any further extension of the two PetroLes loans. As a result, unless there was
in place the 6-month moratorium which the Defendants assert, the First PetroLes Loan
fell due for repayment.
408. As further described below, PetroLes did not make repayment on the due date. The
Bank sent a notice of default to PetroLes on 6 March 2009.
409. Although also careful to point out that it did not need any excuse or justification not to
extend the loans, the Bank advanced a number of contextual reasons for the
Management Board’s decision, all undermining, in its view, the Defendants’ reliability,
and in particular the following.
410. First, it pointed out that Dr Arkhangelsky had previously given assurances that OMG
was to receive a RUB 300 million timber payment in January/February 2009; but no
such payments materialised.
411. Secondly, it suggested that it had further been influenced by its discovery of tax and
criminal investigations into Dr Arkhangelsky, alleging tax evasion and sham
transactions.
412. Thirdly, according to Ms Volodina, she had heard from her contacts at Rosselkhozbank
and VTB Bank that they and other banks were experiencing problems and losing
patience with Dr Arkhangelsky and his companies and that OMG was in default with
V-Bank.
413. Fourthly, Mr Savelyev and Ms Mironova placed emphasis on the fact that at some point
in February 2009, the Bank found out that Dr Arkhangelsky had failed to disclose that
the vessel ‘Tosno’, which had been pledged as security for the Second Vyborg Loan,
had been arrested in the port of Tallinn in December 2008 for non-payment of
bunkering charges.
414. Ms Volodina (who was present at the relevant Management Board meeting)
summarised the Bank’s perspective on the position by this time in her oral evidence:
“On 5 March, the PetroLes loan matured, therefore the client
came to the branch and asked whether that loan could be further
extended for a further period of time.
Now, we looked into this and, based on the solvency position of
the client and whether or not he was able to perform his
obligations, unfortunately he was a male fide borrower, not only
with respect to the Bank, but also with respect to his — the crew,
his seafarers on the vessel that had been pledged. Therefore I told
the members of the board that I do not believe that we can extend
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Bank St Petersburg v Arkhangelsky
this loan. We had tried to accommodate the client on a number
of occasions, yet he had not fulfilled his obligations, not a single
time.
We worked with other clients, we restructured many, many of
the loans for other clients. We restructured the interests. Many
times we moved to accommodate our clients. He had given many
promises with respect to the cash flows, to the proceeds, they
were not realistic with respect to refinancing via other banks, and
also by that point in time it became clear that he had problems
with other lenders as well and, therefore, in terms of extensions
of any loans, this was simply not viable. This was not something
that could be done.”
415. Dr Arkhangelsky rejected this account, both in general and by reference to the particular
reasons advanced by the Bank for denying any extension of the PetroLes loans. He
specifically denied that he had sought to hide the fact of the arrest of the ‘Tosno’. He
claimed that, on the contrary, he had openly discussed the vessel’s arrest with Ms
Borisova, Ms Prokhor and Mr Platonov when it occurred, and he added that, in his
belief, he had mentioned the matter when he met Mr Savelyev in December 2008.
416. As to the Bank’s suggestion that it had relied on concerns about his tax affairs, he
contended, as Mr Stroilov put to Mr Guz and Ms Volodina, that the relevant
investigations had taken place in 2007, had been publicised at that time, and had not
been proceeded with. Mr Guz was constrained to accept that the tax investigation was
not at all a significant factor in the Management Board’s decision and Ms Volodina
retreated to the point of relying not so much on “a criminal investigation at some point
in time” but rather on “the totality of all the factors.”
Dr Arkhangelsky suspects an imminent ‘raid’
417. In the submission of the Defendants, the events of March 2009 were neither random
nor reactive; they were part of a concerted plan, whether (as is their primary case) it
was hatched in December 2008 or at about this later time (March 2009).
418. In that connection, Dr Arkhangelsky recorded in his witness statement for trial the
“ominous sign” (indicating, in his perception, a raid in preparation) that both Western
Terminal and Scan had received a number of visits from the Original Purchasers asking
for information including bank statements, accounts, tax returns and the like. He
pointed to the fact that the extension of the PetroLes loan had been approved by the
MKK, the BKK and the Committee for Management of Assets and Liabilities as
demonstrating that the Management Board, in taking an opposite view, had some
different agenda.
419. Mr Stroilov put to Ms Volodina in cross-examination that the “real reason” why the
Bank decided not to extend the First PetroLes Loan was that by now (March 2009):
“Mr Savelyev and Mrs Malysheva intended to appropriate OMG
assets which had been transferred under the repo deal.”
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She answered:
“I don’t have information in this matter, and it’s unlikely that Mr
Savelyev could have made such a decision, as far as I know my
boss.”
420. Mr Stroilov repeated substantially the same question when cross-examining Mr
Savelyev, who answered as follows:
“No, this is not true. The Bank was never interested in toxic
assets, and in various pledges, because I personally, and the
Bank’s management, always focused on the Bank itself. That is
the main asset that we control all together, that we look after all
together, that is the priority project and I have always criticised
shareholders that work at the Bank and are involved in some
construction projects or some side line businesses not related to
the Bank….I never wanted to blur the focus. I never wanted to
own the assets that Mr Stroilov had in mind. It’s not interesting
for me from the start.
I confirm again before the court that we are only interested in
one thing: to maximise the return of our funds from the sale of
the pledged property. That is always legal when the Bank is
selling its pledges and wants to get the maximum amount from
their sale. This is exactly the only thing I meant.”
421. The reference to “toxic assets” is intriguing in light of the Lair valuations indicating
that the value of the pledged assets very considerably exceeded the amounts loaned;
and it was the Bank’s case that it was not until considerably later than this, in July 2009,
that it received reports from another valuer, Agentsvo Delovyh Konsultantsy LLC
(“ADK”) which cast serious doubt as to the reliability of Lair’s reports. To my mind,
that reference smacks, at best, of hindsight, since at the time, the Bank’s valuations of
the assets very considerably exceeded the amounts loaned.
422. The Bank’s pattern of seeking to embroider by reference to collateral factors its reasons
for its decisions tended, to my mind, to detract, rather than fortify, what it had advanced
as the true basis for the Management Board’s decision, which was its doubt as to
OMG’s credit-worthiness.
423. Overall, I gained the impression that the Management Board did have a rather different
perspective and agenda than had the MKK and the BKK: the one was looking for
reasons to work a cross-default, the others did not wish to precipitate anything so major.
But I do not consider that the difference is of itself sinister; and it can be explained, as
indeed the Bank sought to explain it, as a decision which would trigger general default
was one only the highest level of authority within the Bank could ultimately take.
424. That too, however, is for further discussion in the context of my determination both as
to the Bank’s general proposition that “any other bank would have acted in the same
way” and as to the true purpose and the use ultimately made of the repo arrangements.
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Bank St Petersburg v Arkhangelsky
The development of the Bank’s concerns as to the value of its security
425. There is considerable uncertainty as to what the real chronology is as regards the Bank’s
discovery that it was under-secured, just as there is dispute as to what its reaction was
to that discovery.
426. According to the evidence of Mr Belykh, it was not until after OMG began to default
on its loans in March 2009, bringing the imminent prospect for the Bank of having to
rely on and enforce its security, that he focused on the valuation reports prepared by
Lair on which the Bank had relied; and it was not until nearer July, when Ms Mironova
circulated (by email attachment) ADK’s reports to Mr Skatin and Mr Belykh, that the
Bank’s concerns as to the value of the underlying security crystallised.
427. Similarly, Ms Mironova indicated that it was not until, at earliest, some time after May
2009 that ADK was commissioned to review Lair’s valuations; and it is the case that
the emails by which she circulated the ADK reviews are dated early July 2009.
428. However, although, on the basis of this evidence, the Bank maintained that it was not
until July or so, when Ms Mironova circulated (by email attachment) ADK’s reports to
Mr Skatin and Mr Belykh, that its concerns as to the value of the underlying security
crystallised, the date on each of the ADK reports is stated to be 12 January 2009. No
explanation for that was offered or was evident.
429. In all these reviews, ADK concluded that the valuation reports by Lair had significantly
overvalued the relevant property, not only by reference to eroded values following the
2008 crisis, but also at the time.
430. Further, although neither of them felt able to say when it was, both Mrs Mironova and
Mr Belykh confirmed that by that time they had together undertaken a site visit of
Western Terminal which much discomforted them, since the site seemed barely to have
been developed at all, and at that time the weather was wintry with snow on the ground.
This suggests late winter or early, rather than late, Spring.
431. That site visit by Mr Belykh and Ms Mironova prompted considerable concern on their
part. Mr Belykh described his impressions as follows:
“I remember that the land in question was not at all what we had
imagined based on the valuation reports. For example, there was
a project for the development of a railway at the port and it had
been described to us as if it was almost ready for use. What we
saw on the actual land was an approximately several metre long
railway that went from one small hut to nowhere.”
432. A working group within the Bank then produced an internal report on the valuation of
security that was provided for the Vyborg Shipping loans. The report outlined in detail
deficiencies in the reports provided by Lair for the three vessels and for the land owned
by Western Terminal and the land owned by Scandinavia Insurance. The working group
concluded that the market value of the pledged property was materially overstated in
all the valuation reports produced by Lair.
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433. According to Mr Belykh (who had some valuation training and experience himself),
when the general director of Lair (confusingly, a Mr Alexander Smirnov, unconnected
with Mr Smirnov, the owner of Renord-Invest), and its head of immoveable property
valuation, Ms Svetlana Chevdar, were summoned to the Bank to speak to the Lair
reports (quite when is not clear, but sometime in the latter half of 2009):
“they were vague in their responses and I had to interrupt them
a few times in order to find out the truth. It transpired that Lair
had valued the assets used by OM[G] as security on a future
discounted cash flow basis, but the income projected was
completely unrealistic”.
434. Ms Mironova described in her witness statement the way she reported to Dr
Arkhangelsky the Management Board’s decision in March 2009 to refuse to extend the
First PetroLes Loan as follows:
“I called Mr Arkhangelsky on the same day at around 6pm or
7pm, during my drive home. I remember the conversation
because it was quite emotional, with accusations and insults from
him; I pulled over and stopped my car, and recall that it was a
difficult discussion. He did not make personal accusations, but
he was quite unhappy with the decision. In response, I asked him
about the arrest of one of Vyborg Shipping’s vessels and the
failure to pay turnover into OMG’s accounts with the Bank. He
refused to discuss this.”
435. Dr Arkhangelsky was dismissive of this account. His answers in cross-examination
offer some insight into his attitude and, I would comment, his habit of either belittling
or demonising those he perceives to be against him:
“Q. Now, Ms Mironova is right, isn’t she, in that paragraph, when
she describes what —
A. No, it’s completely not true. I think the dates — I think I was
in Switzerland participating in the conference and I don’t think
that I would be even able to reply — even if anybody called me,
I would not be able to reply to that.
Q. So is it your evidence that you did not speak to Ms Mironova
on the telephone on or around 4 March 2009?
A. Yes, absolutely.
Q. Did she call you at any other time around that date to tell you
the decision of the management board —
A. No.
Q. — on 4 March –
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A. No. No. We hadn’t had any personal contacts, good personal
contact here, so when you see her you would understand that she
is rather strange and ambitious person, young and ambitious
person. So, you know, she’s not my style of people I want to
speak to, and not sympathetic to that type of people. And for
me, her, she was a rather low level of people, so — I mean in the
Bank, so she was not even a head of the Investrbank department,
but she was under that. So I assume that it had to be in case such
a phone call could be — it should be at least Mr Belykh who was
participating in all this management board, or Mr Platonov, who
was the head of Investrbank by that time. So I had a rather
good relationship with Mr Platonov, I had been knowing him
from different banks, we had a beer together from time to time.
So I think in case such a big trouble occurred, he would be
definitely telling me or Mr Belykh. So I don’t think that Ms
Mironova is really telling the truth, considering how active she
was participating in BVI and these proceedings. I think she’s
really following her personal interests in this.”
The Bank’s decision to call in loans and post reserves
436. Be that as it may, and although Ms Mironova sought to paint a more regretful and
measured stance, there is little doubt that the Management Board of the Bank had by
now decided in principle to call in all its OMG loans across the board.
437. In accordance with the Bank’s usual practice in relation to bad debts, Investrbank set
up a working group to consider how best to recover sums owed to the Bank. Further, in
the context of various impending defaults, and the prospect of bad debts, Investrbank
had to prepare to post reserves, and accordingly Ms Blinova drew up a note setting out
the possible levels of reserves required.
438. From March 2009 (and if there was no general or 6-month moratorium in place) OMG
defaulted on each of its loans from the Bank as they fell due, as set out in more detail
below.
439. The Bank’s planning appears from an email exchange between Ms Mironova and Mr
Guz on 11 March 2009:
“Greetings Vladislav Stanislavovich,
Analysis of Oslo Marine Group loan agreements evidences the
following:
As of now:
— we can declare default under the second loan for Petroles Ltd.
for the amount of RUR 80 million (the maturity date is 26.03.09)
— also due to non-registration of the mortgage agreement for one
of LC Scandinavia credits for the amount of RUR 145 million
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Bank St Petersburg v Arkhangelsky
(the BKK decision to extend the mortgage agreement
registration period should be cancelled) we can demand early
repayment, and then on the next day declare default on one more
of their loans for the amount of RUR 450 million
— Furthermore, V.D. Arkhangelsky is the surety for all LC
Scandinavia Ltd. loans, so we can put the claims forward to him
as the surety, and if he fails to comply within 5 days we can
declare default on his personal loan of RUR 130 million.
— also there is a surety from SO Scandinavia for LC Scandinavia
Ltd. loans, which we can also address the LC Scandinavia Ltd.
loan repayment claims to. However SO Scandinavia do not have
their own loans (except for the discounted bill for RUR 65
million, but we cannot call it for early repayment as it is subject
to the law on bills of exchange instruments and it can only be
paid on maturity date – January 2010). However we can still
initiate legal collection from SO Scandinavia as they are a surety.
— at the same time we can declare default on Onega Ltd. loans for
amount of RUR 431.8 million (as the financial position of their
sureties – SO Scandinavia and Arkhangelsky – have become
worse)
26 March 2009:
— The Vyborg Shipping Company Ltd. loan in the amount of
RUR 310 million is approaching maturity. There is an option to
extend it for 2 years. If we decline extension, then we will
declare default on all VSC Ltd. loans for the total amount of
RUR 2.1 billion.
Thus we can put forward the claims for all Oslo Marine Group
loans by the end of March.
Please confirm the suggested model.
Sincerely yours,
Kristina Borisovna Mironova”
440. Mr Guz replied:
“I agree. Please affirm this with the legal and credit directorates.”
441. By letter dated 25 March 2009, the Bank wrote to Dr Arkhangelsky in relation to the
default under the First PetroLes Loan, seeking to resolve any questions concerning
enforcement against the pledged assets so as to avoid any court action. There was no
response.
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The Bank finds out about the arrest of Vyborg Shipping’s vessels
442. According to the Bank, it was at about this time that the Bank received further
information about the arrests of other OMG vessels pledged under the Vyborg loan
agreements, for non-payment of bills and crew wages and salaries.
443. It is not quite clear when the Bank was informed of the arrests of ‘Kolpino’ and
‘Gatchina’. Ms Volodina thought it was in “February to March” but could not be
precise. However, she was more certain that:
“…at the latest I would have heard about this issue when Ms
Mironova forwarded an email to me from Bergen Bunkers
relating to the arrest of Kolpino on 30 March 2009.”
444. Dr Arkhangelsky claims to have told the Bank about the arrest of ‘Tosno’ in December
2008. However, the first record of a communication from him about the arrests is a
letter of 3 April 2009 to Mr Savelyev. The letter refers to the seizure as having taken
place in Tallinn on 11 December 2008 despite “repeated offers to settle debt”. It also
refers to the seizure of ‘Gatchina’ in La Pallice, France in “early March” (2009) before
OMG had received “any prior warning…as to any existing debt” and to the seizure of
‘Kolpino’ “under the very same maritime claim that had previously been used to seize
the OMG Tosno vessel”.
445. The way that letter is written suggests to me strongly, and I find, that Dr Arkhangelsky
had not previously informed the Bank, and was not aware at the time that the Bank
already knew of the arrests. Having depicted the arrests as having been without warning
and in breach of the International Law of the Sea Conventions, Dr Arkhangelsky ended
on a determinedly optimistic note in the last paragraph:
“Taking into account the situation that has unfolded, the
Company is taking all necessary measures of a financial and
legal nature to overcome the difficulties that have arisen.
Implementation of these measures will allow it to normalise the
operation of its vessels by the end of June 2009, in particular, the
satisfaction of accounts payable and collection on accounts
receivable within the shortest period of time, as well as working
with its customer base while taking into account the current
economic environment on the sea shipping market (search for
new customers, improvement of conditions stipulated by
existing contracts, and costs optimisation).”
This optimism was, at best, blind: it was entirely detached from reality, as I think Dr
Arkhangelsky must have appreciated.
446. Ms Mironova described her view of these events in her witness statement as follows:
“On 4 April 2009 Mr Arkhangelsky sent me and Ms Borisova an
email that attached a letter to Mr Savelyev dated 3 April 2009.
He informed Mr Savelyev of the arrests of the three vessels and
stated that everything would be resolved by June 2009. By this
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Bank St Petersburg v Arkhangelsky
point I no longer had any trust in Mr Arkhangelsky, and I did not
believe his statements about the prospects of OMG’s financial
recovery. He now admitted that Tosno had been arrested on 11
December 2008, which he should have notified to the Bank at
the time. He also admitted that Gatchina and Kolpino had since
been arrested. By this time I believed that there was no prospect
of Mr Arkhangelsky or OMG repaying their debts.”
447. 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.
The Bank’s review of its security and the introduction of Mrs Malysheva as manager
448. According to the Bank, it was its conclusion that default across the OMG was all but
inevitable despite Dr Arkhangelsky’s efforts to disguise the scale of the group’s
difficulties, that prompted a review of its security arrangements. This included, and
indeed focused especially on, urgent consideration as to how the Bank’s position might
be strengthened if and when, after default, Dr Arkhangelsky sought to avoid
enforcement, as the Bank anticipated he would.
449. The formulation and coordination of the Bank’s response was entrusted, probably by
Mr Savelyev (given his overall control, her position and their frequent collaboration),
to Mrs Malysheva. In effect, she took over from Mr Guz and his subordinate, Mr
Belykh, as the manager with responsibility and oversight of day-to-day relations with
OMG.
450. It was in this context that Mrs Malysheva turned for advice and assistance to SKIF and
Mr Sklyarevsky, and other associates from the past. Mrs Malysheva’s introduction, and
the central role she and her associates played, undoubtedly brought about what is said
by the Counterclaimants to be a manifestation of, and an important milestone in, the
conspiracy they allege: see further as to this paragraphs [961] to [969] below.
Long-standing associations and the AVK connection
451. There were strong antecedent connections between all the main actors brought in to act
for the Bank in relation to OMG’s default.
452. Mr Sklyarevsky was an ex-colleague of Mrs Malysheva from days when she worked at
the AVK group of companies (“AVK”), once one of the Russian Federation’s largest
financial consultants and brokerage firms and the “number one fixed income instrument
operation in Russia” (according to Mr Sklyarevsky). Mr Smirnov had worked for the
AVK group of companies too. Mr Smirnov and Mr Sklyarevsky worked at AVK
Securities LLC and Mrs Malysheva at the parent company CJSC AVK. They had
known each other very well for years.
453. Mrs Yatvetsky also had worked at AVK. So too did a Mr Lestovkin, who it will be seen
later became Director-General of an entity called ‘Nevskaya Management Company
Limited’ (“Nevskaya Management Company”), which is based in Olymp. Even the
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Bank St Petersburg v Arkhangelsky
Bank’s present press secretary was previously press secretary to AVK (Mrs Anna
Barkhatova).
454. AVK’s founder was a Mr Kostikov, who in 2000 had become chairman of the Federal
Commission on Financial Markets, a state official equivalent to a cabinet minister.
455. Mr Stroilov, who focused considerable attention on the AVK connection, describing
the AVK “veterans” as “a bit of a mafia”, suggested that AVK was “simply a vehicle
for Mr Kostikov’s corruption”. He referred (and put to Mr Sklyarevsky and Mrs
Yatvetsky in particular) a newspaper article (in a publication named ‘Finans’) after Mr
Kostikov had left office and AVK had collapsed which suggested that AVK’s income
had been derived, in effect, from extortion and that it collapsed when the means of
extortion ceased in about 2006 on Mr Kostikov’s removal from office.
456. In greater detail, it was said that Mr Kostikov and AVK operated a corrupt licencing
scheme, using his quasi-governmental or regulatory powers, which in effect required
market operators to pay high fees for licences as a condition of being permitted to
operate, and that Mr Kostikov used these fees to fund AVK and other personal interests.
Mr Stroilov suggested that “everyone on the market understood that you have to pay
AVK in order to get speedy permissions from the government for various things”. He
went on to justify the line of argument and questioning on the basis that:
“…what I suggest is that if you have a remarkable number of
businessmen claiming to be independent from each other, all
involved in this case…and there is a remarkable proportion of
AVK veterans among them, then if I can show that they have got
a common record of involvement in corruption, that increases
the inherent probability of their involvement in a conspiracy of
this kind now…”
457. Both Mr Sklyarevsky and Mrs Yatvetsky firmly denied any such involvement, and
rejected the depiction of AVK as a vehicle for fraud and of those who had worked for
it as a “mafia”.
458. Although it relates more properly to the Counterclaim which I consider separately
below, I should make clear immediately that neither the newspaper article nor any other
material advanced as ‘evidence’ came close to justifying the description, still less a
finding on the basis of something akin to guilt by association of some predisposition or
tendency to corruption amongst the individuals concerned. However, I do accept (as
indeed I understood both Mr Sklyarevsky and Mrs Yatvetsky to acknowledge) that the
association between Mrs Malysheva, Mr Smirnov, Mr Sklyarevsky and Mrs Yatvetsky
was and (it seems) remains exceptionally close, though Mr Sklyarevsky sought to
emphasise that “business is business” and on business matters they did sometimes
disagree.
459. These interests and association may not signify anything untoward either in the
association or in the strategy; but they do seem to me to invite enquiry, not least because
as matters developed conflict of interest opened up between the Bank as banker on the
one hand and, on the other hand, Renord-Invest Group and those beneficially interested
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Bank St Petersburg v Arkhangelsky
in the companies within that group. Put another way, events as they developed
demonstrate a community of interest between the old friends from their days at AVK
separate from, and in the end inconsistent with, the interests of the Bank in its role as
lender obliged to seek to recover as much as possible from pledged assets in order to
apply as much as possible in diminution of loans it had made.
SKIF, Mr Sklyarevsky, Mr Smirnov and Renord-Invest: their connections with the Bank
460. What Mr Stroilov called “the AVK mafia” had other connections and business
associations in relation to both SKIF and Renord-Invest, and thus the Original
Purchasers and the Subsequent Purchasers.
461. In 2006-2008, Mr Sklyarevsky owned 50% of the shares in SKIF, with his coshareholder
being a Mr Alexander Ved (“Mr Ved”), yet another ex-colleague from
AVK, holding the other 50%; but Mr Ved sold his shares to a Mr Evgeny Kalinin (“Mr
Kalinin”), now finance director of Renord-Invest, in about September 2008.
462. Mr Kalinin was at that time a director of Renord-Invest, which it will be remembered
was, supposedly at least, owned and controlled by Mr Smirnov. Mr Smirnov had been
CEO of AVK between about 2000 and 2006. Mr Smirnov was until 2008 a manager at
the Bank: Mrs Yatvetsky thought he was a corporate finance director.
463. As previously mentioned, it also appears that Mrs Malysheva’s husband (Mr Vladimir
Malyshev) was a co-founder (with Mr Smirnov) of and a 75% shareholder of record in
Renord-Invest until March 2008. Mr Smirnov was a holder of record of the remaining
25%.
464. Mr Sklyarevsky acknowledged that SKIF and Renord-Invest “sometimes did business
together” but rejected any suggestion of any closer relationship, still less joint control
or ownership.
465. Similarly, both Mr Sklyarevsky and Mr Smirnov, and also Mr Savelyev and Mrs
Malysheva, rejected any suggestion that SKIF, Renord-Invest and the Bank and its
associated companies (see below) were in effect run together as constituent elements of
a single business, ultimately beneficially owned by Mr Savelyev and his “loyal friends”.
466. I did not find their denials persuasive. I return to the issue later.
Associations in other entities of relevance in the later events
467. These associations also spread into a number of entities involved later in the story. Thus,
for example, whilst he was at the Bank, Mr Smirnov joined with Mrs Malysheva in
setting up an investment business (according to Mrs Yatvetsky, in competition with the
Bank) undertaken through Nevskaya Management Company, a company in which
SKIF also was involved.
468. It seems likely that with Mrs Ivannikova, Mrs Malysheva and Mr Smirnov jointly
owned (and may still own) a company called Linair, a principal shareholder in
Nevskaya Management Company.
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469. Mr Stroilov suggested that, in reality, Mr Vladimir Malyshev held as nominee for his
wife: she described him in a press article as an “IT technician” and his only known
connections with investment business are his marriage to Mrs Malysheva and his
shareholding in Renord-Invest. Mr Stroilov also suggested that, given Mrs Malysheva’s
position as a top manager of the Bank at the time, and the practice of using Bank’s
managers as nominal shareholders of various companies, it is all the more likely that
Mr Savelyev or the Bank were the beneficial owners.
470. Mrs Malysheva’s husband ‘sold’ his shareholding at a nominal consideration in March
2008 to Trak LLC (“Trak”) and Barrister LLC (“Barrister”) which were, according to
Mr Smirnov, both entities owned by him.
471. Further, Mrs Malysheva’s son (Mr Igor Malyshev) was a substantial shareholder in
Baltic Fuel Company, which ultimately became the owner of Western Terminal through
Kontur LLC (“Kontur”), and Nefte Oil LLC (“Nefte Oil”).
472. As indicated, the relevance of these entities and the associations behind them is
principally to the later story: but it is also of relevance to date their emergence in the
chronology.
Events of March to April 2009: overall view
473. Acknowledging that the chronology is “somewhat clouded and disputed”, the
Defendants’ Closing Submissions identified the following events in the Spring and
Summer of 2009 as demonstrating the pattern of conduct adopted by the Bank, which
(it is their case) was enabled by calling a cross-default across the Group in breach of
the alleged moratorium (as they perceived it) and was directed towards the
appropriation of the assets and business of Scan and Western Terminal:
(1) After Mr Zelyenov became uncomfortable with, and unwilling to continue to
participate in, the arrangements relating to the repo agreements, and withdrew, the
Bank instructed the Original Purchasers of Scan to ‘sell’ the shareholding to six
other companies (the Subsequent Purchasers, see below), for the same nominal
price as in the original repo contract;
(2) SKIF and its director, Mr Sklyarevsky, became involved in “the project” as one of
the Subsequent Purchasers but also in other roles;
(3) Mr Sklyarevsky claims that he unsuccessfully sought to negotiate with OMG, whilst
Dr Arkhangelsky claims that he repeatedly and unsuccessfully sought to meet with
Mr Savelyev;
(4) Western Terminal took out a loan from Morskoy Bank (“the Morskoy Bank loan”)
on 30 March 2009 at the instance of Dr Arkhangelsky (but without the sanction of
Sevzapalians, purportedly then the 99% shareholder in Western Terminal, which
the Bank allege was required);
(5) The Bank instructed the Original Purchasers to replace the management of Scan and
Western Terminal, and then Dr Arkhangelsky and Mr Vinarsky were removed as
directors-general of (respectively) Scan and Western Terminal.
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474. Accepting that the chronological sequence may be imperfect, I address each such
‘event’ with small changes in the sequence to reflect my own view of the more likely
chronology.
Transfers of shares in Scan from the Original Purchasers to the Subsequent Purchasers
475. At some time in the period from 20 March 2009 to 6 April 2009, the Original Purchasers
transferred their respective Scan shares which were the subject of the repo arrangements
to the Subsequent Purchasers for (in each case) a nominal consideration. Sevzapalians
retained the Western Terminal shares.
476. The Subsequent Purchasers who acquired shares in Scan pursuant to such transfers from
the Original Purchasers (see paragraph [367(2)] above) were:
(1) CJSC Aneks-Finance, which acquired shares from Akva- Ladoga, and then held
18% of the shares.
(2) Dom Na Maloy Moyke LLC, which acquired shares from Graham-Bell, and then
held 18% of the shares.
(3) Khortitsa LLC (“Khortitsa”), which acquired shares from Medinvest, and then held
18% of the shares.
(4) CJSC Nazia, which acquired its shares from Gelios, and then held 10% of the
shares.
(5) Sevzapalians, which acquired shares from Severo-Zapadnaya Agrarnaya
Kompaniya LLC, and then held 18% of the shares.
(6) SKIF, which acquired the shares from Agentstvo Po Upravleniyu Aktivami LLC,
and then held 18% of the shares.
477. I address later a dispute as to the true ownership and/or control of SKIF, the Subsequent
Purchasers and the Renord-Invest Group.
478. It is common ground that there were never any formal contractual arrangements
between any of the Subsequent Purchasers (including SKIF) and the Bank as to the
terms on which they held such shares, just as there were none between the Bank and
the Original Purchasers.
479. The timing of the decision to transfer Scan shares from the Original Purchasers to the
Subsequent Purchasers is uncertain. This bears on the Bank’s case that one of the
justifications for the transfers to the Subsequent Purchasers related to its concerns about
the Morskoy Bank loan mentioned in paragraph [473(4)] above, which on the Bank’s
case was improper: see paragraphs [502] to [516] below.
480. The transfer agreements appear to have been made (and the documents are dated) on
various dates between 20 March and 6 April 2009. However, Mrs Yatvetsky’s evidence
under cross-examination was to the effect that the transfers were not registered until
some time later, probably in May 2009. Thus, according to her, the Original Purchasers
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Bank St Petersburg v Arkhangelsky
were still the registered shareholders of Scan until then and thus at the meeting of
shareholders of Scan for the removal of Dr Arkhangelsky as Director-General of Scan,
purportedly at least on 7 April 2009.

Mr Sklyarevsky’s participation and interests in the repo arrangements and transfers to
Subsequent Purchasers
481. It is clear from Mr Sklyarevsky’s evidence that, at least from mid to late March 2009,
he and SKIF were directly and routinely involved in what he described as the “business
restructuring” of OMG.
482. He presented his involvement in the sequence of steps in April to August 2009, which
together with Mrs Malysheva he was principally responsible for orchestrating, as
essentially defensive, with the aim of protecting the Bank’s existing security. His line
was that all that was done was made necessary by his and the Bank’s perception that
Dr Arkhangelsky had evinced, and occasionally expressed, his intention to resort to any
available means of delaying, and if possible defeating, the Bank’s recovery efforts.
483. According to Mr Sklyarevsky’s witness statement, it was principally his work which
unearthed (during a visit to Morskoy Bank) the “revelation that [Dr Arkhangelsky] had
managed to obtain a loan on behalf of Western Terminal when he did not even own
Western Terminal [which] caused me serious concerns about the way in which Mr
Arkhangelsky was acting” (as to which see below); it was his report on this matter
which prompted the decision at a meeting with Mrs Malysheva and Mr Smirnov that
“Mr Arkhangelsky could no longer be trusted” and that to protect the assets of Scan and
Western Terminal, the management of both should be changed to “protect the bank’s
security and…force Mr Arkhangelsky to the negotiating table.”
484. In all this, Mr Sklyarevsky denied any personal interest or benefit. His evidence was
that he agreed to his and SKIF’s participation “to assist the Bank” without any formal
agreement, either as regards the share transfers to SKIF (see below) or his own
remuneration, relying only on what he described as their “good relationship.”
485. Mr Sklyarevsky denied any material participation in the subsequent appropriation and
realisation of OMG’s assets and businesses, both pledged and unpledged, claiming that
it was Renord-Invest that “led this process” and that he was “quite put out at the time
because I considered I had more experience in this field.” He acknowledged, however,
that he was until April 2011 the sole owner of Mercury LLC (“Mercury”), which was
much engaged in the asset disposal process, though he sought to make clear that its
involvement was at the behest and on behalf of Renord-Invest (with, according to Mr
Sklyarevsky, his consent as its owner) and that he had then sold it to Renord-Invest;
and he rejected therefore any allegation of conspiracy or involvement in a fraudulent
dissipation of OMG assets as “totally untrue.”
486. Dr Arkhangelsky, on the other hand, viewed Mr Sklyarevsky’s and SKIF’s introduction
as further evidence of the commencement in earnest of a classic “raid”. He based this
in part also on his perception of Mr Sklyarevsky as “a well-known Russian raider” who
was “notorious for [his] role in unlawful takeovers of businesses and assets”.
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487. Turning more specifically to the details of Mr Sklyarevsky’s involvement, Dr
Arkhangelsky tended to associate (and blame) Mr Sklyarevsky for the repo
arrangements as a whole; but Mr Sklyarevsky disclaimed knowledge of, or interest in,
the original repo transactions with the Original Purchasers, though he said that he did
recall that he “was aware (from Mrs Malysheva) that companies belonging to Mr
Smirnov or Mr Zelyenov held the shares for the Bank.”
488. However, Mr Sklyarevsky asserted familiarity with the concept of repo transactions as
being a structure “used by Russian banks at the time was one way by which banks could
make sure their security was effective.” He explained:
“If there was a “repo” arrangement and a temporary transfer of
ownership, then this prevented a borrower from transferring the
ownership of their assets or otherwise obstructing a lender, until
the borrower’s obligations were fulfilled. A “repo” prevented
hostile shareholders from blocking the realisation of security in
the event of default, which is quite easy to do in Russia.
I also understood why the Bank used third parties to hold the
shares on its behalf in the “repo” arrangements. Due to Russian
banking controls that were in place at the time, if the Bank had
purchased the shares in the relevant OMG companies and put
them on its own books, then their value would have been
deducted from the Bank’s overall capital.”
489. Mr Sklyarevsky acknowledged his considerably greater involvement in the transfers of
Scan shares from the Original Purchasers to the Subsequent Purchasers in March/April
2009 (not least, since SKIF was directly involved as a Subsequent Purchaser). He stated
in his witness statement that he understood “the key motivation” behind the transfers
of Scan shares to the Subsequent Purchasers to have been to enable “the Bank’s security
to be further protected by making it more difficult for Mr Arkhangelsky to unwind the
transfers.”
490. As to the relationship between and involvement of SKIF and Renord-Invest, Mr
Sklyarevsky told me that “Mr Smirnov and I agreed that SKIF would do the legal work,
whilst Renord-Invest would provide the new management.” It is clear from his witness
statement that thereafter SKIF, Mr Sklyarevsky assumed responsibility for the control
of those companies, though it took some time. His evidence was:
“In June 2009, almost two months after the directors of Western
Terminal and Scandinavia Insurance had been changed and
almost a month after the directors had been registered we finally
got operating control over Western Terminal and partially over
Scandinavia Insurance.” [My emphasis]
491. It is also clear that Mr Sklyarevsky was later directly involved in the Gunard Lease (see
paragraphs [579] to [581]; and [1050] to [1066] below), which he described as a means
of retaining control of the land even if they should lose control of the company (see
paragraph [1057] below):
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Bank St Petersburg v Arkhangelsky
“some form of an additional insurance mechanism in case we
were to lose in court…”
Mr Sklyarevsky’s claims that Dr Arkhangelsky was not open to negotiation
492. Mr Sklyarevsky sought to present himself also as wishing to be an intermediary or
‘honest broker’ between Dr Arkhangelsky and the Bank. He made some play in his
evidence of his wish, once he became involved, to see how he could assist in resolving
what appeared to him to be the communication breakdown between Dr Arkhangelsky
and the Bank. He presented the need for this in cross-examination:
“Problematic debt is very conflict-ridden, and it is very difficult
to talk to one party only. It will lead to further conflict. My
concern was that Mr Arkhangelsky was not engaging in such
negotiations…”
493. As to what he wished to discuss he explained:
“I believed that the parties should meet and keep on performing
their obligations or reach another agreement. I would have
initially focused on the options available, including who might
be interested in purchasing OMG’s assets or what investment
could be made to increase their value; I wanted to meet with Mr
Arkhangelsky to get his input. Despite numerous attempts I
never managed to meet with Mr Arkhangelsky which in all my
experience of working with banks in relation to distressed banks
[sic] was unique.”
494. Dr Arkhangelsky rejected this benign presentation of Mr Sklyarevsky’s intentions and
activities. As to Mr Sklyarevsky’s purported efforts to build bridges, Dr Arkhangelsky
stated in his 19th witness statement:
“I do not recall any attempts by Mr Sklyarevsky to contact me.
If there were such attempts which I subsequently forgot about,
in any event I had no means of knowing that he sought to contact
me on behalf of the Bank. As is usual for a business in trouble,
OMG at that time was constantly contacted by all sorts of
dubious characters offering to solve all our problems (including,
but not limited to, police persecution and the Bank’s hostile
actions) for a very modest fee. Naturally, I would pay no
attention to such offers.”
495. Dr Arkhangelsky stressed that the Bank never informed him at any time that Mr
Sklyarevsky was acting with its authority either in the steps to take over Western
Terminal and Scan or in his alleged attempts to negotiate. On the contrary, the contact
point given to Dr Arkhangelsky only two months before was Mr Savelyev.
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Bank St Petersburg v Arkhangelsky
No meetings with Mr Savelyev
496. The parties are similarly at odds as to why Dr Arkhangelsky and Mr Savelyev did not
meet either. Each blames the other.
497. Dr Arkhangelsky pointed out that he continued to visit Investrbank’s office every few
days, as Ms Blinova confirmed: so the Bank had no difficulty in contacting him; and
his evidence was that he repeatedly sought to contact Mr Savelyev to clarify what he
perceived to be a misunderstanding or a fraud by a third party, but that Mr Savelyev
evaded such contact, and did not reply to correspondence.
498. Under cross-examination, Mr Savelyev accepted that the correspondence did seem to
confirm that Dr Arkhangelsky had indeed sought to meet him personally, without
success. However, he said, he had tasked his deputies to meet him and, had Dr
Arkhangelsky genuinely wanted to meet the Bank in order to find a solution to OMG’s
default, then he would have done so, but he did not. Mr Savelyev went on to suggest
that Dr Arkhangelsky could have met any of his deputies, but chose not to do so.
499. Mr Sklyarevsky’s oral evidence under cross-examination was as follows:
“…the logic underlying what the Bank was doing was quite
simple. The banks never chase up borrowers who are in a
position of default. It’s always a defaulting borrower who comes
to the Bank and proposes solutions to the problem. It was not a
problem that was created by the Bank, it was a problem that the
borrower created for the Bank, therefore, I fully understood
Malysheva’s position. She said that: it’s not me who owes money
to Arkhangelsky, Arkhangelsky owes money to the Bank, so she
expected him to take certain steps to settle the problem.
Now, whom he met and whom he visited and how many times,
I simply do not know, I am afraid. All I know is that the decision
maker with the Bank on this particular matter was Mrs
Malysheva, she was in contact with Mr Arkhangelsky, and there
was a breakdown in communication for whatever reason.
Moreover, what Mr Arkhangelsky has been doing is quite
different from what other defaulting borrowers have been doing,
because those people spend hours, they spend nights in the Bank,
knocking on the Bank’s door, trying to meet people, trying to find
a solution to their issues. So, to be honest, the way Mr
Arkhangelsky behaved was completely illogical.”
500. Given the size of the debt and the shortfall, Mr Savelyev’s apparent refusal to meet
personally, and Mr Sklyarevsky’s insistence that it was for Dr Arkhangelsky to be a
supplicant to the Bank, did strike me as surprising; and in the case of Mr Sklyarevsky’s
evidence it chimed oddly with his protestations of the need to get together to talk.
501. The Bank eventually fell back onto claiming that the issue is not of much material
relevance, save that it shows Dr Arkhangelsky’s desire to do whatever he could to
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Bank St Petersburg v Arkhangelsky
impede the Bank, and not come forward with any sensible proposals. The
Counterclaimants suggested that Mr Savelyev’s refusal to meet is a litmus test: “the
party who evades contact with the other is very likely to be the guilty party”. This too
is addressed further in the context of the conspiracy claim: see paragraphs [1036] to
[1038] below.
Morskoy Bank loan
502. I have already touched on Mr Sklyarevsky’s evidence as to his discovery of the
Morskoy Bank loan of RUB 56.5 million which Dr Arkhangelsky had procured
Western Terminal to take out at the end of March 2009 (see paragraph [483] above).
503. As to the nature of the loan, according to Morskoy Bank:
“On 27 March 2009, taking into account the data on the business
status of LLC «Western Terminal» provided bу Berezin А. О.
and intention to create the рrореr security of the obligations
performance, including personal guarantee of Arkhangelsky V.
D. it was resolved to grant to LLC «Western Terminal» а loan of
RUR 56 500 000 for 12 months at the credit committee meeting
of the Applicant.
On 30 March 2009 а loan agreement No. 03-СП/09-КЮ was
signed (the «Loan Agreement») between the Applicant as а
Lender and LLC «Western Terminal» as а Borrower for the
working capital financing, including conducting current
production activity and berth repair works.

According to the Loan Agreement, the Lender provided to the
Borrower а loan in the amount of RUR 56 500 000 (fifty six
million and five hundred thousand) for the working capital
financing. The Borrower obliged to герау the loan amount until
29 March 2010 and рау the interest thereon.”
504. The Morskoy Bank loan agreement was signed on behalf of Western Terminal by its
then Director-General, Mr Vinarsky, on the basis of an OMGP shareholder resolution
which was signed by Dr Arkhangelsky.
505. As Dr Arkhangelsky acknowledged and accepted, such a loan required shareholder
approval; but it was not approved by Sevzapalians, which had become a 99%
shareholder of Western Terminal pursuant to the repo arrangements already described
in early February 2009.
506. In his second witness statement for the trial, Dr Arkhangelsky stressed that Morskoy
Bank had been lending to OMG for several years, “always in the form of letters of
exchange”. He sought to portray the Morskoy Bank loan not as an exceptional or
objectionable event, but as an urgent and necessary expedient to replace existing loans
necessary for the conduct of its business in its ordinary course, to prevent further harm
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Bank St Petersburg v Arkhangelsky
to OMG and to honour OMG’s commitment under the Memorandum, not to worsen
Western Terminal’s financial position.
507. Dr Arkhangelsky elaborated on this as follows:
“…In view of OMG’s financial difficulties, I was able to
negotiate a restructuring of that indebtedness, which would be
replaced by one regular loan given to Western Terminal for a
longer term. To do so was, amongst other things, OMG’s
obligation under its Memorandum with the Bank, where we
undertook not to stop the commercial activities of Western
Terminal and not to worsen its commercial position. A default
on OMG’s obligations to Morskoy Bank would obviously be a
breach of that.
It was, of course, also a term of the Memorandum that the
Original Purchasers would not interfere in the day-to-day
commercial activities of Western Terminal. They were not real
shareholders but merely held the shares on trust, under the ‘repo’
arrangements as a form of additional security. Therefore, the
agreement of Sevzapalians was not necessary for the loan
agreement between Western Terminal and Morskoy Bank.”
508. Dr Arkhangelsky also sought to clarify that the Morskoy Bank loan was secured on
property belonging to his wife, a plot of land in the Gatchinsky area, which he stated
was suitable for “elite hotel building and worth between 10 and 20 million US dollars.”
509. Dr Arkhangelsky was less forthcoming about the actual use made of the moneys
borrowed. Put shortly, the loan was advanced for Western Terminal’s ‘working capital’
purposes, but it was not so applied: the loan was used for the benefit of another OMG
company, LPK Scan. Dr Arkhangelsky in effect admitted it was not for the benefit of
Western Terminal, but for the ‘group’.
510. The circumstances surrounding the Morskoy Bank loan would subsequently lead to
criminal proceedings being commenced against Dr Arkhangelsky and an Interpol notice
(which in turn became the basis of an extradition request when, as described later, Dr
Arkhangelsky fled to France). The complaints were based on the proposition that Dr
Arkhangelsky had no right or authority to borrow on Scan’s behalf since Sevzapalians,
as 99% shareholder (further to its repo purchase), had not authorised the loan. I
elaborate on this in paragraphs [592] to [596] below.
The Bank’s reliance on Morskoy Bank loan to justify removing Dr Arkhangelsky
511. For present purposes, the relevance of the Morskoy Bank loan is that it was invoked by
the Bank, not only as supporting its decision to call a default, and rely on its security,
but also as the justification (on the Bank’s case), or the contrived and ex post facto
excuse (on the Defendants’ case), for the steps taken in early April 2009 to remove Dr
Arkhangelsky as Director-General of Scan and Mr Vinarsky as Director-General of
Western Terminal and to effect transfers of the shares in Scan from the Original
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Bank St Petersburg v Arkhangelsky
Purchasers to other companies in the Record-Invest Group in order in both cases (Mr
Sklyarevsky told me) “to protect the repo transaction”.
512. In that regard, the essential dispute, which bears both on the credibility of the Bank’s
witnesses (and especially Mr Sklyarevsky), the reasons for the transfers to the
Subsequent Purchasers, and the real objectives of changing the management of Scan
and Western Terminal, is as to whether Mr Sklyarevsky’s discovery and revelation to
the Bank of the Morskoy Bank loan took place before the transfers and the resolutions
to remove Dr Arkhangelsky and Mr Vinarsky, so as to explain those steps, or whether
the Bank has simply been exploiting the issue as to the Morskoy Bank loan as an
opportunistic excuse.
513. Whereas Mr Sklyarevsky’s evidence was that both decisions were taken in early April
in response to the Morskoy Bank loan, the Counterclaimants’ case is that such decisions
pre-dated the Morskoy Bank loan of 30 March 2009 and had nothing to do with it:
(1) Dr Arkhangelsky’s evidence is that it was on 10 March 2009 that he was informed
by Mr Vinarsky that he had received notification from Sevzapalians of its proposal
to convene a shareholders’ conference to replace the management of Western
Terminal; and that since Sevzapalians was the registered owner of 99% of the shares
in Western Terminal, Mr Vinarsky felt he had no choice but to convene a meeting;
and he did so by notices to Sevzapalians and OMGP (the other shareholder) on 12
March 2009.
(2) Mr Sklyarevsky’s evidence-in-chief was that the notices for the meeting were sent
on 17 March 2009; but it became clear that he had no reliable recollection of the
date, and 17 March was simply a date 20 days before the meeting, as required by
the relevant Russian companies law.
(3) The actual transfers of shares to Subsequent Purchasers took place at various dates
between 20 March and 6 April.
(4) It is common ground that the shareholders conferences took place on 7 April.
514. The date on which Sevzapalians first determined to set in motion the process for the
removal of the then Directors-General in Western Terminal and Scan is of some
importance. The point was disputed; but the evidence is really all one way, and the date
revealed is 10 March 2009.
515. I say that because: (a) it was not suggested to Dr Arkhangelsky that he was wrong about
this, (b) no witness for the Bank could substantiate any other date and the Bank resorted
instead to denying its importance, and (c) it is to be noted that the only dispute really is
as to the date on which the notices convening the meetings were sent out, not the date
on which Sevzapalians’ proposals were first made clear.
516. In these circumstances, it seems to me to be clear, and I find, that Sevzapalians put in
motion the removal of Dr Arkhangelsky before the issue in respect of the Morskoy
Bank loan became apparent; and that issue cannot, therefore, have prompted or justified
those removals.
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Bank St Petersburg v Arkhangelsky
The decision to replace the management of Scan and Western Terminal and its aim
517. The removal of Dr Arkhangelsky and Mr Vinarsky was an obviously hostile act which
signified a settled intent on the part of the Bank to deploy the control over OMG that it
had obtained via the repo arrangements.
518. It is perhaps not surprising that Dr Arkhangelsky should have perceived and portrayed
his and Mr Vinarsky’s removal after the transfers to the Subsequent Purchasers and the
introduction of Mr Sklyarevsky as being the first manifest step in a ‘raid’:
“Starting in March 2009, the Bank suddenly began to pursue an
extremely aggressive and intensive campaign against the Group,
involving demands for payment, court proceedings, the seizure
of Western Terminal and Scan, police raids, and the disposal of
the Group’s assets.”
519. On Dr Arkhangelsky’s analysis, the sales to the Subsequent Purchasers were part of the
same ‘raider’ strategy. Far from being confined to steps which a bank could be expected
to take, acting in its own interests, but legitimately as a responsible creditor, Dr
Arkhangelsky painted a picture of the Bank as an aggressive and unscrupulous ‘raider’,
stopping at nothing to secure its objectives. I accept that it was his perception that the
steps taken to remove both him and Mr Vinarsky were all part, and lurid examples, of
the same ‘raiding’ tactics.
520. Mr Sklyarevsky explained in his witness statement that it was Mrs Malysheva who at
the end of March 2009 “instructed us to change the management of Scandinavia
Insurance and Western Terminal” on the basis that, in “her opinion, this would protect
the Bank’s security and would force Dr Arkhangelsky to the negotiating table”. Mr
Sklyarevsky perceived her to be and describes her as “the decision maker on this
particular matter”. In his cross-examination Mr Savelyev’s evidence was to like effect:
“She was in charge of this borrower; she had oversight of that
borrower, and she was dealing with this on her own.”
521. It seems to me clear, and I find, that the decision to remove and replace Dr
Arkhangelsky and Mr Vinarsky was made by Mrs Malysheva, as part of the overall
strategy she, with those she had brought in and especially Mr Sklyarevsky and Mr
Smirnov, had been developing to take control of all the OMG assets. As will already be
apparent, I do not consider that it was the Morskoy Bank loan issue which promoted
the decision: that issue was in reality more in the nature of an opportunistic basis of
justification than a catalyst.
Mechanics of the removal of Dr Arkhangelsky and Mr Vinarsky as Directors-General
522. As to the mechanics, under Russian law, Dr Arkhangelsky and Mr Vinarsky could only
be removed as (respectively) Director-Generals of Scan and Western Terminal at
shareholders’ meetings duly convened and held. The constitutional rules of each
company required 20 days’ notice for such a meeting, though Mrs Yatvetsky told me
that under the Russian law, all the shareholders acting together may waive notice. (That
would generally accord with English company law too.)
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Bank St Petersburg v Arkhangelsky
523. According to the evidence of Mr Sklyarevsky, such meetings were held on or around 7
April 2009; and this is not in dispute. Mr Sklyarevsky stated in his witness statement
that he personally notified OMG’s counsel, Mr Vasiliev, of the fact and business of the
meeting, though he was not sure exactly when he had done so.
524. The Bank’s evidence and submissions were notably (and intriguingly) reticent, if not
completely silent, as to the identity of the appointees as Directors-General in place of
Dr Arkhangelsky and Mr Vinarsky.
525. The only witness on the Bank’s side (Mr Sklyarevsky) who addressed the changes made
did not identify the replacements, though he did clarify that the new management was
provided by Renord-Invest (which is itself of some interest, given that Renord-Invest
(and Sevzapalians) had been presented as having purely nominal roles).
526. In fact, the replacement for Mr Vinarsky as Director-General for Western Terminal was
Mr Andrey Sergeevich Maslennikov (“Mr Maslennikov”), then (as now) a RenordInvest
employee. It appears that Mr Igor Borrisovich Chernobrovkin (“Mr
Chernobrovkin”) was appointed as his deputy.
527. Mr Chernobrovkin was at the time also Director-General of Kontur, part of the Baltic
Fuel Group supposedly (according to the Claimants) owned by Mr Smirnov, but said
by the Counterclaimants to be in reality part of the Renord-Invest Group and/or
ultimately controlled by Mr Savelyev. As will be seen in due course, Kontur, some three
years later, successfully bid for the assets of Western Terminal: and (as also elaborated
and tested later) the Defendants and OMGP alleged that it was from as early as March
2009 that Mr Smirnov was “already interested in using Western Terminal assets for his
own projects”.
528. In his witness statement, Dr Arkhangelsky identified (without elaboration) his
purported replacement at Scan as being a Mr V.V. Kuvshinov (“Mr Kuvshinov”). Mr
Kuvshinov was not mentioned by any of the Bank’s witnesses, nor in any of the Bank’s
submissions (written and oral). I must assume (from Mr Sklyarevsky’s evidence that
management was to be provided by Renord-Invest) that he also was an employee of
Renord-Invest.
April to July 2009: the Bank calls in its loans and takes control of Scan and Western
Terminal; Mrs Arkhangelskaya challenges the repos; the Bank seeks to insulate its position
from adverse judgments and encourages criminal proceedings; and Dr Arkhangelsky leaves
Russia
529. The period between April and August 2009 was characterised by the following main
strands of activity:
(1) From the end of March and early April 2009 onwards, the Bank proceeded
systematically to call in its loans as they fell due, and to serve demands with a view
to enforcing its security (see paragraphs [531] to [548D]);
(2) In April 2009, Mrs Arkhangelskaya brought proceedings in Russia to challenge the
repo share transfers (see paragraphs [549] to [556]);
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Bank St Petersburg v Arkhangelsky
(3) In May 2009, Dr and Mrs Arkhangelsky entered into a marriage contract in respect
of certain assets (see paragraphs [557] to [559]);
(4) Starting in May 2009, the Bank began the first tranche of many proceedings in
Russia to enforce its pledges (see paragraphs [560] to [561]);
(5) In June 2009, after the sudden closure of criminal proceedings brought by Dr
Arkhangelsky and Mr Vinarsky complaining that their removal was illegal, the
Bank and SKIF/Sevzapalians, with the assistance of riot police, effected the seizure
of Western Terminal (see paragraphs [569] to [574]);
(6) Thereafter, and into August 2009, the Bank and SKIF/Mr Sklyarevsky sought to
insulate the Bank’s security from any adverse findings in the proceedings brought
by Mrs Arkhangelskaya (see paragraphs [562] to [568]; and [575] to [578]),
including by subjecting Western Terminal to an onerous lease, “the Gunard Lease”
(see paragraphs [579] to [581]);
(7) Dr Arkhangelsky left Russia, following his family to Bulgaria and then France,
where he was given asylum (and remains to this day) (see paragraphs [582] to
[589]); and
(8) In June and July 2009, the Bank and law enforcement authorities set in motion
criminal proceedings against Dr Arkhangelsky and his companies, and effected a
raid on OMG’s headquarters (see paragraphs [590] to [591]).
530. As indicated by the paragraph references above, I elaborate briefly on these events in
turn in the next paragraphs, but will need to return to expand on certain aspects of them
in the context of the Counterclaim.
The Bank calls in its loans
531. After the refusal of an extension to the First PetroLes Loan and OMG’s resulting
default, the Bank proceeded with the cascade of demand and, in the absence of
response, default notices.
532. There is a dispute as to whether the demands, and especially those relating to the
disputed Personal Guarantees, were validly served or notified; Dr Arkhangelsky alleges
that they were not. I address this dispute in paragraphs [547] to [548D] below. The
references in the next following paragraphs reflect the Bank’s case and must be read
with the caveat that Dr Arkhangelsky has disputed service, as well (as previously
indicated) as the authenticity of the guarantee documentation.
First to Fourth Vyborg Loan defaults
533. Leaving aside the alleged moratorium, the First Vyborg Loan came up for repayment
on 26 March 2009. Vyborg Shipping requested an extension on the First, Second and
Third Vyborg Loans until 28 June 2009. The request for an extension was refused.
Accordingly, the Bank emailed Dr Arkhangelsky requesting repayment.
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Bank St Petersburg v Arkhangelsky
534. On 27 March 2009 the Bank drew up a notice of demand which was sent to Vyborg
Shipping. It also drew up and sent a notice of demand in respect of Dr Arkhangelsky’s
(disputed) personal guarantee. Ms Blinova emailed him that demand on 1 April 2009.
535. The email also attached demand letters under the (alleged) Scan guarantee and personal
guarantee, and asked for repayment. Ms Blinova’s evidence was that she also did
everything she could to contact Dr Arkhangelsky, but to no avail.
536. Leaving aside the alleged moratorium, the Second Vyborg Loan was due for repayment
on 15 April 2009. No repayment was made. On 16 April 2009, the Bank drew up a
notice of demand which was sent to Vyborg Shipping. It also drew up and sent a notice
of demand in respect of Dr Arkhangelsky’s (alleged) personal guarantee.
537. Likewise leaving aside the alleged moratorium, the Third Vyborg Loan was due for
repayment on 28 April 2009. The agreement provided that the Bank was entitled to
make a demand for repayment if the borrower was in default of its other lending
obligations to the Bank. Accordingly, in view of its default under the First Vyborg
Loan, Vyborg Shipping was also in default under the Third Vyborg Loan.
538. On 14 April 2009, the Bank drew up a notice of demand which was sent to Vyborg
Shipping. No repayment was forthcoming. On 22 April 2009, the Bank drew up and
sent a notice of demand in respect of Dr Arkhangelsky’s (alleged) personal guarantee,
which it followed up with a further notice on 29 April 2009.
539. The Fourth Vyborg Loan was not due for repayment on 17 July 2009. However, in view
of the notice of default under the First and Second Vyborg Loans, on 20 April 2009 the
Bank drew up a notice of demand which was sent to Vyborg Shipping. No repayment
was forthcoming.
540. On 29 April 2009, the Bank drew up and (at least according to its case) sent a notice of
demand in respect of Dr Arkhangelsky’s (alleged) personal guarantee.
First Onega Loan
541. Leaving aside the alleged moratorium, the First Onega Loan was due for repayment on
27 June 2009. Under the agreement, the Bank was entitled to demand repayment if the
financial position of Onega deteriorated and the sums entering the settlement account
at the Bank fell below certain minimum levels. Onega’s revenue did fall below the
minimum level which it needed to maintain.
542. On 22 May 2009, the Bank drew up a notice of demand which was sent to Onega (and
did the same in respect of the Second Onega Loan). No repayment was forthcoming.
On 2 June 2009, the Bank drew up and sent a notice of demand in respect of Dr
Arkhangelsky’s (alleged) personal guarantee.
2008 LPK Scandinavia Loan
543. In respect of the additional agreements, the Bank had sought security from OMG, but
experienced repeated difficulties in trying to register various mortgage agreements. In
particular, LPK Scandinavia failed to register the mortgage agreement dated 26
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Bank St Petersburg v Arkhangelsky
February 2009 over the real estate it had pledged as security for the 2008 LPK
Scandinavia Loan. As a result, LPK Scandinavia was in default of its obligations.
544. On 3 June 2009, the Bank drew up notices of demand both under the 2008 LPK
Scandinavia Loan and Dr Arkhangelsky’s (alleged) personal guarantee.
Demand in respect of Personal Loan
545. The (alleged) additional agreement for the Personal Loan had extended the date for
payment of interest until 28 June 2009. Dr Arkhangelsky (who, it will be recalled,
denied that any such loan had been extended to him personally) made no payment and
was accordingly treated as being in default.
546. According to Ms Blinova, on 30 June 2009, the Bank’s case is that it drew up and sent
a notice of demand to him, which it followed up on 7 July 2009. Also according to Ms
Blinova, the Bank drew up and (according to its evidence) sent a notice of demand to
Scan, which it alleged was a guarantor of the Personal Loan on 6 August 2009.
Dispute as to service of demands
547. The Bank’s case is that once OMG had defaulted it sent notices, not only to the relevant
borrowers, but also the relevant guarantors (Scan and Dr Arkhangelsky). Ms Blinova’s
evidence in her witness statement, which was not challenged, was as follows:
“I prepared all the notices of demand on the basis of information
in the Bank’s records, including information recording Mr
Arkhangelsky’s address, understand that Mr Arkhangelsky has
alleged that the notices of demand were not sent, or were sent to
the incorrect address. This is not right. The address for Mr
Arkhangelsky that I typed on the demands under the Vyborg
Loans corresponded to the address that appeared in the guarantee
agreements. I remember that some of the demand letters in
respect of the Vyborg Loans were returned to the Bank. When
this happened, I checked the position and realised that there had
been a typographical mistake in Mr Arkhangelsky’s address, I
checked the Bank’s records, corrected the mistake, and resent the
relevant notices.
I clearly recall that all the notices of demand were sent by
registered mail. I am sure of this. One of my functions was to
deal with problem debts and so I tracked the relevant postal
notices confirming that the letters had been delivered and I put
them on the credit file. I made every effort to make sure Mr
Arkhangelsky was aware of the demand notices, and sent them
by email and fax, as well as by post.”
548. In her oral evidence, Ms Blinova explained what she did:
“…I was sending these letters, and subsequently I would either
receive a notification that the letter was delivered safely, or the
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Bank St Petersburg v Arkhangelsky
actual letter would come back if it didn’t work out to deliver the
letter, then I would send the letter again.
So using all available methods, we endeavoured to notify a
client, and all these matters, it’s something I remember very well,
because within the Russian proceedings the Bank’s lawyers
always asked me to provide a confirmation that I did my utmost
to notify the client, and also we had to attach the postal slips.”
548A. The Defendants and OMGP deny that the Bank made any repayment demands and say
that it “dishonestly fabricated letters demanding repayment in order to create spurious
grounds for a claim under the fabricated “personal guarantees”.” In particular, although
they did not press or even mention the point in their Closing Submissions, they alleged
at trial that:
(1) Dr Arkhangelsky never received the letters of demand.
(2) Any letters of demand needed to be sent by recorded delivery to enable the
Claimants to provide proof of compliance under Article 132 of the Civil Procedure
Code.
(3) The Bank has not provided “any proof of postage or proof of delivery”.
(4) The letters of demand were sent to the wrong address.
(5) The Bank made no attempt to contact Dr Arkhangelsky to demand repayment by
email, telephone, fax or so on.
548B. Dr Arkhangelsky said that the following was “absolutely correct and true”:
“The Bank did not make any proper attempt to bring the claims
on the guarantees to my notice either before or after it started
proceedings in Russia in reliance on the guarantees. I never
received any notices of demand under the guarantees. The
notices of demand which the Bank claims to have sent went (if
they were sent at all) to an address in Ulitsa Dobrolyubova
(Dobrolyubov Street), as opposed to my actual address which
was on Prospekt Dobrolyubova (Dobrolyubova Avenue). Ulitsa
Dobrolyubova is a real street and it is therefore unlikely that I
would have received anything sent to that address. Moreover, at
the time when it commenced proceedings the Bank was aware
that I had left Russia, and it knew my address and contact details,
but it did not make any use of them and merely served the
documents at my former Russian address instead. To my mind,
this suggests a lack of good faith and possibly an awareness on
the part of the Bank that its claims on the guarantees were not
justified.”
548C. I do not accept Dr Arkhangelsky’s evidence in that regard. I accept Ms Blinova’s
ultimately unchallenged evidence that she prepared the relevant notices of demand;
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Bank St Petersburg v Arkhangelsky
caused them to be sent by registered mail; and re-sent any such notices which were
returned to the Bank because of a typographical error in the address stated in its records.
I think it more probable than not, and find, that Dr Arkhangelsky did receive all these
notices, though he may not have focused on them.
548D. In any event, I accept the Claimants’ contention that even if, for whatever reason, notice
of demands were not served, or were not correctly served, on Dr Arkhangelsky, that
would not absolve him, under the applicable Russian law, of liability under the Personal
Guarantees and Personal Loan. I have considered carefully Dr Gladyshev’s opinion as
recorded in the Joint Memorandum of Experts on Russian Law that the Bank “was
under an obligation to send a proper notice” and that failure to serve a notice of demand
in accordance with “established practices…can be considered an abuse of right.”
However, I prefer the evidence of Professor Maggs that even if the Bank failed to effect
notice as specified in the relevant guarantee agreement, that would not be a “substantial
breach of contract”, such as to dissolve Dr Arkhangelsky’s obligations. There can be
no doubt that Dr Arkhangelsky became aware that he had been called upon to meet
those obligations years ago; and the notion that one (or more) incorrectly served,
addressed or completed demand(s) forever preclude(s) recovery strikes me as most
unlikely.
OMG’s response: its and Mrs Arkhangelskaya’s proceedings in Russia
549. The Defendants’ initial approach was not to dispute their indebtedness, nor even
initially to challenge the personal and Scan guarantees, or the Personal Loan; it was
rather to dispute valid service of the Bank’s proceedings, and to issue their own
proceedings in the Russian courts to seek to regain or retain control of the OMG
companies and their assets.
550. Thus, parallel to the Bank’s proceedings for judgments and enforcement of its loans,
from early April 2009, a series of proceedings were commenced in the name of Mrs
Arkhangelskaya and OMG in the Russian courts, both civil and criminal, with the
objective of reversing the repo arrangements, contesting the removal of Dr
Arkhangelsky and Mr Vinarsky, and bringing criminal charges against individuals in
Renord-Invest and SKIF.
551. The Defendants portrayed these proceedings as necessary, and forced upon them as the
only means of vindicating their rights and interests. The Bank portrayed them as part
of a ‘war’ commenced by Dr Arkhangelsky in fulfilment of his threat to stymie
recovery, and in a classic attempt to frustrate the Bank’s enforcement of its security
rights, such as to justify the Bank’s further efforts thereafter to insulate OMG’s assets
from what the Bank considered to be obvious stratagems.
552. Dr Arkhangelsky’s first affidavit in the BVI Proceedings set out in considerable detail
the various challenges launched by OMG at his behest:
(1) Mrs Arkhangelskaya, as a shareholder of OMGP, brought a claim against
Sevzapalians and OMGP in respect of the transfer of 99% of the shares in Western
Terminal to Sevzapalians;
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Bank St Petersburg v Arkhangelsky
(2) Bissonia, as a shareholder of OMGP, brought a claim against Sevzapalians and
OMGP in respect of the 99% share transfer to Sevzapalians;
(3) Mrs Arkhangelskaya, as a shareholder of GOM, brought six actions against the
Original Purchasers of the Scan shares; and
(4) GOM brought six actions against the Subsequent Purchasers of the Scan shares.
553. In her witness statement Mrs Arkhangelskaya described these proceedings compositely
as follows:
“34. On 8 April 2009 I, as shareholder of OMG Ports LLC, the
Third Part 20 Claimant, filed a complaint with the Commercial
Court of Saint Petersburg for the transfer of the shares of
Western Terminal LLC to Sevzapalians LLC to be set aside
(Claim No A56-18840/2009). I also filed a number of claims as
shareholder of Group Oslo Marine LLC against the new
shareholders of Scandinavia Insurance LLC at about the same
time.
35. At that time I did not closely follow the details of the claims,
since I was being advised by various lawyers (some of whom
were also acting for my husband and/or his companies)
principally Yaroslav Vasiliev, Nikolay Erokhin and Yuriy
Filippov. I understood that the basis on which the transfer was
disputed was that the price paid for the shares by Sevzapalians
LLC and the new shareholders of Scandinavia Insurance LLC
was nominal.”
554. Focusing on the proceedings relating to the Western Terminal shares:
(1) In her claim of 8 April 2009, Mrs Arkhangelskaya, as a shareholder in OMGP,
sought to declare as void the share purchase agreement and to restore to OMGP its
99% stake in Western Terminal. She argued that the sale price of RUB 9,900 was
“knowingly” lower than the purchase price of the shares (which was said to be the
RUB 1.065 billion in the May 2007 purchase contract with Premina) in order to
conceal a “gift”. Mrs Arkhangelskaya was represented by Mr Nikolai Erokhin (“Mr
Erokhin”), OMGP was represented by Mrs Abarina, one of Dr Arkhangelsky’s
lawyers.
(2) On 25 June 2009, the first instance St Petersburg court upheld Mrs
Arkhangelskaya’s complaint. It did so in part because of the discrepancy between
the sale price and the May 2007 acquisition price of RUB 1.069 billion. The court
was not told about the repurchase agreement at the same price of RUB 9,900.
(3) Sevzapalians appealed, but its appeal failed in October 2009 before it failed a
second time in the appellate court of the Arbitrazh court. (It did, however, succeed
in the Federal Court in December 2009.)
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Bank St Petersburg v Arkhangelsky
555. For the present at least, it is not necessary beyond that to rehearse the course or content
of these various proceedings; but the following peculiarities may be noted:
(1) As the Bank was acute to point out, the claims brought in Mrs Arkhangelskaya’s
name were to the effect (in summary) that the purchasing companies ought to have
been aware that the repo transactions, being at nominal value, were so obviously
contrary to the selling companies’ interests that they should not have proceeded
with them: yet the selling companies were controlled (at the time) by her husband;
further, OMGP was a defendant being represented by Dr Arkhangelsky’s lawyers,
whilst it was he who was controlling the claimant in the proceedings.
(2) The presentation to the court of the purchase price as nominal was (to put it gently)
incomplete, without recognition that the repurchase price (the ‘repo’ element) was
also nominal. It would appear that the Russian courts, in finding for the Defendants,
did not take that into account. Each side blamed the other as to the reasons for this.
The Bank claimed that the Defendants simply did not tell the Russian courts about
it. On behalf of the Defendants, Mr Stroilov was at pains (especially in his oral
closing) to emphasise that one of the Bank’s own witnesses, Mr Sklyarevsky, had
accepted the fact that the draft repurchase agreements had been mentioned to the
court, but that the court had refused to recognise their validity under the Russian
law. Further, of course, there had been nothing to stop the Bank’s representatives
from referring the court to them.
(3) At no point in the various proceedings did the Defendants and OMG ever allege
fraud or conspiracy; and though Dr Arkhangelsky sought to explain that on the basis
that in Russia such allegations are ordinarily made in criminal rather than civil
proceedings, the explanation does not carry conviction.
(4) The eventual reversal of the judgments once the proceedings went to the third level
of appeal (in the Federal Arbitrazh Court of the North West Region) does not seem
altogether surprising: and the fact of victory at two levels followed by the
unsurprising nature of the reversal on final appeal tends to tell against suggestions
made by the Defendants subsequently that the final decisions in favour of the Bank
“resulted from political interference” (see further below).
556. Also of some importance, and in stark contrast to Dr Arkhangelsky’s rather different
presentation of the purchase price paid for Western Terminal in offer documentation
when he was desperately seeking financial support from Western banks (see paragraph
[171] above), is that in the relevant proceedings OMG relied before the Russian courts
on a purchase contract showing the purchase price as RUB 1,069 million
(approximately US$ 40 million).
Dr and Mrs Arkhangelsky’s marriage contract in May 2009
557. At about the same time as the commencement of the ‘war’, on 5 May 2009, Dr
Arkhangelsky and Mrs Arkhangelskaya entered into a marriage contract under which
he transferred some of his assets to her. By a document entitled a “Deed of Donation”,
he made a further transfer to her in January 2010 of the shares in a Bulgarian entity
called EOOD Petrograd (“the Petrograd shares”), which owned an apartment complex
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Bank St Petersburg v Arkhangelsky
in Bulgaria. Dr Arkhangelsky had married his wife in 2002. The timing of the
agreements has perhaps understandably excited the Bank’s suspicion.
558. Mrs Arkhangelskaya said that their purpose was to “safeguard my position and that of
our children for the future”. Inevitably, perhaps, the Bank contends that this hints at
precisely the ring-fencing of some of Dr Arkhangelsky’s assets so as to avoid them
being used to satisfy his creditors and supports the Claimants’ concern that Dr
Arkhangelsky is prepared to take whatever steps are necessary to evade his creditors.
559. The validity of the arrangements is thus in issue. This is another matter to which I must
in due course return: see paragraphs [838] to [853] below.
Bank’s proceedings in Russia to obtain judgment against OMG
560. It is not suggested that the Bank knew of the Arkhangelskys’ marriage contract until
later; but on 8 May 2009, in parallel with OMG’s proceedings, and further to its notices
of demand and OMG’s failure to pay (or even respond), the Bank commenced a series
of proceedings in Russia (and in the case of the pledged vessels, in the court of the
countries where they were found) to obtain judgment against the relevant OMG
companies. Ms Mironova explained:
“The goal was to obtain writs of execution for each of the loans.”
561. The goal took time to achieve; and to maintain an albeit approximate or loose sense of
chronology, I think it is more convenient to deal separately in a later section with a
description of the proceedings brought (including for the arrest of vessels pledged as
security) and their ultimate result: see paragraphs [604] to [636] below.
Transfers procured by the Bank and its further steps to ‘protect’ pledged assets
562. At about the same time, and in a curious reflection of the Arkhangelskys’ steps to
‘protect’ their assets, the Bank itself took steps with a view to ‘protecting’ Scan assets
from the threats which it apparently considered were posed by the possibility of court
judgments against it, in the proceedings brought by the Defendants in respect of the
Scan shares acquired by the Original Purchasers and then the Subsequent Purchasers.
Those proceedings were being heard by the Russian courts in mid-June 2009.
563. Justifying this by reference to those proceedings, the Bank’s Closing Submissions
confirm that the Bank considered giving its consent to Scan to transfer its assets to
CJSC Nazia (as indicated above, one of the Subsequent Purchasers and another RenordInvest
company), subject to the Bank’s pledges over those assets.
564. These steps were, of course, premised on the legality and effectiveness of the repo
arrangements with Sevzapalians (in the case of Western Terminal) and the Original and
Subsequent Purchasers (in the case of Scan), and they depended on the effectiveness of
the Bank’s control over those parties (Sevzapalians and the other Subsequent
Purchasers).
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Bank St Petersburg v Arkhangelsky
565. Although, in the event, no such transfer was effected, the Defendants portrayed these
transactions, actual and proposed, as representing a blatant, concerted and reprehensible
attempt to end-run the decisions of the Russian courts (which at the time were invariably
going against the Bank in the proceedings brought by the Defendants) by insulating or
putting beyond the reach of OMG the pledged and other assets of the OMG. I return to
that too in the context of the conspiracy claim: see paragraphs [1045] to [1066] below.
566. The Bank contended that it was “in the context of OMG’s proceedings in the Russian
courts in the summer of 2009, in which for a time OMG appeared to be successful, that
the Bank considered again how best to protect its security interests in the OMG assets.”
Mr Sklyarevsky recalled in his oral evidence that:
“Mrs Malysheva was quite upset and frustrated; that we had lost
in those two instances.”
567. There seems to me to be no real doubt that, from the summer of 2009 onwards, Mrs
Malysheva and the Bank, with Mr Sklyarevsky and Sevzapalians, were determined to
take any steps available to them, deploying such state connections as they could call
on, to make quite sure that Dr Arkhangelsky’s exclusion from OMG and the Bank’s
means of appropriating its assets could not be undone.
568. Despite the Bank’s protests that it acted only within the law, I am in equally little doubt
that some of these steps included actions of an intimidating kind, especially when Dr
Arkhangelsky and Mr Vinarsky dared question the legal propriety and effectiveness of
their removals.
Physical seizure of Western Terminal premises with the help of riot police
569. Thus, on Saturday 20 June 2009 employees of Sevzapalians arrived at Western
Terminal’s premises at about 8.00am, accompanied by a strong contingent of St
Petersburg riot police together with representatives of two security companies
instructed by the Bank.
570. The video footage (apparently taken by a Western Terminal employee) left me in no
doubt that the police and security people took control in a manner that brooked no
opposition. There was no prospect of, and no safe sense in, opposing them. The Bank,
through Sevzapalians, was thus enabled to take full control of the premises and
operations of Western Terminal, excluding both Mr Vinarsky and Dr Arkhangelsky
from any further direct involvement.
571. In their Closing Submissions, the Claimants sought to justify the operation as being
necessary to enable access to corporate information and accounts to which RenordInvest
and SKIF were entitled but had been denied; and to dismiss the
Counterclaimants’ complaints as to the operation itself and the riot police presence as
“melodramatic”. Both justification and characterisation were glibly stated and I did not
find them convincing.
572. Given the plain and obvious uncertainties as to the validity of the process of removal
there is, at least in the perception of this Court, something unsettling both about the
ability to call for the deployment and the actual use of such methods. That is especially
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Bank St Petersburg v Arkhangelsky
so since by the material time, and as further described below, the Russian courts were
seized of proceedings brought by Mrs Arkhangelskaya which, although primarily
focused on the (alleged) invalidity of the sales from OMGP to Sevzapalians under the
sale side of the repo arrangements (which if established would likely remove control
from Sevzapalians and restore it to OMGP) also called into question the validity of the
removal process deployed.
573. There is also, again at least in the perception of this Court, something unsettling about
the ease with which it seems that the Bank/Sevzapalians were able to commandeer such
a force, to do their will in such a manner at the weekend, apparently without a warrant.
At the least, as it seems to me, it encourages less sceptical review of the Defendants’
contentions that the Bank, principally through Mr Savelyev, had official contacts in the
police, whether through Gen. Piotrovsky and Lt. Col. Levitskaya or otherwise, and with
Mrs Matvienko (who, as mayor of St Petersburg, controlled them): and see paragraphs
[1067] to [1074] below.
574. Two further matters reinforce this. First, as previously mentioned, both Dr
Arkhangelsky and Mr Vinarsky had filed criminal complaints with the Kirovsky police
department alleging that their removal as Directors-General of Scan and Western
Terminal were illegal, leading to the issue in May 2009 of orders initiating criminal
proceedings and confirming their “victim status”. During the pendency of such criminal
proceedings it would have looked even stranger for Sevzapalians to seize Western
Terminal. The way in which, without notice or explanation save that Sevzapalians had
made representations, the criminal proceedings were suddenly closed days before the
seizure by order of the Chief Investigator for St Petersburg and the St Petersburg region
has added to the suspicion of coordination between the Bank, Sevzapalians/SKIF and
the authorities. And secondly, that also chimes with the admittedly hearsay evidence
given by Dr Arkhangelsky that he was told by the person with line responsibility for
the proceedings that Gen. Piotrovsky had personally intervened to order to “kick the
case into the long grass.”
Other legal manoeuvres
575. In addition, Mrs Malysheva, Mr Sklyarevsky and the Bank turned their attention to
other less physical options to make sure that their position could not be undone or
circumvented, whatever might be the result of Mrs Arkhangelskaya’s proceedings.
576. The first of the options described was either to consent to Western Terminal transferring
its assets to SKIF, subject to the Bank’s pledge over those assets, or to have some form
of lease agreement with SKIF in respect of those assets. The submissions record that
no such transfer or entry into any lease agreement happened (which is not in dispute).
577. Another potential option explored was for the Bank (as pledgee) to consent to a lease
agreement over the Western Terminal assets between Western Terminal and another
Renord-Invest company called ‘Gunard Enterprises Ltd.’ (“Gunard”). This was the
option adopted, through the offices of Gunard’s new Director-General.
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578. The Bank’s Closing Submissions record that for the Bank, the Gunard Lease proposal
provided a further level of protection for the Western Terminal assets in the light of two
principal concerns. These are described as having been as follows:
(1) Dr Arkhangelsky was by now seeking to disrupt any enforcement over the Western
Terminal assets, as shown by the various OMG proceedings commenced by this
time to recover the Western Terminal shares.
(2) In addition to the OMG threat, the Bank’s case is that it also now had to take account
of any potential claim by Morskoy Bank against Western Terminal. If Western
Terminal could not repay that loan (which, in the Bank’s perception, it evidently
could not), then Morskoy Bank would have been entitled to proceed against
Western Terminal’s assets. No proceedings had yet been brought: but a potential
claim by Morskoy Bank against Western Terminal could cause further risk to the
Bank’s security. According to the Bank, its perception, and a factor in its decision,
was that a lease agreement could assist the Bank to protect its security in this regard.
The Gunard Lease
579. The Gunard Lease was signed on 20 August 2009. Its terms were plainly uncommercial:
US$20,000 rent per month, with the entire rent payable at the end of the term (49 years,
later reduced to 30 years on Renord-Invest’s request when the Bank gave consent to the
lease in November 2009). The time would begin to run after the state registration of the
lease, which apparently never took place. Gunard was entitled to take control of the
assets three days after the lease agreement was signed, i.e. on 23 August 2009.
580. The provisions of the Gunard Lease are, on any view, extraordinary. The efforts of the
Bank’s counsel to dismiss criticisms of it were not convincing. I elaborate on this later:
see paragraph [1060] et seq below.
581. Whether or not the Gunard Lease was a stratagem to end-run any adverse judgment
setting aside the repos, or to manipulate values, as the Counterclaimants allege, is part
of the Counterclaim, and I return to it in that context: see paragraphs [1050] to [1066]
below.
Dr Arkhangelsky’s departure from Russia
582. Moving back in the chronology, in early June 2009, Dr Arkhangelsky had left Russia
(although he subsequently returned for a short visit in July). His evidence was that he
did so in fear, and to protect him and his family, even at the price of increasing the risk
to any remaining OMG assets (since it would be all the more difficult to pursue
protective proceedings from abroad).
583. According to Dr Arkhangelsky, he was prompted to leave by warnings from a friend of
a friend, the tenor of which was that Gen. Piotrovsky was reported to have given an
order to arrest him and put him in prison.
584. In Dr Arkhangelsky’s own words (in his witness statement):
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Bank St Petersburg v Arkhangelsky
“Confronted with this information and the growing appreciation
that if I remained in Russia I would probably be imprisoned, I
decided that I had to leave Russia. I therefore travelled to
Bulgaria via Vienna the next day. Julia was in France at the time
and flew briefly back to St Petersburg before joining me in
Bulgaria. Needless to say, leaving Russia only compounded the
difficulty of pursuing legal proceedings there and protecting the
remaining Group assets, but by this point my priority was my
and my family’s safety.
We remained in Bulgaria until September 2009 when we moved
to Nice. We chose Nice because we already owned an apartment
there, which we had bought in June 2008.
Apart from a one-day trip to Moscow which I made on 20 July
2009, to meet with the chairman of Sberbank, German Gref, to
discuss re-financing the Group, I have not returned to Russia. I
have no doubt that if I were to travel there now I would be
immediately imprisoned, or possibly even killed. Indeed, I was
told by Mr Mikhail Nazarov, one of the lawyers representing me
in Russia, that he met regularly with Lt Col Levitskaya who had
advised him that if I dropped my complaints against the Bank
and returned to Russia I would only serve a limited prison
sentence of three to six months. However, if I did not return to
Russia the Bank would arrange for me to be killed in France.”
585. The Bank rejected this version of the reasons why Dr Arkhangelsky left Russia as “an
invention to support the conspiracy case”.
586. The Bank suggested a number of difficulties with Dr Arkhangelsky’s version, including
that: (a) he actually left Russia to go on a family holiday in Bulgaria, which was their
usual holiday place, (b) he apparently saw no difficulty in returning to Russia for
meetings in July 2009, (c) he continued to maintain links with the Russian state and
speak at Russian conferences, and (d) he also continued to seek to control his
businesses.
587. In the light of these points, Dr Arkhangelsky somewhat modified his version to
maintain that his decision to leave was not final really until late 2009.
588. The impression Dr Arkhangelsky eventually sought to create was that, after leaving St
Petersburg, and having hoped for some months to persuade the Russian state that he
was being victimised by ‘raiders’, he eventually, and reluctantly, concluded that the St
Petersburg authorities and the Russian state were in it together, and by the latter part of
2009 had concluded that he and his family were in real danger and that there would be
no realistic hope of safe return.
589. These rival versions are addressed further in the context of the conspiracy case and the
Counterclaimants’ allegation as to official and state connivance in that conspiracy: see
paragraphs [1075] to [1090] below.
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Intensifying campaign of criminal investigations and proceedings
590. For the present, all I need add as to the events in the summer of 2009 is that at about
the time or in the wake of Dr Arkhangelsky’s departure from Russia, and in what, I
have little doubt, he perceived to be confirmation of the warnings he had received, (a)
Lt. Col. Levitskaya caused the opening (on 19 June 2009) of a criminal case in relation
to LPK Scan in relation to alleged non-payment of VAT (a well-known tactic in cases
such as this); (b) the Bank wrote to Gen. Piotrovsky on 15 July 2009 encouraging
investigation of Dr Arkhangelsky for alleged fraud in connection with the Personal
Loan; and (c) the very next day, there was a police raid at OMG’s headquarters, which
Dr Arkhangelsky described in his 16th witness statement on the basis of what he said
was the eye witness account of Ms Lukina. On the basis of her account, he stated that
the raid was personally attended by Lt. Col. Levitskaya with special forces claiming to
be acting on the directions of Mrs Matvienko; and (so was his evidence):
“Nearly all the documents, computers and servers were removed.
The offices of the Group’s lawyer, Mr Vasiliev, were also
raided.”
591. Further, according to Dr Arkhangelsky, the July 2009 raids were challenged in the
courts and held to be illegal. However, according to him:
“these decisions were ignored by the authorities and the majority
of the documents, servers, computers and hard drives that were
seized were never returned.”
Western Terminal/Morskoy Bank criminal complaint: end of 2009 to 2010
592. It seems likely that another factor informing Dr Arkhangelsky’s decision to move his
home and family away from Russia was the commencement in September 2009 of
criminal proceedings against Dr Arkhangelsky for alleged fraud in connection with the
Morskoy Bank loan, which I have mentioned above (see especially paragraphs [502] to
[510] above), and which had already provided the alleged justification for the Bank’s
active intervention in the affairs of Western Terminal, and (in part) the Gunard Lease
(see paragraphs [577] to [581] above).
593. The basis of the complaint was an allegation of fraud. As previously indicated, the fraud
alleged was that, when at the end of March 2009 Dr Arkhangelsky had procured the
Morskoy Bank loan on the basis that he owned the company through OMGP, this was
not the case because Sevzapalians, supposedly as 99% shareholder, had not authorised
the loan. It apparently being a requirement of Russian corporate governance law that
such consent be obtained, consent was obtained from OMGP, but not from the relevant
Original Purchaser, Sevzapalians. It was alleged, on that basis, that Dr Arkhangelsky
had sought to borrow on a knowingly false basis and on the basis of false or forged
documents.
594. Dr Arkhangelsky’s case is that Sevzapalians’s consent was not required, as it was (as
he perceived it) not a genuine shareholder but merely a ‘special company’ holding the
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shares by way of security only and on trust, subject to the undertakings recorded in the
Memorandum, including:
(1) The undertaking (as it was expressed to be) of the Original Purchasers not to
interfere with the day-to-day commercial activities of the companies; and
(2) The undertaking (as so expressed) of OMGP and Western Terminal not to stop their
commercial activities or otherwise worsen their economic position.
(3) Dr Arkhangelsky described his view of the matter in his BVI affidavit as follows:
“Although the nature of the claim being made by the Russian
authorities is far from clear, in essence the complaint relates to a
loan which Western Terminal took out in March 2009 from the
Morskoi Bank. The Russian authorities claim that I lied to
Morskoi Bank in order to obtain the loan and that the money was
then misappropriated, since it was paid to another company in
the Group. To obtain the loan, Western Terminal had to show
that it had shareholder approval. I signed this document giving
this approval when I was not the sole or the majority shareholder
at that time.
I deny that I did anything wrong in relation to this loan
transaction. The case against me is based on the contention,
supported by evidence from the Bank, that the Group sold
Western Terminal and my actions were then an attempt to take
money from this business.
However, as explained above, this is simply not true. We had not
sold Western Terminal but entered into what we had been
promised was a temporary security arrangement. Therefore, my
understanding was that we were entitled to continue trading in
the ordinary course of business. There was, therefore, nothing
wrong or suspicious in the Group company obtaining a loan and
then using those funds for an inter-group loan.
I, therefore, consider this to be a charge trumped up by the Bank
to put further pressure upon me and distract my attention from
seeking to challenge the fraud.”
595. There are very curious features about the Morskoy Bank proceedings, both civil and
criminal, and even more so as regards the extraordinary nature of the evidence compiled
with the assistance of the Bank or its employees in its support: I shall return to this in
the context of the conspiracy claim: see paragraphs [1091] to [1115] below.
596. But the following features may be noted here, since they are of particular relevance to
the Bank’s position that it had nothing to do with the extradition request which was
their ultimate result:
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(1) The Morskoy Bank criminal complaint was instigated originally, not by Morskoy
Bank, but by Western Terminal on 25 September 2009, once it had come under the
control of the Bank/Sevzapalians/Renord-Invest. This followed the (purported)
installation of new Director-General appointed by Renord-Invest, Mr Maslennikov
(see paragraph [526] above).
(2) Western Terminal’s criminal complaint was launched before any enforcement
proceedings were brought by Morskoy Bank itself in respect of the Morskoy Bank
loan. It was not until December 2009 that Morskoy Bank brought civil proceedings
against Western Terminal to enforce the loan procured by Dr Arkhangelsky. The
total debt owed by Western Terminal by then amounted to RUB 68,109,102.
(3) It was not until 31 March 2010 that Morskoy Bank itself applied to initiate criminal
proceedings in respect of its loan to Western Terminal. Thereafter, the complaint
proceeded in the name of Morskoy Bank, with Western Terminal’s proceedings
being folded or subsumed into that reformed complaint: the indictment in the
composite criminal complaint being to the effect that Dr Arkhangelsky had: (a) used
a knowingly false document which wrongly purported to be the consent of Western
Terminal’s shareholder to obtain money by way of loan from Morskoy Bank; and
(b) then stolen that money (described as being de facto the property of Western
Terminal), by transferring it to LPK Scan without any intention of paying the money
back to Morskoy Bank or to Western Terminal.
(4) The reformed complaint was heard by a St Petersburg Court barely two months
later, in May 2010. Dr Arkhangelsky, who was convicted on indictment in his
absence, maintained that he was never notified of the proceedings and only became
aware of them after the Russian authorities submitted a request for his extradition
in November 2010.
International Arrest Warrant issued re Dr Arkhangelsky
597. An immediate consequence of that finding against him and the request for his
extradition was that on 14 May 2010 an International Arrest Warrant or Interpol ‘Red
Notice’ was issued, and Russia applied for Dr Arkhangelsky’s extradition from France.
598. On 4 June 2010, Dr Arkhangelsky instructed French lawyers, and in particular Mr
Ameli (see paragraph [92] above), to make a request for political asylum. This was
submitted on 1 July 2010.
599. On 18 November 2010, Dr Arkhangelsky was initially arrested and imprisoned for two
weeks until released on bail.
600. The extradition request was ultimately refused by the Investigation Chamber of the
Court of Appeal in Aix-en-Provence on 10 November 2011. In its judgment, that court
rejected Dr Arkhangelsky’s claim that the indictment was brought for inadmissible
political purposes, but it upheld the other objections to it.
601. The court concluded that: (1) there were serious doubts with regard to the fairness of
the criminal proceedings in Russia, (2) the indictment documents lacked proper
particularisation and credibility, (3) extradition would disproportionately infringe his
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right to a private and family life, and (4) there was a risk that Dr Arkhangelsky would
be subject to inhuman or degrading treatment if he were to be extradited. A second
request for extradition made by Russia in November 2011 was also rejected for
substantially the same reasons.
602. It is Dr Arkhangelsky’s case that: (1) the Bank used its close connections to the political
elite in Russia (especially through Mrs Matvienko) to manipulate the enforcement
authorities to bring a fabricated case, (2) it was the Bank that thereby was the true
instigator of the complaint, its adjudication and the extradition request which followed,
and (3) it was and is the Bank that sought his extradition as part of the conspiracy he
alleges: see further paragraphs [1075] to [1090] below.
603. The Bank entirely denies this. The issue is further addressed below in the context of the
role of Mrs Matvienko and Mr Savelyev, and the conspiracy claim.
The Bank’s enforcement proceedings and their result
604. Pausing the chronology there (at the date that Dr Arkhangelsky’s exile was complete)
I turn next to the various proceedings brought by the Bank to enforce their loans and
their security (including for the arrest of vessels pledged). As foreshadowed in
paragraphs [560] to [561] above, this was a long process, and so that I can also describe
their result the next section spans a long period. Where judgment in the relevant
proceedings was followed by recoupment out of cash funds, or where there was no
extant security, I explain that in this section; but I think it is more convenient to deal in
a further section with the intricate and even more protracted process of realization of
pledged and other assets which later followed.
First to Fourth Vyborg Loan proceedings
605. As to the First Vyborg Loan:
(1) On 8 May 2009, the Bank issued proceedings in the Petrogradsky District Court
against Vyborg Shipping, Scan, and Dr Arkhangelsky in respect of the First Vyborg
Loan. On 24 August 2009, the Bank obtained judgment in the amount of RUB 335
million.
(2) Further, in proceedings in France, in December 2009 the French court (the Tribunal
de Grande Instance (Superior Court) of La Rochelle) ordered the arrest and sale of
the ‘Gatchina’ (which had previously been arrested by another creditor as above
described, and which was pledged as security to the Bank).
(3) On 8 September 2009, Dr Arkhangelsky, represented by Mr Vasiliev (OMG’s inhouse
lawyer), filed a “cassation” complaint in the City Court of St Petersburg
seeking to set aside the judgment of the Petrogradsky Court on the basis that he had
not been validly served with the proceedings, and the case had been heard in his
absence. This was dismissed on 19 November 2009 on the grounds that Mr Vasiliev
had been present to represent the interests of Vyborg Shipping and had had power
of attorney also on behalf of Dr Arkhangelsky.
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(4) Subsequently, on 26 May 2010, Dr Arkhangelsky filed a “supervisory” appeal with
the City Court of St Petersburg on the grounds that his signature had been forged
on certain documents; but this was dismissed as having been filed out of time with
no good reason for delay.
(5) Finally, on 16 March 2011, Dr Arkhangelsky filed with the Petrogradsky District
Court an application for review of the original decision by the City Court on the
basis of “newly discovered circumstances, and specifically that he had not signed a
personal guarantee in respect of the First Vyborg Loan”. On 19 May 2011, this was
dismissed by the Petrogradsky District Court on the basis that Dr Arkhangelsky had
failed to establish that he could not have been aware of the alleged forgery at the
time of the original proceedings (as he was required by law to establish to succeed).
606. As to the Second Vyborg Loan:
(1) On 8 May 2009, the Bank issued proceedings in the Petrogradsky District Court
against Vyborg Shipping, Scan, and Dr Arkhangelsky, in respect of the Second
Vyborg Loan. On 24 August 2009, the Bank obtained judgment in the amount of
RUB 368.9 million.
(2) Dr Arkhangelsky challenged the judgments in the same ways as he challenged the
judgments in the First Vyborg Loan proceedings, and with the same results.
(3) In proceedings in the Marshall Islands, in October 2009 the Marshall Islands court
ordered the arrest and sale of the ‘Tosno’. However, and as indicated above, the
same vessel had already been arrested previously in Tallinn in Estonia. The vessel
was later sold at public auction: see below.
(4) The Second Vyborg Loan was also guaranteed by Scan, and after judgment on that
guarantee, Scan was eventually (in December 2011) declared insolvent and placed
into administration.
(5) Through the administration of Vyborg Shipping (which had gone into insolvency
proceedings in May 2009), the Bank recovered further sums of RUB 8 million.
(6) The realisations in Scan’s administration, largely comprised of sales of six premises
referred to as the “Pravdy Street Assets” (see paragraph [108(1)] above) realised
some RUB 19.15 million of which the Bank received RUB 3.745 million which it
applied to the Second Vyborg Loan.
(7) Further, the Petrogradsky District Court appointed the Federal Service of Bailiffs
to enforce its judgment of 24 August 2009 against Dr Arkhangelsky’s personal
assets.
(8) It is alleged in the Counterclaim that all the assets (apart from the vessels) were sold
at artificially reduced prices and that these enforcement processes were collusive
and fraudulent: see paragraphs [1252] to [1525] below.
607. As to the Third Vyborg Loan:
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(1) The Bank issued proceedings in the Petrogradsky District Court on 8 May 2009,
against Vyborg Shipping, Scan, and Dr Arkhangelsky.
(2) On 24 August 2009, the Bank obtained judgment in the amount of RUB 387.6
million.
(3) Dr Arkhangelsky challenged the judgments in the same ways as he challenged the
judgments in the First Vyborg Loan proceedings, and with the same results.
(4) In proceedings in England, the English Court ordered the sale of the ‘Kolpino’ in
May 2009, and it was later sold at public auction on 9 July 2009.
608. In respect of the Fourth Vyborg Loan:
(1) On 12 May 2009, the Bank brought proceedings in the Kirovsky District Court
against Vyborg Shipping, Western Terminal, Scan, and Dr Arkhangelsky. The loan
was secured principally by pledges over the majority part of the Western Terminal
assets and the claim was brought in the Kirovsky District Court as the court with
jurisdiction over those assets, given their location.
(2) On 24 May 2010, the Bank obtained judgment against Vyborg Shipping, Western
Terminal, Scan, and Dr Arkhangelsky, in the amount of RUB 1.17 billion.
(3) In the proceedings, Dr Arkhangelsky contended that the personal guarantee he had
originally given was no longer enforceable because of a material change in the
principal loan agreement; he also argued that his signature on Additional Agreement
No. 1 to the personal guarantee had been forged. Dr Arkhangelsky asked the court
to appoint a forensic expert to examine the authenticity of that signature. Several
forensic analyses were carried out: none was conclusive. The court adjudged that
Dr Arkhangelsky had failed to discharge the burden of demonstrating that the
signature he was disputing was not his own. In any event, the court held that he
remained liable under the personal guarantee.
Onega Loans
609. As to the First Onega Loan:
(1) On 22 January 2010, in proceedings brought on 15 October 2009, the Bank obtained
judgment from the Petrogradsky District Court against Onega, Scan, Scandinavia
Leasing, and Dr Arkhangelsky in the sum of RUB 34.9 million.
(2) Dr Arkhangelsky defended the claim on the basis that the additional agreements
between the Bank and Onega had materially increased the risk to the guarantors
without their consent, and that the guarantors should be treated as having been
released from further obligation. The argument was rejected: the court held that the
amendment to the First Onega loan had not had any adverse effect on the guarantors
and that, in any event, Dr Arkhangelsky had consented under the terms of the
personal guarantee to the modification of the First Onega Loan.
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(3) Scandinavia Leasing also filed a cassation complaint against the judgment on 5
February 2010 and two further applications, none of which succeeded. Onega filed
for administration on around 12 March 2012.
(4) The court ordered the sale of the “Sestroretsk Assets” (see paragraph [118(1)]
above) constituting the principal security for the First Onega Loan, but they had in
fact already been realised to pay sums owed under another OMG loan, the 2007
LPK Scandinavia Loan (see below), and accordingly, were not available to satisfy
the sums due under the First Onega Loan.
(5) The Bank recovered certain sums amounting to RUB 284,000 from the Onega bank
account which it applied to the sums owed under the First Onega Loan.
610. As to the 2008 LPK Scandinavia Loan:
(1) On 1 February 2010, in proceedings commenced on 24 August 2009, the Bank
obtained judgment of the Petrogradsky District Court against LPK Scandinavia and
Dr Arkhangelsky in the sum of RUB 157.4 million.
(2) Dr Arkhangelsky defended the claim on the basis that the signature on an additional
agreement dated 30 December 2008 to the personal guarantee was not his. This was
not accepted by the Petrogradsky District Court.
(3) The Bank has not made any recoveries under the 2008 LPK Scandinavia Loan, and
the full amount (plus interest) remains outstanding.
Personal Loan: Russian proceedings
611. As to the Personal Loan:
(1) On 1 February 2010, in proceedings commenced on 24 August 2009, the Bank
obtained judgment from the Petrogradsky Court against Scan, Scandinavia Leasing
and Dr Arkhangelsky in the sum of RUB 152.9 million.
(2) The court also ordered foreclosure on the vessel ‘Pechora’ which was pledged in
support of the loan. (Ms Mironova explained that ‘Pechora’ was chosen as security
because it was insured for RUB 450 million and was thought to be quick to register,
which was important given the urgency relating to the Personal Loan.)
(3) Dr Arkhangelsky defended the claim and also brought a counterclaim, alleging that,
whilst he had received the sum of RUB 130 million from the Bank under the terms
of the Personal Loan, the Bank had removed this money from his account without
his consent prior to the date of repayment.
(4) He also argued that the amendments made to the Personal Loan by the Personal
Loan First Amendment Agreement rendered the pledge invalid. The Bank replied
that the sums advanced under the Personal Loan had indeed been transferred out of
Dr Arkhangelsky’s account to Regata LLC (“Regata”): but on his own written
request. Dr Arkhangelsky was, at that time, a shareholder of Regata.
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(5) The Bank also argued that the conclusion of the Personal Loan Additional
Agreement did not affect the validity of the pledge of the ‘Pechora’. The court
accepted the Bank’s arguments.
(6) A cassation complaint filed by Scandinavia Leasing on 10 February 2010 was
rejected because of uncorrected procedural defects by order of the Petrogradsky
District Court dated 5 April 2010.
(7) The Bank has not been able to realise any security in respect of the ‘Pechora’
because the vessel was the subject of a finance lease between Scandinavia Leasing
and Baltdraga CJSC (“Baltdraga”) pursuant to which Scandinavia Leasing agreed
to sell the vessel to Baltdraga in exchange for the provision of sums to the former.

Other OMG loans
612. In addition to the OMG loans in respect of which the Bank makes its claim, OMG owed
the Bank a large number of other sums under other OMG loans. While these other OMG
loans are not part of the Bank’s claims in these proceedings, it is nevertheless necessary
to consider them because: (i) the Defendants and OMGP accept that, to the extent their
Counterclaim succeeds, they must give credit for OMG’s indebtedness to the Bank
(“the group’s debts”) as a whole; and (ii) some of these loans concern the realisation of
security over real estate at Onega Terminal, in respect of which the Defendants and
OMGP make their Counterclaim.
First and Second PetroLes Loans
613. The First and Second PetroLes Loans were secured by: (i) pledges over five lots of real
estate at Onega Terminal owned by Scan; (ii) a Scan guarantee (in respect of the Second
PetroLes Loan); and (iii) a personal guarantee from Dr Arkhangelsky (in respect of the
First PetroLes Loan).
614. Five lots of real estate at the Onega Terminal were sold at public auction on 26 October
2009. The bidders were Russian bodies corporate called ‘Solo LLC’ (“Solo”) and
‘Kiperort LLC’ (“Kiperort”), both said by the Counterclaimants to have been part of
the Renord-Invest Group. Solo was the successful bidder and paid in total RUB 207.3
million (including VAT). The Bank applied this to the sums owed under the First and
Second PetroLes Loans.
2007 LPK Scandinavia Loan
615. As to this:
(1) The 2007 LPK Scandinavia Loan was secured by (i) pledges over the Sestroretsk
Assets owned by Scan; (ii) pledges over two lots of real estate (a 3.4 Ha plot) at
Onega Terminal owned by LPK Scandinavia; (iii) a Scan guarantee; and (iv) a
personal guarantee from Dr Arkhangelsky.
(2) The Sestroretsk Assets were sold at public auction on 26 October 2009. The two
bidders were Solo and Kiperort. Solo was the successful bidder and paid RUB
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106.656 million. In the Counterclaim the sale is alleged to have been collusive and
fraudulent: see paragraphs [1484] to [1496] below.
(3) The Bank applied this to the sums owed under the 2007 LPK Scandinavia Loan. In
June 2011, it assigned the remainder of its claim to Mercury for RUB 12.69 million.
It is alleged in the Counterclaim that this sale too was collusive and at a fraudulent
undervalue: see paragraphs [1412] to [1426] below.
Second Onega Loan
616. As to this:
(1) The Second Onega Loan was secured by pledges over the same assets as the 2007
LPK Scandinavia Loan, which when realised were applied to sums owed under the
2007 LPK Scandinavia Loan.
(2) In June 2011, the Bank assigned its claim under the Second Onega Loan to Mercury
for RUB 14.3 million.
(3) Renord-Invest then sold Mercury to ROK No. 1 Prichaly, which (funded, the
Counterclaimants contend, by the Bank) at around the same time had acquired from
Solo the other half of Onega Terminal (see paragraph [368]).
(4) These transactions, and intermediate transactions which formed a part, are alleged
in the Counterclaim to be collusive and fraudulent, and intended to benefit Mr
Savelyev and/or the Bank as the true owners of Solo and the Renord-Invest Group:
see paragraphs [1387] to [1419] below.
Scandinavia Leasing loans
617. The Bank also entered into three loans with Scandinavia Leasing, one of which was
secured by a pledge over the ‘Pechora’. Certain sums are still owed.
618. On 1 February 2010, the Bank obtained judgment from the Petrogradsky Court against
Scan, Scandinavia Leasing and Dr Arkhangelsky in the sum of RUB 152.9 million. The
‘Pechora’ was the subject of a finance lease between Scandinavia Leasing and
Baltdraga, pursuant to which Scandinavia Leasing agreed to sell the vessel to Baltdraga
in exchange for the provision of sums to the former. The Bank has not been able to
realise any security under the ‘Pechora’ because of Baltdraga’s interest in the vessel.
Enforcement of security
619. I turn to the long process of enforcement straddling the period from 2009 through 2012.
The key procedures in relation to these enforcement proceedings brought by the Bank
were (as summarised by Ms Mironova) as follows:
(1) Sale of and recovery from the three vessels, ‘Gatchina’, ‘Tosno’ and ‘Kolpino’,
pledged in respect of the Vyborg Loans;
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(2) Participation in the insolvency of Vyborg Shipping, which did not itself own any
assets (the vessels it operated being owned by SPVs), and which was thus the only
step open to the Bank in respect of its borrowings;
(3) Participation in the administration of Scan, and the proceeds from the realisation of
the Pravdy Street Assets; and
(4) Realisation of immoveable property, and in particular, the Onega Terminal, the
Western Terminal, and some land at Sestroretsk, north of St Petersburg (owned by
Scan).
There is attached to this judgment an Annex [2] which sets out: (i) the dates and
amounts of the recoveries made in respect of each loan; and (ii) the outstanding sums
owed to the Bank. The Defendants and OMGP did not challenge any of the figures in
cross-examination.
Realisations of vessels
620. All three vessels pledged as security (‘Gatchina’ (which was security for the First
Vyborg Loan), ‘Tosno’ (which was security for the Second Vyborg Loan), and
‘Kolpino’ (which was security for the Third Vyborg Loan)) were sold at auctions for
very substantially less than their valuation by Lair at the time of the relevant Vyborg
Loan. Thus:
(1) ‘Gatchina’ was sold at public auction in France in April 2010 for €1.2 million. This
sum was approximately RUB 47 million at the exchange rate at the time. For the
purposes of security under the First Vyborg Loan, ‘Gatchina’ had been given a
market value of RUB 410 million, based on a Lair valuation. Thus, at least in terms
of roubles and not making allowance for exchange rate fluctuations, the sale price
was 11% of the value given as security.
(2) ‘Tosno’, which had been arrested first in Tallinn, Estonia and then (in October 2009)
in the Marshall Islands, was sold at public auction in Estonia in April 2010 to a third
party unconnected with the Bank for some €1.7 million. This sum was
approximately RUB 66 million at the exchange rate at the time. For the purposes of
security under the Second Vyborg Loan, ‘Tosno’ had been given a market value of
RUB 470 million, based on a Lair valuation. Thus, at least in terms of roubles, and
not making allowance for exchange rate fluctuations, the sale price was 14% of the
value given as security. Part of that went to the Bank, but a proportion was used to
satisfy the claims of other creditors, including Bergen Bunkers AS which had
caused the original arrest for unpaid bunker fuel and lubricants and the Tallinn Port
authorities. The Bank recovered RUB 54.3 million.
(3) As previously mentioned, ‘Kolpino’ was sold at public auction in England in July
2009 for US$ 3.3 million. This sum was approximately RUB 105 million at the
exchange rate at the time. For the purposes of security under the Third Vyborg Loan,
‘Kolpino’ had been given a market value of RUB 490 million, based on a Lair
valuation. Thus, at least in terms of roubles and not making allowance for exchange
rate fluctuations, the sale price was 21% of the value given a security.
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Claims in bankruptcy of Vyborg Shipping
621. The sums recovered by the Bank in the insolvency process relating to Vyborg Shipping
were very small.
Scan and the Pravdy Street Assets
622. Scan had a number of creditors. Scan filed for bankruptcy, and an
administrator/receiver was appointed by the court in 2011. The Scan receiver arranged
for Scan’s real estate assets at Pravdy Street to be sold by public electronic auction in
August 2012. The auction is reported in the receiver’s report dated 24 October 2012.
623. As to the auction:
(1) The auction was advertised in Kommersant and took place on 30 August 2012.
There were six lots which made up the Pravdy Street premises.
(2) The bidders were BarD LLC and Stimul LLC. BarD LLC was the successful bidder
for some of the lots (Pravdy Street Assets 1-4); Stimul LLC was the successful
bidder for the other lots (Pravdy Street Assets 5-6).
(3) The results (see paragraph [606(6)] above) were announced in Kommersant.
(4) In total, the auction realised RUB 19.15 million. That sum was distributed to the
Bank and Scan’s other creditors. The Bank received RUB 3.745 million, which it
applied to the sums owed under the Second Vyborg Loan.
624. The auction was organised by the receiver appointed in respect of Scan. There is no
allegation that the receiver was somehow involved in the alleged conspiracy. It was
advertised and conducted electronically.
625. In cross-examination, the Defendants and OMGP appeared to challenge the auction on
the sole basis that the Pravdy Street building should have been sold ‘as a whole’ rather
than in six lots. This point has no substance: but I return to explain this in paragraph
[1509] below.
Sales of Onega Terminal assets and Sestroretsk Assets
626. All the land sales were through public auction under Russian law, discussed at
paragraphs [1277] to [1304] below.
Onega Terminal assets and Sestroretsk Assets
627. In summary, the process of realisation of five lots making up the Onega Terminal assets,
and the Sestroretsk Assets, started in October 2009, was as follows:
(1) The auction was held by the Russian Auction House. The Russian Auction House
was established only in 2009 by Sberbank, which is the Russian state savings bank
and is one of the biggest in Eastern Europe. It was selected and engaged by the
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Bank St Petersburg v Arkhangelsky
Bank, pursuant to a formal agreement with Scan, which by then was controlled by
Renord-Invest. However, Mr Savelyev denied any personal involvement.
(2) The Counterclaimants allege that the sale was orchestrated by a Mr Stepanenko on
the direct orders of Mrs Matvienko. Mr Stroilov described the sale as “a historic
event, in a sense”: it was the “first ever sale of banking pledges through Russian
Auction House”.
(3) The Counterclaimants allege that the auction was part of the scam and was
orchestrated by a Mr Andrei Stepanenko, an official in Mrs Matvienko’s
administration, directly following orders from Mrs Matvienko: I return to that
allegation later.
(4) As to the Sestroretsk Assets, the starting price was RUB 105.6 million. As
previously noted (see paragraph [615(2)] above) only two persons, namely a
Kiperort and Solo, were admitted to participate as registered bidders. Solo was the
successful bidder, with a bid of RUB 106.656 million.
(5) As to the Onega Terminal assets, which were partly owned by Scan, and partly by
another OMG company, LPK Scandinavia, there were five lots of real estate up for
auction by the Russian Auction House on 26 October 2009:
(a) Two lots (owned by Scan) were sold together with a starting price of RUB
162.948 million. Again, Kiperort and Solo were admitted to participate as,
and were the only, registered bidders. Solo was the successful bidder, with
a bid of RUB 164.578 million (exclusive of VAT).
(b) Three lots (owned by Scan) were sold together with a starting price of RUB
31.282 million. Kiperort and Solo were admitted to participate once more
as the (in the event, only) registered bidders. Solo was the successful bidder,
with a bid of RUB 31.595 million (exclusive of VAT).
628. Carrying forward in the history of the land at Onega Terminal, after its acquisition by
Solo:
(1) Western Terminal brought a claim against LPK Scan to recover its loan of RUB
56.5 million (representing the on-lent funds from the Morskoy Bank loan).
(2) The Russian arbitrage court for St Petersburg by order dated 30 December 2009
ordered LPK Scan to repay the loan.
(3) LPK Scan had no funds out of which to make repayment, and by way of
enforcement its land at Onega Terminal, which was subject to a number of pledges
to the Bank, was put up for sale at public auction.
(4) In January 2011, the LPK land at Onega Terminal (a 3.4 Ha plot) was sold at auction
but subject to the pledges in favour of the Bank for as yet undischarged debts, for
RUB 99,000 to Mercury, again (see above) acting at the behest and on behalf of
Renord-Invest in relation to the purchase (with, according to Mr Sklyarevsky, his
consent as its owner).
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(5) In April 2011, Mr Sklyarevsky ‘sold’ Mercury to Renord-Invest.
(6) Then on 17 June 2011, the Bank assigned its rights relating to (i) the 2007 LPK
Scandinavia Loan and (ii) the Second Onega Loan (including a transfer of rights
relating to the associated security agreements), in respect of which the LPK Scan
land at Onega Terminal assets had been pledged, to Mercury for the sum of RUB
27 million.
(7) The Bank then applied the sum of RUB 27 million to the amounts outstanding under
the 2007 LPK Scandinavia Loan and Second Onega Loan and otherwise wrote off
the monies owed to it by LPK Scandinavia and Onega under those loan agreements.
(8) Once Mercury had acquired the LPK Scan land free from the Bank’s pledges,
Renord-Invest was in a position to sell the combined Onega Terminal land (both the
land previously owned by Scan and the land previously owned by LPK Scan) to
ROK No. 1 Prichaly.
(9) Renord-Invest sold the Onega Terminal land to ROK No. 1 Prichaly in 2011 for
RUB 500 million.
(10)It was the Bank who lent ROK No. 1 Prichaly the money for the purchase.
629. This sequence of steps ultimately leading to the purchase by ROK No. 1 Prichaly of the
combined Onega Terminal land mirrored a plan set out in a document entitled the ‘stage
plan’ (the “Stage Plan”). There is a dispute between the parties as to the purpose of the
Stage Plan, as implemented. I address the Stage Plan, which the Counterclaimants
contend, taken together with inexplicable features of the auction sales, unmasks the
conspiracy they have alleged, in paragraphs [1332] to [1338] below.
Real estate at Western Terminal
630. Under the Fourth Vyborg Loan, those parts of the Western Terminal assets comprising
berth SV-15 and a 73,000m2 land plot were pledged to the Bank. The mortgage
agreement agreed the value of the real estate for the purposes of the pledge to be RUB
1.286 billion.
631. At one point in the course of the trial, Dr Arkhangelsky floated the suggestion (for the
first time) that the “intention of the parties” had been that the Western Terminal land
plot pledged to the Bank, which had been registered with one cadastral number, was to
be “split” into two, supposedly because the land plot was “excessive” security for the
Fourth Vyborg Loan. This suggestion had never appeared in any pleading or witness
statement of Dr Arkhangelsky. It was not seriously pursued and seemed to me
inconsistent with the documentation. I do not accept it, and have proceeded on the
footing that all of the plots registered with one cadastral number were intended to
pledged.
632. The processes adopted for the realisation of the Western Terminal assets pledged to the
Bank were on any view convoluted, and were preceded by the Gunard Lease
arrangements, themselves curious and which the Counterclaimants allege were
intended artificially to lower the value of the land. Further, there is an interplay between
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Bank St Petersburg v Arkhangelsky
the Bank’s own enforcement processes and the Morskoy Bank loan and civil
proceedings, which has added a further twist to the convolution.
633. These enforcement processes can be summarised as follows:
(1) Judgment on its civil claim in respect of the Morskoy Bank loan was given in favour
of Morskoy Bank on 3 December 2010. The total debt owed by Western Terminal
by then amounted to RUB 68,109,102. Further to a process analogous to a writ of
execution, following the judgment on 3 December 2010 the court bailiff
commenced enforcement proceedings. Western Terminal appealed, but the appeal
was dismissed on 30 March 2011.
(2) Western Terminal had no funds to discharge its liability to Morskoy Bank. In
February 2011 Morskoy Bank assigned its unsatisfied claim to Sevzapalians.
(3) Sevzapalians then discharged Western Terminal’s liability to Morskoy Bank, and
as a result became itself entitled to recover RUB 68 million against Western
Terminal in the enforcement proceedings.
(4) Also in February 2011, by agreement dated 9 February 2011, Sevzapalians
transferred the Western Terminal shareholding to an offshore entity incorporated in
Cyprus called ‘Ultriva Limited’ (“Ultriva”) which Mr Sklyarevsky confirmed was
also a Renord-Invest company.
(5) On 19 August 2011, as part of the enforcement proceedings against Western
Terminal, the court bailiff sought the Bank’s consent to enforce against the entirety
of the Western Terminal assets (i.e. both the real estate pledged to the Bank and the
residual assets which had not been pledged (berth SV-16 and the railway tracks),
subject to the maintenance of the Bank’s encumbrance.
(6) At the end of August 2011, the Bank gave its consent. Any auction of the entirety
of the Western Terminal assets to realise sums in respect of the Morskoy Bank claim
would, according to the Bank’s witnesses, have left unaffected the Bank’s security
rights in respect of the Western Terminal assets.
(7) On 23 December 2011, there was a purported ‘public auction’ to enforce the writ
of execution against Western Terminal. Nefte-Oil CJSC (“Nefte-Oil”) was the
winner of the auction for the two railway tracks located outside the Western
Terminal area on adjacent land, and purchased them for RUB 5,646.740.
(8) At another such auction on 26 December 2011, Nefte-Oil acquired the Western
Terminal land plot, SV-15, SV-16, and the railway track on the site, and purchased
them for RUB 161,497, still preserving the pledge to the Bank.
(9) On 6 June 2012, Nefte-Oil ‘sold’ the pledged assets of Western Terminal (the land
and berth SV-15, but not berth SV-16 or the railway tracks) to another RenordInvest
body corporate, Vektor-Invest LLC (“Vektor-Invest”), for RUB 2,300,000.
Only pledged assets were sold, whereas the unpledged berth and railway tracks were
kept by Nefte-Oil. The unpledged assets were useless in themselves, but added
synergistic value to the pledged assets.
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Bank St Petersburg v Arkhangelsky
(10)On 20 August 2012, the Bank and Vektor-Invest purportedly entered into a
settlement agreement in respect of those proceedings (commenced only a week
earlier) whereby the Bank agreed to sell its right to enforce the pledge to VektorInvest
for RUB 1,209,952.86 (being the value stated in the pledge itself, and which
was stipulated by clause 5.4 of the Mortgage Agreement to be required to be “the
initial selling price” in the requisite sale at open public auction).
(11)Under the Settlement, Vektor-Invest was to pay the Bank before 28 August 2012,
failing which the Western Terminal assets pledged to the Bank would be auctioned,
with an initial sale price of RUB 670 million (which the Claimants insist was by
then, in difficult circumstances, the market value). This settlement agreement has
the case name and the name of the judge in the top left corner and it (and thus the
default price it records) appears to have been (and according to the evidence of Mrs
Yatvetsky, was) approved by the Russian court.
(12)Predictably (and perhaps intentionally, as to which see later), Vektor-Invest
apparently failed to pay the money by the agreed date 28 August 2012 (i.e. one
week after the agreement), and the Bank terminated the agreement.
(13)On 29 September 2012, SV-15 et al was sold at a ‘public auction’ as realisation of
the Bank’s pledge. According to the documents initially disclosed by the Bank, the
only bidder appeared to be Kontur; however, other documents subsequently
disclosed by the Claimants suggest that there was another bidder, Globus-Invest
LLC (“Globus-Invest”). At the auction, Kontur bid for and bought SV-15 et al for
RUB 675,000,000.
(14)Kontur also acquired SV-16 and the track (which had no separate intrinsic value
but did have considerable synergy value) for a nominal consideration, thereby
reuniting the Western Terminal assets in one more coherent whole.
634. Not least since Kontur was the auction purchaser of Western Terminal and it and Baltic
Fuel Group now control and operate its business and assets, the questions as to the
ownership of Kontur and Baltic Fuel and the mode of their acquisition of the Western
Terminal assets is of considerable interest: both are matters of substantial dispute
especially in the context of the Counterclaim and I return to their peculiar features in
greater detail in that context: see paragraphs [1226] to [1242] below.
The Arkhangelskys’ personal assets
635. The Arkhangelskys’ personal assets, namely an apartment, car parking space, and
certain chattels comprising the contents of the apartment, were sold by the court bailiff.
The chattels were transferred for sale on 20 October 2011.
636. The bailiff sold at public auction the following:
(1) An apartment at Kharkovskaya Street was sold for RUB 11.59 million, of which the
Bank recovered RUB 10.66 million. The apartment was bought by a private
individual.
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Bank St Petersburg v Arkhangelsky
(2) A parking space at Kharkovskaya Street was sold for RUB 1.826 million, of which
the Bank recovered RUB 455,994.
(3) Certain personal chattels were sold on 21 December 2011 for RUB 51,950, of which
the Bank recovered RUB 21,973 (less than £440 according to the then exchange
rate, and less now, which appears extraordinarily little for the entire contents of a
multi-millionaire’s main residence).
The sums claimed by the Bank
637. The particulars of debt due to the Bank as at 7 September 2015 in respect of the
underlying loans for which the Personal Guarantees were given or for the Personal
Loan, are set out in Schedule A to the Re-Amended Particulars of Claim.
638. The Bank calculates that as at 7 September 2015, the sums owing to it in respect of the
loans in issue and for which the Bank claims against Dr Arkhangelsky are:
(1) First Vyborg Loan: RUB 290,226,133.14
(2) Second Vyborg Loan: RUB 307,570,174.83
(3) Third Vyborg Loan: RUB 316,269,650.07
(4) Fourth Vyborg Loan: RUB 535,112,523.80
(5) 2008 LPK Scandinavia Loan: RUB 159,874,575.44
(6) First Onega Loan: RUB 35,403,990.34
(7) Personal Loan: RUB 153,013,318.63
Total: RUB 1,797,470,366.25
639. I turn to discuss in more detail the Bank’s substantive claims and Dr Arkhangelsky’s
defence to them.
The Banks’ claims: have the Defendants a good defence?
640. Leaving aside for the present the question of set-off if the Counterclaim is established,
and despite the complexity and detail of the factual material as I have sought to
summarise it above, the Bank’s primary claim is a relatively straightforward one against
Dr Arkhangelsky for payment under the Personal Guarantees and the Personal Loan.
641. The Bank has secondary claims, brought also by Mr Savelyev, for declarations that
neither it nor Mr Savelyev was party to any such conspiracy as the Defendants have
alleged by counterclaim. They accept that declaratory relief is discretionary: but the
Bank and Mr Savelyev maintain that such relief is the only means of clearing their
names and reputation.
642. The Bank also claims against Mrs Arkhangelskaya for relief requiring her to account
and turn over to the Bank assets which they allege she received from her husband
otherwise than for full consideration and to defeat or delay the Bank’s claims.
643. The Bank’s primary claims raise the following principal issues:
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Bank St Petersburg v Arkhangelsky
(1) Whether the Defendants can make good their allegation that Dr Arkhangelsky did
not sign or authorise the signing of the Personal Guarantees and the Personal Loan,
and that those documents are forgeries on which no claim may be brought.
(2) Further or alternatively, whether any legally binding agreement (what the
Defendants describe as the ‘Moratorium’) was reached in December 2008 such that
the Bank: (a) was in breach of it in calling defaults under the main borrowing
agreements when it did, and (b) is thereby precluded from enforcing the guarantees
or Personal Loan.
(3) Whether the transfers between Dr Arkhangelsky and his wife were intended to
defeat or delay creditors or otherwise liable to be set aside.
(4) Whether the Bank can demonstrate that (a) neither it nor Mr Savelyev was party to
any conspiracy such as is alleged, and that (b) it should be granted declarations to
that effect (the jurisdiction of the court to grant a declaration always being
discretionary, and one to be exercised with particular care and circumspection).
644. Plainly issue (4) is the other side of the coin of the Counterclaim, save for the
discretionary aspect. I therefore discuss it in that context rather than in the context of
the Defence. I shall deal in turn with each of the other three issues.
Issue 1: Dr Arkhangelsky’s case in respect of the alleged Personal Guarantees and the
Personal Loan
645. The dispute as to whether Dr Arkhangelsky was required by the Bank to, and did
indeed, sign the Personal Guarantees is the centrepiece of the Claimants’ principal
claim.
646. The Bank makes its claims against Dr Arkhangelsky as guarantor under the following
alleged agreements:
(1) Personal Guarantee (No. 3500-08-01203/Π-2) for the First Vyborg Loan;
(2) Personal Guarantee (No. 3500-08-01279/Π-2) for the Second Vyborg Loan;
(3) Personal Guarantee (No. 3500-08-01342/Π-2) for the Third Vyborg Loan;
(4) Personal Guarantee (No. 0035-08-01538/Π-2) for the Fourth Vyborg Loan;
(5) Personal Guarantee (No. 0035-08-01499/Π) for the 2008 LPK Scandinavia Loan;
and
(6) Personal Guarantee (No. 133/06-Π-3) for the First Onega Loan.
647. In addition, the Bank claims that Dr Arkhangelsky signed Loan Agreement 0035-08-
01759 (the Personal Loan).
648. As to the documents which Dr Arkhangelsky disputes:
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(1) Appendix I to the Re-Amended Defence and Counterclaim sets out a ‘Schedule of
Disputed Documents’ which lists 28 documents disputed by Dr Arkhangelsky.
These consist of:
(a) The six Personal Guarantees.
(b) Mrs Arkhangelskaya’s consents to the six Personal Guarantees.
(c) The agreements additional to the six Personal Guarantees, entered into as
part of the restructuring in December 2008.
(d) The two additional agreements to the Personal Loan.
(e) The Scan guarantee to the Personal Loan and the additional agreement to
the guarantee.
(f) The Personal Loan.
(g) The application for the transfer of funds to Regata.
(h) Two other documents relating to the transfer of funds between Dr and Mrs
Arkhangelsky.
(2) In addition he disputes:
(a) The six guarantees given by Scan in respect of the six OMG loans which
have Personal Guarantees.
(b) Four other Scan guarantees and a mortgage from Scan in respect of other
OMG loans.
649. In addition to his claims that each of the above 28 documents were forged, Dr
Arkhangelsky also appeared to dispute other documents (such as internal OMG
authorisations), but his case in that regard was never definite or defined: and it was not
pleaded.
Did Dr Arkhangelsky agree to provide and did he sign the Personal Guarantees?
650. There is no dispute that the Bank extended to Vyborg Shipping, Onega, and LPK
Scandinavia the underlying loans in respect of which its case is that Dr Arkhangelsky
gave the Personal Guarantees.
651. The terms of each of the Personal Guarantees provided for the obligations under it not
to cease to be effective until “after the Principal Obligation has been discharged in full.”
652. By Special Terms and Conditions (as so described) it was recorded and provided that
the guarantor:
“agrees with the following changes in the Principal Obligation
secured by this guarantee:
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(a) Changes of the interest rate and interest payment period
(increase or decrease;
(b) Changes in penalty amounts for late discharge of the Debtor’s
loan repayment and interest payment obligations (increase or
decrease);
(c) Changes of the loan maturity period;
(d) Changes of the Lender under the Principal Obligation.”
653. Dr Arkhangelsky’s pleaded case is that he did not sign the Personal Guarantees (or
indeed the Personal Loan) and is not bound by any of them.
654. Until recently, he unequivocally denied that he had entered into such agreements and
alleged that his apparent signatures had been forged by or at the instance of the Bank.
This was his case also in the BVI Proceedings.
655. In his 16th witness statement for trial, however, Dr Arkhangelsky stated that he had “no
memory whatsoever of entering into or signing any of these guarantees, or the personal
loan agreement, or any of the other disputed documents that have been considered by
the handwriting experts”.
656. He set out the following reasons why “until recently” he was “sure that none of them
could be genuine”:
(1) He had no memory of signing documents which exposed him to significant liability.
(2) He never agreed to give the Bank any personal guarantees, and at “one of my early
meetings with Mr Savelyev he specifically told me that the Bank would not insist
on my personally guaranteeing the Group’s liabilities.”
(3) There were no formal ‘signing ceremonies’ for the guarantees, unlike for some of
the loans.
(4) He was not in Russia on 21 July 2008 and so could not have signed the guarantee
for the Fourth Vyborg Loan on that date, and his wife was in Bulgaria at the date of
the consent for his guarantee in respect of the 2008 LPK Scandinavia Loan.
(5) The Bank did “not make any proper attempt to bring the claims on the guarantees
to my notice either before or after it started proceedings in Russia in reliance on the
guarantees.” In particular, he says that notices were sent to Ulitsa Dobrolyubova
(Dobrolyubov Street) when in fact his actual address was Prospekt Dobrolyubova
(Dobrolyubova Avenue).
(6) He alleges the Bank was involved in forging documents in other proceedings. He
refers to previous ‘expert’ evidence which he maintains support this allegation.
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657. On such basis, Dr Arkhangelsky says that previously he was “confident” that he had
not signed such agreements and that they were “in all probability forgeries”.
658. However, in his 16th witness statement, made shortly before and for the purposes of the
trial Dr Arkhangelsky modified his evidence as follows:
“More recently, however, my attention has been drawn to a
number of disclosed documents which refer to my having given
or agreed to give guarantees to the Bank. I have no recollection
of signing any of these documents either, but realistically, I
recognise that the Bank is unlikely to have forged such a large
number of documents merely in order to contextualise the
original forged guarantees, and that it is possible that I did in fact
sign the documents (albeit not at the signing ceremonies). Most
of them belong to an extremely busy, difficult and stressful
period of my life, when I would typically sign a large pile of
documents every day that was simply given to me by a secretary.
I was generally so busy that I would sign whatever documents
my employees asked me to sign without reading them properly
or even at all, on the assumption that documents would not have
been prepared without my instructions or agreement.
That being the case, I have reconsidered whether I might also
have signed the guarantees and the personal loan agreement.
While I still have great doubts on the matter I have to accept that
it is possible that I may have done.”
659. Notwithstanding the above, Dr Arkhangelsky says that he is:
“still convinced that the signatures on the addenda to the
personal guarantees are not mine, and that neither is the signature
on the instruction dated 28 November 2008 to transfer RUB 130
million to the account of Regata LLC at Energomashbank.”
660. Mr Stroilov, on behalf of Dr Arkhangelsky, his wife and OMG (whom I refer to in this
part of this judgment as “the Defendants”), expressly acknowledged the hurdle they
would need to overcome in terms of the inherent improbability that a lending bank
would fabricate documents, and especially so many such documents. He further
acknowledged that, as a matter of “common sense”, a defence based on forgery of such
documents in circumstances of massive default would almost inevitably be met with a
substantial degree of scepticism.
661. However, Mr Stroilov submitted that what he termed “these stereotypical assumptions”
could and should be displaced in the circumstances of this case, in which, so he
submitted (and I quote from the Defendants’ written opening argument):
(1) “This dispute takes place in the context of a much larger fraud committed by the
Bank against Mr. Arkhangelsky, and an ‘all-out war’ waged by the Bank against
him by dishonest and unlawful means”.
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(2) “Fabrication of documents is well within the Bank’s arsenal of means used in its
dispute with Mr. Arkhangelsky and the OMG”.
(3) “What is inherently improbable is that a large bank would indulge in fabrication of
documents at all. However, if it is proven to have fabricated various other
documents, it should be regarded as a fairly trivial issue of fact whether certain
alleged guarantees should be added to the list of its forgeries”.
662. The Defendants thus relied principally on circumstantial evidence and inherent
probabilities; they portrayed the handwriting expert evidence as mainly inconclusive,
and as lending little support to either side’s case.
The Claimants’ case as to the authenticity of the documents
663. The Claimants contend that the evidence shows beyond any real doubt, and certainly
on a balance of probabilities, that Dr Arkhangelsky did sign the Personal Guarantees
and Personal Loan, and the relevant additional documents.
664. The Bank relied not only on the “common sense” of the matter and the inherent
improbability of it having engaged in such wholesale forgery, but also on:
(1) Its typical practice of requiring personal guarantees;
(2) The large number of contemporaneous documents referring to the Personal
Guarantees and Personal Loan;
(3) The existence of written ‘Spousal Consent forms’ apparently signed by Mrs
Arkhangelskaya (though the Defendants denied the authenticity of these also);
(4) The fact that in the proceedings in Russia, Dr Arkhangelsky did not suggest that he
had not signed the Personal Guarantees;
(5) The demonstrable falsity of Dr Arkhangelsky’s more general assertion that it was
his practice never to give personal guarantees to any bank; and
(6) The expert handwriting evidence, which it contends clearly supports its case.
The Bank’s practice as to personal guarantees
665. The Bank maintained that its typical practice was to obtain personal guarantees from
borrowers, especially in respect of large amounts, and that in this regard Dr
Arkhangelsky was no different from any other borrower.
666. According to the Bank, while the ‘primary’ form of security for any loan was the
pledged asset, the ‘secondary’ form of security would, though not invariably, typically
consist of guarantees providing further security to the Bank: in particular, a personal
guarantee was considered important and was ordinarily required because it showed the
personal commitment of the individual behind the business to stand behind his business
and repay any loan.
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667. Ms Blinova, Ms Shabalina, Ms Kosova and Mr Belykh all testified that this was indeed
the Bank’s standard practice.
668. Ms Volodina stated that the Bank:
“did not always require personal guarantees from the owners of
corporate borrowers, but it was commonplace and not an unusual
requirement, in particular when a customer asked for
restructuring of facilities”.
669. Mr Savelyev expressly rebutted Dr Arkhangelsky’s allegation that Mr Savelyev told
him the Bank would not insist on personal guarantees as untrue. Mr Savelyev’s
evidence was:
“Mr Arkhangelsky says in paragraph 234(2) of his statement that
at one of my ‘early meetings’ with him, I ‘specifically told [him]
that the Bank would not insist on [him] personally guaranteeing
the Group’s liabilities’. This is completely untrue. Not only were
there no such meetings, but I never discussed with Mr
Arkhangelsky the question whether he would have to give a
personal guarantee. Mr Arkhangelsky’s allegation otherwise is a
total fabrication.”
670. The Bank’s case is that Dr Arkhangelsky’s provision of personal guarantees for the
loans which the Bank extended to OMG is not surprising, and that his contention that
he would not have contemplated any such thing is contrived. Dr Arkhangelsky was the
guarantor in other loan agreements with other banks.
Direct evidence of signatures
671. Ms Shabalina recalled that she had mentioned the requirement for personal guarantees
to Dr Arkhangelsky and that there was never any suggestion that Dr Arkhangelsky
objected to or had not signed personal guarantees. But she could “no longer now recall”
whether she saw him signing any such documents.
672. Indeed, of the Bank’s witnesses only Ms Blinova gave evidence of actually seeing Dr
Arkhangelsky signing any personal guarantee.
673. Ms Blinova added to her evidence that it was standard practice for the Bank to require
a borrower to give a personal guarantee for large loans: first, that she had prepared
guarantee documents for the First, Second and Third Vyborg Loans; secondly, that she
did not recall Dr Arkhangelsky or anyone else on behalf of OMG ever raising any issue
as to the provision of such guarantees; and thirdly, that she recalled seeing Dr
Arkhangelsky signing guarantees, although she could not now recall which particular
guarantees. She explained that Dr Arkhangelsky would come to the Investrbank office
to sign documents, but documents were also signed at the OMG offices and then
returned quickly to the Bank. She added:
“…although I cannot now recall Mr Arkhangelsky signing
particular guarantees in my presence, since he did sign in my
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Bank St Petersburg v Arkhangelsky
presence standard documents that were needed for loans, I am
sure that that must have happened. I do recall him signing at least
one personal guarantee and one guarantee from Scandinavia
Insurance in my presence, although I could not now (given the
passage of time) identify the particular document — at the time, I
was far more focused on the details of the mortgages or pledges
that were offered. This is because the mortgages and pledges
required coordination between the Bank and OMG. By contrast,
I do not recall any issues being raised by OMG in relation to the
guarantee.”
674. The impression I formed was that none of the witnesses, including Ms Blinova, had any
clear and reliable memory of Dr Arkhangelsky having signed one or more particular
guarantees; and that their evidence was more in the nature of assertion that as, to their
knowledge, the Bank would have required a personal guarantee he must have done so.
675. This is in line with the evidence of Mr Belykh as follows:
“…from my meetings (referred to above) and conversations with
Mr Arkhangelsky where we discussed OMG’s business plans and
financing needs, it is clear to me that Mr Arkhangelsky was not
only familiar with OMG’s borrowings with the Bank but was
ultimately responsible for any decision by OMG to obtain a loan
from the Bank. It would be inconceivable in my view that any
OMG company would enter into a loan without Mr
Arkhangelsky’s express approval of its terms, including the
security to be provided. At no point in my discussions with him,
or otherwise (as far as I know) when the OMG loans were
agreed, advanced or renewed did Mr Arkhangelsky suggest that
he had not provided the personal guarantees required under those
loans that required them, in circumstances where he was aware
of the terms of the loans. As such, the Bank had no doubt that
Mr Arkhangelsky had provided the personal guarantees
required.”
676. This was echoed by Mr Guz:
“I distinctly remember that in return for the loans OMG was
seeking in 2007 and 2008, companies in the group were able to
provide security and Mr Arkhangelsky was willing to provide
personal guarantees. I cannot remember for sure whether this
was discussed in any of my meetings with him, although I
suspect it was probably mentioned in at least one of them, but
the provision of such personal guarantees was entirely usual and
I would certainly have been told (and would expect to have
remembered) if there had been any problem with the provision
of a personal guarantee by Mr Arkhangelsky.”
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Bank St Petersburg v Arkhangelsky
677. Any finding as to whether Dr Arkhangelsky did sign the Personal Guarantees must thus
predominantly be based on circumstantial and expert evidence. This to some extent is
in contrast with the position relating to the Personal Loan, where Ms Patrakova also
recalls taking the documents to Dr Arkhangelsky and him signing the contractual
documents in front of her.
Contemporaneous documentation
678. The circumstantial evidence is substantial and includes a very large number of
contemporaneous documents referring to the Personal Guarantees and Personal Loan.
The evidential record includes many Bank resolutions from all levels (MKK, BKK, and
Management Board), reports and OMG analyses, credit investigations and so forth,
which expressly refer to Personal Guarantees and a Personal Loan.
679. The Claimants contend that, if Dr Arkhangelsky’s pleaded defence were right, then all
such documents must have been created or tampered with in some way so as to refer to
agreements which were not entered, and that this is simply not credible. But they also
contend that parts of the documentation, and in particular, internal OMG Debt
Schedules, “conclusively dispose of the forgery allegations”.
680. The internal OMG Debt Schedules, which were disclosed by the Defendants only in
July 2015, appear to record the salient details of OMG’s borrowings from various
banks, including the Bank. More particularly:
(1) The “OMG Debt Portfolio” as at 25 September 2008 is a table which gives details
of the loan agreements to OMG companies from various banks.
(a) There is a column for “collaterals” and a further column entitled
“Guarantees” which lists guarantees provided for the various loans. They
include guarantees from various OMG companies, including from Scan.
The column also lists guarantees from Dr Arkhangelsky himself.
(b) In relation to the loans from the Bank, the table records personal guarantees
from Dr Arkhangelsky for five out of the six Personal Guarantees which are
in dispute, as well as guarantees from Scandinavia Insurance in relation to
the relevant loans.
(c) The schedule also lists personal guarantees which Dr Arkhangelsky gave to
a number of other banks.
(2) There are two previous versions of the Debt Schedule from 27 February 2008. They
show the “OMG debt table” as at that date setting out the associated personal and
Scan guarantees for OMG’s loans. They do not include any of the loans to Vyborg
Shipping or to LPK Scan in 2008, because they had yet to be advanced as at the end
of February 2008.
(3) It may be that the “OMG Debt Portfolio” was updated on a regular basis as OMG
took out further loans, but no other versions have been disclosed.
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Bank St Petersburg v Arkhangelsky
681. There is no doubt as to the authenticity of the OMG Debt Schedules; and there can be
no real doubt that Dr Arkhangelsky was aware of them. For example, the September
schedule was attached to an email dated 25 September 2008 from Mr Daniil Dubitskiy,
OMG’s business development manager, to Mr Keith Parker in the OMG ‘London
office’. Dr Arkhangelsky was copied into the email.
682. Under cross-examination, Dr Arkhangelsky acknowledged that he had seen at least the
September schedule before, but he had no convincing explanation as to why the
document recorded that he had given personal guarantees for OMG loans:
“Q. So it suggests, doesn’t it, from this schedule, that you have
given a personal guarantee for that loan?
A. No.
Q. Why do you say that?
A. Because as far as I understood, this table was done by
employees, not by their own record, because we haven’t had any
such record, but from the information the banks produced. So
nobody [had] really been taking care and checking documents.”
683. I cannot accept this attempt at an explanation. I agree with the Bank that it is implausible
because: (i) OMG itself drew up the schedule; (ii) OMG plainly had its own records of
the details of the loans which it had received; (iii) Dr Arkhangelsky’s explanation
necessarily relies on the Bank having ‘fabricated’ its records to show personal
guarantees before the date of any alleged conspiracy; (iv) other banks must also have
fabricated their records; and (v) such fabricated bank records must have been provided
to OMG, and yet no one at OMG noticed the fabricated references to guarantees.
684. Likewise, I cannot accept Dr Arkhangelsky’s attempts to minimise the evidential
significance of the documents by marginalising the status of those who had compiled
it, suggesting that Mr Dubitskiy was not a “specialist in finance”, but a “low level, low
quality employee”, and that he was “absolutely sure” that the “materials [were] being
provided by the banks”.
685. I agree with the Bank that these points do not assist Dr Arkhangelsky:
(1) Dr Arkhangelsky was himself copied into the email. The email and attachment were
obviously important because the information was necessary for OMG’s financing
initiatives. Dr Arkhangelsky was well aware of the debt schedule at the time and
did nothing to correct it; he surely would have done so if he had in fact not given
the Personal Guarantees. If, as he said, he was “so busy” speaking to “many, many
international banks” to raise finance, then the one thing he would have checked was
the information about OMG’s debts which was to be provided to Mr BromleyMartin.

(2) Dr Arkhangelsky’s reliance on the apparently junior status of Mr Dubitskiy cannot
diminish the evidential significance of the information contained in the OMG debt
schedule.
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Bank St Petersburg v Arkhangelsky
(a) Dr Arkhangelsky’s excuse could not work for the author of the February
OMG debt schedule, Mr Sazonov. Mr Sazonov was certainly not a junior
OMG employee, but the deputy director of Oslo Marine Holding. Dr
Arkhangelsky admitted that Mr Sazonov was a “specialist in financing”, and
that he was “considered to be one of the key persons for attracting
financing…”.
(b) On 22 September 2008, Ms Generalova, who was described as OMG’s
“Leading IFRS Specialist” sent the February debt schedule to Mr Parker,
copying in Dr Arkhangelsky. Mr Parker forwarded the email and debt
schedule to Mr Bromley-Martin. Mr Parker, who was head of the OMG
London office and was coordinating matters with Mr Bromley-Martin,
plainly had a senior role within OMG. Ms Generalova appears to have been
in charge of organising OMG’s accounts and/or financial information for
auditing purposes. She could be expected to have had accurate information
about OMG’s financial status.
(3) Mr Bromley-Martin, to whom the September Debt Schedule was sent, was given
and had no reason to believe that the guarantees listed in the document were not
actual guarantees.
686. The documentation itself also refers to the fact of personal guarantees. Thus:
(1) Each of the Vyborg Loan agreements, none of which is disputed, refers in its own
terms to the particular Personal Guarantee and Scan guarantee which were to be
given. Dr Arkhangelsky, as President of GOM, Vyborg Shipping’s founder, signed
decisions authorising Vyborg Shipping to enter the loans, which provided that the
“terms and conditions of the loan agreements are known; there are no objections”.
(2) For each of the Vyborg Loans, in addition to the Personal Guarantees, Scan also
gave guarantees, which Dr Arkhangelsky denies signing. GOM, as the 100%
shareholder, authorised Scan to give such guarantees.
(3) Each of the guarantees has its own additional agreement from the end of December
2008, amending the guarantees.
(4) On 18 April 2008, Ms Blinova emailed OMG, copying in Dr Arkhangelsky,
attaching drafts of the Personal Guarantee and Scan guarantee for the Second
Vyborg Loan.
(5) The First Onega Loan agreement, which is not disputed, and which Dr
Arkhangelsky accepts he signed, refers in its own terms to the provision of a
Personal Guarantee and a Scan guarantee. In his oral evidence, Dr Arkhangelsky
admitted that when he signed the loan agreement he saw reference to the Scan and
personal guarantees.
(6) On 1 December 2008, Ms Blinova emailed OMG, copying in Dr Arkhangelsky, and
referring to the direct debit agreements to be set up for the Scan guarantees. There
are direct debit agreements between Scan and other banks in respect of the
guarantees it gave.
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Bank St Petersburg v Arkhangelsky
(7) The Bank’s accounting records register the various guarantees.
687. Further, there is a record of Dr Arkhangelsky, as Director-General of GOM, signing the
decision authorising Scan to give the Scan guarantee for the amendment to the First
Onega Loan. This authorisation is not disputed. If there were no Scan guarantee, Dr
Arkhangelsky would never have signed such an authorisation.
688. The Defendants’ last resort was to say that there are also Bank internal documents
concerned with the underlying loans which do not refer to guarantees or are not
otherwise consistent with the provision of the guarantees. They relied in particular on
the fact that sometime in November/December 2008, Ms Mironova caused to be
prepared a word document setting out calculations for the reserves and the security for
the OMG debts, and an Excel spreadsheet listing the OMG debts, including the terms
of the loans and the subject and value of various assets available as security. The
spreadsheet does not list some of the Personal Guarantees. Ms Mironova said that this
was a mistake: she was not cross-examined on this.
689. Mistakes or curiosities, the omissions do not seem to me to begin to outweigh the
references above cited.
Evidence of direct debit agreements premised on Scan guarantee
690. In addition to all this, the Scan Guarantee was also supported by a number of direct
debit agreements between Scan (signed by Dr Arkhangelsky), the Bank and third party
banks, pursuant to which in respect of the Scan Guarantee the Bank could recover
monies from Scan’s account at those banks. In particular:
(1) There was a direct debit agreement between Scan, the Bank, and V-Bank. The
agreement contains V-Bank’s seal:
“Q. You are not suggesting, are you, that Bank of St Petersburg
has somehow forged the seal of the [V-] Bank, are you?
A. I don’t know. I cannot reply on that.
Q. It’s not very likely, is it?
A. I don’t know.”
(2) There was a direct debit agreement between Scan, the Bank and Promsvyazbank.
The agreement contains Promsvyazbank’s seal:
“Q. You are not suggesting, are you that Bank of St Petersburg
forged or fabricated that seal on this document?
A. I don’t know.”
(3) There was a direct debit agreement between Scan, the Bank, and City Invest Bank.
The agreement contains City Invest Bank’s seal:
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Bank St Petersburg v Arkhangelsky
“Q. The same point, the corporate seal of City Invest Bank seems
to have been attached to this document, doesn’t it?
A. Yes.
Q. And you appear to have signed this document, don’t you?
A. Maybe.
Q. So you accept that that may be your signature?
A. It might be, yes, I don’t know.”
691. Dr Arkhangelsky struggled to find a plausible explanation under cross-examination; but
notwithstanding Scan’s entry into the direct debit agreements, Dr Arkhangelsky first
sought to dispute that he signed the Scan guarantee agreement to which each direct
debit agreement related:
“A. I never signed guarantee documents. You are probably
referring to these three-party agreements, or – these three-party
agreements I could sign, yes, because I couldn’t see any
difficulties.
Q. Even though they referred to a Scan guarantee?
A. Yes, if they are referring to the documents which is not
existing, what is the problem of signing that, if the Bank asks me
to do so and if the Bank tells me that my loan would be cheaper
for me?”
Thus, in relation to the Fourth Vyborg Scan direct debit agreement, his evidence was:
“Q. But your evidence is that it wouldn’t really matter, because
you hadn’t signed the guarantee agreement; is that right?
A. Absolutely.
Q. So you could deny subsequently that you had entered into the
guarantee, although you had signed and sealed a direct debit
agreement in relation —
A. Absolutely. Absolutely. As I explained you before, I’ve been
quite flexible to an enquiry of the Bank, and they were
explaining me that it would be more comfortable and more easy
for them to handle my file, I could sign the documents which I
was not considered to be an important documents. Like, for
example, this three-party agreement.”
692. While Dr Arkhangelsky accepted that he did sign direct debit agreements for the
guarantees as well as the GOM authorisations for the guarantees, he said he did so
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Bank St Petersburg v Arkhangelsky
because they did not have any ‘legal consequences’. This is not easy to follow. He put
Scan under a liability in respect of each Scan Guarantee.
693. Dr Arkhangelsky then fell back on an argument that he only signed the direct debit
agreements to assist the Bank in establishing a documentary trail sufficient to justify it
not making reserves, but that it was always understood that the documents were there
for show and not for substance.
694. In his oral evidence, Dr Arkhangelsky referred to discussions with both Mr Savelyev
and Mr Guz in which the Bank allegedly needed guarantees for the purposes of its
reserves, as a result of which Dr Arkhangelsky said that he signed some agreements
(such as direct debits), but not other agreements (such as the guarantees). The passages
below illustrate the burden (and confusion) of his answers under cross-examination:
“Q. I think you said you had discussions with Mr Savelyev and
Mr Guz —
A. Yes.
Q. — to do with reserves?
A. Yes.
Q. And they told you what: just sign them and we will never see
[sue] you on them; or —
A. No, no, no. What they’d been telling me, that there are
standard sets of documents in the Bank, like the agreement you
shown us today. That these documents, they done once by the
Bank, by the legal department of the Bank, and all these
contracts, loan agreements and so on, they should not be
changed. So they do it on an automatic level, and then I don’t
need to sign guarantees as long as I am a big client, first of all;
secondly, that most of the assets which belongs to me anyhow,
or most of the assets are already mortgaged to the Bank, so
everybody understood the lack of necessity. So what is the value
to give a personal guarantee for billions if I don’t have any assets
— personal assets, let’s put it this way. So they said, okay, that I
need to sign some strange documents like three-party agreements
with the other banks, but as long as it’s not having any
consequences, any — as long as it doesn’t result in anything, so
then it couldn’t create a problem for anybody.
Q. So Mr Savelyev and Mr Guz —
A. Yes.
Q. — told you that you could just sign direct debit agreements?
A. Yes.
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Bank St Petersburg v Arkhangelsky
Q. And, what, that you didn’t need to sign any of the guarantee
agreements?
A. Yes, absolutely, that was the agreement from the very
beginning, from my first two meetings with Guz and Savelyev,
that I would get loans without any personal or corporate
guarantees.”
Mr Arkhangelsky then added:
“I am absolutely sure, and actually the Bank was quite clear on
that, I mean that time, that we have our own files, our — I mean
OMG group had our own loan files and the Bank, they were
manipulating the reserves in the Central Bank, and the Bank was
producing their own in-house documents, and I’ve been told
many times by Mrs Volodina, Savelyev, Guz, Belykh,
Shabalina, and afterwards, Mironova, that I should not intervene
in their in-house work because they were telling me many times
that they are manipulating the reserves and the Central Bank
supervision and Central Bank regulation, and if they do their inhouse
files the way they think it should be, then it would be less
reserves, and loans to OMG group would be cheaper. So I’ve
been quite reluctant to that, so I thought that they are big boys
and they know if it’s a bribe or if it’s a corruption with Central
Bank by the Bank of St Petersburg, or it’s any other crime against
shareholders, but it was not my case. My case was to develop my
group of the companies and get loans at a comparatively cheap
price. So that’s why I was aware that they are fabricating
documents for their own purposes. But as long as I was not a
subject to — and I was not involved any how in this, so I kept my
eyes closed.”
695. These allegations of manipulation of reserves and criminal breach of banking and
accounting standards, none of which the Defendants had ever made before and which
later were adapted by Dr Arkhangelsky into a wider allegation that the Bank had
“always been quite proud that they play games with”, and was able to and did ‘bribe’
the Russian Central Bank, were supported only by Dr Arkhangelsky’s assertion of
“Knowledge. Knowledge. My knowledge”, and some suggestion that he had heard this
from “Mrs Volodina, from Savelyev, from Guz and others…openly telling”. The
allegations were not pleaded, and (except for a further short reference in paragraph
[706(1)] below) I do not think it necessary to say any more than that there was no
sufficient basis for their assertion.
696. In the present context of assessing whether Dr Arkhangelsky has any real answer to the
Bank’s contention that the Direct Debit Agreements conclusively demonstrate that Dr
Arkhangelsky agreed to and did commit Scan to the Scan guarantees, it may be noted
further that:
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Bank St Petersburg v Arkhangelsky
(1) The allegation was internally inconsistent. Whereas in his witness statement Dr
Arkhangelsky had alleged that Mr Savelyev had specifically told him that the Bank
would not insist on personal guarantees, in his oral evidence he reversed his position
saying that Mr Savelyev did need personal guarantees for “reserving purposes”, but
had allegedly agreed that Dr Arkhangelsky did not need to enter them. If the latter
had any truth, then it would have featured in Dr Arkhangelsky’s witness statement.
His oral evidence was:
“A. … So what I have been told by the Bank is that these, they
require for the purpose of reserving, and if it’s mentioned in one
document, then they can make reserves in the volume they need
and they want. And they have also always been telling me that
these type of the contracts have been agreed by the board of the
Bank and not any changes to be implemented. So either I sign
this document and take it as it is, and then I don’t need to sign
any agreements which are mentioned here; or it would take a
much longer time to renegotiate and so on, and as I have always
been meeting Mr Savelyev, he’s always been telling that he needs
all of these for the reserving purposes, but our agreement that I
don’t issue the personal guarantees as well, it’s forever.
Q. You have not given that explanation before, have you, Dr
Arkhangelsky, about reserves? About the Bank just putting in
this provision to help it on its reserve calculation? It is the first
time you have said that, isn’t it?
A. I don’t remember, but it is like this.
Q. Because in your witness statement, which I took you to this
morning, where you said that you signed a large pile of
documents every day, you didn’t make any reference to this
being a possible explanation, did you?
A. I don’t understand your question.
Q. Well, it’s the first time that you have suggested that the
reference to guarantees is simply something that the Bank
wanted for its own internal reserve purposes, as opposed to
wanting you to enter into the guarantees themselves?
A. I’ve never been entering into any guarantees. I know that they
have been using this for the purposes of their reserving; they’ve
been doing some artificial and whatever work they’ve done. I
don’t know details how they did it and what for and how and
when, but I know that some contracts, agreements, they could
produce internally for the purposes of reserves, and they’ve
always been quite optimistic and they’ve always been quite
proud that they play games with the Central Banks and reduce
seriously reserves.
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Bank St Petersburg v Arkhangelsky
Q. But they would need, wouldn’t they, to have the guarantees in
place for that purpose?
A. I don’t know if they do it artificially. It depends on their
relations with the supervisory authorities. So I have not been
deep in how they do it and it’s not absolutely my case, so I am
not really interested how they have been bribing Central Bank.”
(2) Dr Arkhangelsky was unable to point to any document to support his allegation that
what the Bank said to him about guarantees was just for its own reserve purposes.
697. A third tack taken by Dr Arkhangelsky was a suggestion that the agreements had no
effect in any event because Scan’s accounts at these third party banks were, apparently,
empty:
“A. I don’t remember this particular document, but it might be
the case that among thousands of documents which I signed for
the Bank of St Petersburg, considering the necessity to have
documents for the Central Bank regulation and the reserves, I
could have signed that, considering the fact that it doesn’t have
any real obligations on me; it doesn’t imply any obligations on
myself or my companies.
Q. But it does, doesn’t it? You are signing on behalf of Scan
Insurance. You are signing a right for various deductions to be
made from a Scan Insurance bank account, aren’t you?
A. Yes, but I can’t see any problems, because all these bank
accounts, they’ve never been in operation, so it was empty
accounts and I couldn’t see any problems or difficulties. And I
was absolutely aware that, even if I signed such document, it
would not have been really working.
Q. Each of these three documents refers to the Scan guarantee,
doesn’t it?
A. Maybe, yes.
Q. But when you signed these documents, were you not
concerned that you appeared to be signing a document referring
to a guarantee that, on your case, had never been entered into?
A. No.
Q. You were not concerned?
A. No, because I’ve been asked by the Bank that they need such
documents and they need such things to be formally done, even
if the guarantee is not existing.
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Bank St Petersburg v Arkhangelsky
Q. Why would the Bank need a direct debit agreement executed
if, in fact, they were never going to —
A. Because it’s the easiest point to check for the Central Bank.
Q. Is your evidence that you weren’t concerned about signing
these direct debit agreements?
A. Direct debit agreements, no, because I was absolutely aware
that it doesn’t have any influences or any consequences
afterwards. Especially on accounts which have never been in
operation.
Q. So you were comforted by the fact that there would never be
any money in these accounts which could then be debited?
A. No, theoretically they could be, but, you know, the rule, if
they needed such agreements, formally it had to be done on all
accounts the company has. So I couldn’t see any difficulty to sign
that, and that could be easily traced by the Central Bank, even if
they can bribe — if the Bank of St Petersburg can bribe Central
Bank, but having any enquiries to these banks would create
trouble for them. So I couldn’t see any difficulties for myself to
signing that, if the Bank of St Petersburg was asking me to do
so.”
698. For comprehensiveness I should mention briefly a yet further tack adopted by Dr
Arkhangelsky during his cross-examination: this was to float the suggestion, again
unheralded in the pleadings or his 19 witness statements, but given some apparent
substance by a passage in Ms Volodina’s witness statement (para. 63), that the Personal
Guarantees were created as part of the restructuring of OMG’s debts in December 2008
because the Bank discovered that none was in place, resolved to make good the
deficiency and then backdated and executed the relevant documents with a forged
signature.
699. As indicated, there is some support for the suggestion in Ms Volodina’s witness
statement, where she appears to place the identification of the need for guarantees in
the context of the restructuring and states this:
“I recall that, in the context of the restructuring, the Bank
required personal guarantees from Mr Arkhangelsky to be in
place. I believe that this was considered to be necessary to show
that Mr Arkhangelsky was acting in good faith and would stand
behind the obligations of his companies.”
700. Mr Stroilov did not cross-examine Ms Volodina on this point, preferring presumably to
rely on that evidence rather than query it. However, he did then cross-examine Ms
Mironova on the relevant paragraph of Ms Volodina’s witness statement, as follows:
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Bank St Petersburg v Arkhangelsky
“Q. I’m not suggesting it is, but what Ms Volodina’s evidence
suggests to me is that as of December 2008, some or all of
the personal guarantees were missing, and then the Bank
required for them to be put in place: isn’t that a fair reading
of that evidence?
A. My Lord, I cannot tell how to interpret this evidence. Mrs
Volodina should be addressed about this. But as of December
2008, all the loans with respect to which we had sureties [sic]
from Mr Arkhangelsky, they were issued as at the time when
the loans were extended, but certainly not in December
2008…
Q. Ms Mironova, isn’t the truth that it was only at that point that
you were told by your superiors that personal guarantees
must be in place, and then you have arranged for them to be
put in place and backdated, like a lot of other documents?
A. This is absolutely out of line with what happened…and this
is confirmed by the fact that every loan agreement dating
back to 2007 and 2008 at the very beginning, personal
guarantees by Mr Arkhangelsky were clearly stated.
Q. And isn’t it the case that in that period, as part of putting all
the documents in place, you caused Mr Arkhangelsky’s
signatures on the alleged personal guarantees to be forged?
A. My Lord, the Bank never engaged in any forgery of any
signature of Mr Arkhangelsky or any other gentleman.”
701. The propensity of the Bank to backdate documents in order, for regulatory and
accounting purposes, to present as completed that which had been agreed in principle
but not yet finalised, is apparent from the restructuring documentation itself. But for all
the reasons previously identified, and despite some misgivings as to the reliability of
the Bank’s oral evidence in this regard, I do not think that either Ms Volodina’s
evidence or the other contextual matters are sufficient to establish the Defendants’
serious allegation of forgery, which would involve a finding of complete fabrication of
so many documents. That conclusion is supported by a number of further
considerations.
No allegation of fabrication of the Personal Guarantees in the Russian proceedings
702. Though inconsistency is not of itself probative of either version, it is notable that in the
various enforcement proceedings brought by the Bank against Dr Arkhangelsky and
Scan in Russia in 2009 and 2010 (long before the proceedings in the BVI and then in
this jurisdiction) Dr Arkhangelsky did not raise any issue as to the authenticity of the
various Personal Guarantees, though he did contend (unsuccessfully in the event) that
the signature on various of the Additional Agreements was not his.
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Bank St Petersburg v Arkhangelsky
703. Thus, for example, Dr Arkhangelsky defended the claims against him for repayment of
the Fourth Vyborg Loan, the 2008 LPK Scandinavia Loan and the First Onega Loan
not on the basis that he had not signed the original Personal Guarantee or that such a
guarantee was fabricated, but on the basis that the original Personal Guarantee was void
because of an alleged material change in the underlying loan obligation between the
Bank and the primary borrower (for example, in respect of Vyborg Shipping, when the
Bank increased the interest rate for the loan from 15.25% to 16.25% per annum).
704. The Claimants made the point (a fair one, as it seems to me) that if Dr Arkhangelsky
had never signed any Personal Guarantee or Scan Guarantee, then once the Bank
commenced proceedings in respect of such guarantees, it would be expected that his
first reaction should have been one of shock, and his first objection should have been
that he never signed any such documents. Dr Arkhangelsky never came up with a
convincing explanation why that was not the initial reaction expressed by him or by his
representatives on his behalf. In broad terms, he pleaded his absence from Russia and
consequent loss of reliable contacts, faithless lawyers deaf to his instructions, pressure
from “the Bank’s policemen” and ultimately that the proceedings in Russia were
“unimportant”; but, in my view, none of these explanations carried conviction.
Falsity of Dr Arkhangelsky’s assertion that he never gave guarantees to any banks
705. Although it was part of Dr Arkhangelsky’s case that he did not sign any of the relevant
guarantees in this case that it was his practice never to give personal guarantees to any
bank, there is evidence that he gave guarantees to a number of banks, including Svyaz
Bank, Morskoy Bank and V-Bank.
706. In particular:
(1) The OMG Debt Schedules record not only personal guarantees given to the Bank,
but personal guarantees given to a number of other banks. The September schedule
lists personal guarantees given by Dr Arkhangelsky to Svyaz Bank and Morskoy
Bank. To attempt to explain away these entries, Dr Arkhangelsky had to expand his
story concerning the Bank’s alleged manipulation of reserves to allege that “all the
big banks, they are playing with reserves and that’s their game”. I cannot accept this
as having been established.
(2) The OMG Debt Schedule did not list any personal guarantees given to V-Bank, and
Dr Arkhangelsky was emboldened to say that V-Bank was “much more reliable and
solid people…they have been more honest and they have not been playing dirty
games like with the Central Bank…”. However, there is in fact clear evidence that
Dr Arkhangelsky did give a personal guarantee to V-Bank. The notes of Mr Ameli’s
meeting with Mr Novikov of V-Bank in late March/early April 2011, which were
exhibited to Mr Ameli’s statement, record:
“The additional guarantees did not offer sufficient
coverage in any case. The bank requested a personal
guarantee from Mr Arkhangelsky and it obtained it. It is
not normal practice but at that time, yes. We agreed not
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Bank St Petersburg v Arkhangelsky
to use it as we were certain that he would do everything
to achieve it.”
There is no reason to doubt the accuracy of the note. Dr Arkhangelsky could provide
no credible explanation why Mr Ameli would have written it unless it was true that
he had given a personal guarantee to V-Bank.
(3) Third, there are a large number of other proceedings involving Dr Arkhangelsky
and banks other than the Bank. The obvious explanation why other banks are
pursing Dr Arkhangelsky is because he gave other personal guarantees: and,
although he denied it, he offered no other reason why he would be pursued.
707. Thus, the available circumstantial evidence appears to me to be inconsistent with Dr
Arkhangelsky’s assertion that he never gave any bank any personal guarantees, which
I reject accordingly. That further undermines his case that he did not sign the Personal
Guarantees.
Specific points regarding the Personal Loan
708. Before turning to the expert handwriting evidence, I should note three short further
specific points in relation to Dr Arkhangelsky’s pleaded position that he did not sign
the Personal Loan.
709. The first is to note that in his 16th witness statement for trial, he says:
“I note that the Memorandum refers to a personal loan having
been made to me on or about 28 November 2008 in an amount
of RUB 130 million, apparently expiring on 31 December 2008
but extendable for one year. I did not notice the reference to a
personal loan at the time of signing the Memorandum and I have
no knowledge of any such loan agreement, although as I explain
below I accept now, in the light of all the disclosure that has
recently come to light, that it is possible that I did sign such a
document.”
710. Secondly, and as with the Personal Guarantees, a large number of documents, in
addition to the Memorandum itself, refer to the Personal Loan. For example, on 19
December 2008 Ms Blinova emailed OMG, copying in Dr Arkhangelsky, referring to
its upcoming repayments, and in particular specifying the Personal Loan. She reminded
him on 26 March 2009 that a further mortgage over the Western Terminal assets, which
had been proposed for the extension of the Personal Loan, had yet to be finalised. Other
documents show the Bank arranging with OMG the security in respect of the Personal
Loan.
711. Thirdly, it is of interest that in the Russian proceedings to enforce against the Personal
Loan, Dr Arkhangelsky admitted he received the sum, but alleged that it had been
removed from his account without his consent.
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Bank St Petersburg v Arkhangelsky
Handwriting evidence
712. I turn to the handwriting expert evidence, with the initial acknowledgment on my own
part that what at the early interlocutory stages of the proceedings before trial I envisaged
as being central in the disposition of the claim, and engendered a great deal of
interlocutory heat and expenditure, was eventually revealed to be somewhat peripheral,
and in the end, either undisputed or inconclusive.
713. Indeed, ultimately, Dr Arkhangelsky eventually appeared to concede that he could have
signed the relevant documents, although he did not withdraw his pleaded case that they
were forgeries, and in his oral evidence occasionally sought to resurrect that case.
714. I consider that I should nevertheless to describe the parameters of the dispute, and
summarise the difficulties that have surrounded its exegesis.
The experts and the process
715. The Claimants instructed Dr Giles and the Defendants instructed Mr Radley as their
respective experts on the examination of documents and handwriting. Each has more
than 30 years’ distinguished experience in the field and is well known to and highly
regarded by the courts in that context.
716. Dr Giles provided three reports for trial dated 25 April 2012, 10 February 2014 and 22
July 2015 respectively. The elongated time frame reflects not only the tortuous process
prior to trial, but also the delays on the part of the parties in reaching sufficient clarity
as to what documents were in dispute and what comparators could be agreed.
717. Mr Radley provided one statement, dated 21 August 2015. However, the Defendants
had previously instructed another expert, Mr David Browne (“Mr Browne”), another
well-known expert, whose report dated 11 February 2014 was also in evidence. Mr
Browne was replaced as the Defendants’ expert by Mr Radley with my permission in
2015 in light of the Defendants’ concerns that Mr Browne may have adopted a flawed
methodology in selecting comparators.
718. Dr Giles and Mr Browne also produced a Joint Statement dated 28 March 2014 after a
meeting between them on 12 March 2014. This too was in evidence.
719. There were originally 28 documents allegedly signed by Dr or Mrs Arkhangelsky which
they denied signing and which thus were in dispute, to which were later added 11 Scan
guarantees and other agreements which were disputed by the Defendants. These
became known as the “‘File A’ documents”.
720. To assess the issue of their authenticity a number of originally agreed ‘comparators’,
known as the “‘File B’ documents” were provided and examined; but on 2 April 2015,
the Defendants said that documents [B1]-[B8] should be excluded from the expert
analysis because the Defendants no longer accepted them as genuine, and instructed
their expert, Mr Radley, not to consider them.
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Bank St Petersburg v Arkhangelsky
721. A large number of other documents showing the Defendants’ signatures were in “File
C”. File C contained 47 documents which the Defendants identified they could
potentially have signed, but which they were not prepared to accept that they did sign.
722. On 2 April 2015, the Defendants produced a further set of documents, known as “File
F”. The Claimants were, in effect, prepared to include these documents as comparators.
723. At the height of this dispute as to the comparators, in early May 2015 the experts
produced an agreed memorandum. It said:
“Dr Giles understands that Mr Radley has been instructed by
Messrs Withers to disregard the eight comparator documents
[B1]-[B8] in his examinations as these are not accepted by his
clients as genuine. The signatures on documents [B1]-[B6] are
the only long form Arkhangelsky signatures which have been
included as comparators. The removal of these particular
signatures [B1-B6] means that there will be no signatures of this
type available for comparison.
The additional documents now produced in File F contain
examples of the short form of signatures used by Mr
Arkhangelsky (previously identified as not genuine by Mr
Brown) and recent signatures. If the comparators are restricted
to signatures [B9]-[B16] and [B21] along with File F documents
this will mean that the only signatures available for comparison
are either in the short form, in the Identity Card type form or
recent signatures. The recent signatures of Mr Arkhangelsky do
appear to be different from those from the relevant period in
2008 and 2009 and are, therefore, of no assistance to us.
Dr Giles is not convinced that this restricted group of
comparators [B9-B16, B21 and File F represents the true range
of variation to be found in Mr Arkhangelsky’s signature at the
relevant time. We are both aware, having had forty years of
experience in the forensic examination of signatures, that it is not
uncommon for comparators to be manipulated in an attempt to
mislead the expert either into reaching an incorrect conclusion
or from being able to reach any conclusion at all. We emphasise
that it is essential to this examination that a complete range of
undisputed signatures of Mr Arkhangelsky covering all the
forms of his signature from the relevant period should be
available to both of us for comparison and these documents
would have to be acceptable to both parties. In the absence of
such an agreed set of undisputed comparators it will be
impossible for us to try to reach any sensible conclusion
regarding the questioned documents. Even with further known
writings, a meaningful opinion on this type of very basic
signature (which must be regarded as susceptible to simulation)
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Bank St Petersburg v Arkhangelsky
cannot be guaranteed. The quality and quantity of appropriate
comparison material will be of significance in this regard.”
724. Both experts agreed, therefore, that the simplicity of Dr Arkhangelsky’s admitted
signatures made it at once easy to forge and yet difficult to establish whether it was
forged, at least without admitted comparators of quality and in quantity.
725. On 24 June 2015, the Defendants’ solicitors referred to 17 further documents from the
Claimants’ disclosure which were signed by Dr Arkhangelsky, but which they said they
were considering with Dr Arkhangelsky to see “which additional documents may need
to be added to the ‘disputed’ list”.
726. Even at trial there remained an unresolved dispute between the parties as to the set of
‘agreed’ comparators.
727. I have rehearsed this tortuous (“chequered” as the Claimants put it) course of the
disputes between the parties as to what should be taken as the comparators for the
exercise concerned for two more substantial reasons than a recording of the
unsatisfactory and ultimately inconclusive interlocutory battles. The first reason is that
the consequence of the failure to bring finality to an approved list of comparators has
inevitably reduced the reliability and value of the expert analyses and evidence. The
second reason is to provide the context for the Claimants’ allegation that Dr
Arkhangelsky’s prevarication in agreeing comparators has been deliberate and intended
to frustrate the expert analysis, and the Defendants’ counter-allegation that it was the
Claimants who sought to tie the exercise to an inappropriate selection of comparators
and then refused to engage in an effort to obtain more reliable comparators from
independent third parties, and insisted on using documents held by the Bank. That
second issue could be of material relevance both in the assessment of credibility, and
in assessing the Counterclaimants’ allegation that the Claimants fabricated the
guarantees as part of the conspiracy against them: and see paragraphs [903] to [908]
below.
Experts’ findings as to authenticity
A Dr Giles
728. In her 2014 report, Dr Giles found “strong positive evidence” that Dr Arkhangelsky
signed the following:
(1) First Vyborg Personal Guarantee.
(2) Second Vyborg Personal Guarantee.
(3) Additional Agreement to 2008 LPK Scandinavia Personal Guarantee.
(4) Additional Agreement to First Onega Personal Guarantee.
(5) Personal Loan.
(6) Additional Agreement No. 1 to Personal Loan Scan Guarantee.
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Bank St Petersburg v Arkhangelsky
(7) Application for transfer of funds to Regata (and see paragraphs [611(4)] and [659]
above).
(8) Application for transfer of funds to Mrs Arkhangelskaya.
(9) Loan Agreement No. 1 between Dr and Mrs Arkhangelsky.
729. Dr Giles found “positive, albeit weak evidence” that Dr Arkhangelsky signed a previous
(September 2008) Additional Agreement to the First Onega Personal Guarantee.
730. She noted that the Personal Loan contained a number of signatures, including those in
the ‘agreed comparators’, but also a “simplified form” which appeared on other
documents. Therefore, she found “positive, albeit weak evidence” that Dr
Arkhangelsky also signed:
(1) Third Vyborg Personal Guarantee.
(2) Fourth Vyborg Personal Guarantee.
(3) 2008 LPK Scandinavia Personal Guarantee.
(4) First Onega Personal Guarantee.
(5) Additional Agreement No. 1 to First Onega Personal Guarantee.
(6) Additional Agreement No. 1 to Personal Loan.
731. Dr Giles considered that there was “only weak” evidence that Dr Arkhangelsky signed
Additional Agreement No. 2 to the Personal Loan.
732. In respect of the four Additional Agreements to the Vyborg Personal Guarantees, she
described her findings as “inconclusive”.
733. Dr Giles’s analysis of the Scan guarantees proceeded on a different set of ‘agreed
comparators’ which removed documents [B1]-[B8]. Dr Giles found “positive, albeit
weak” evidence that Dr Arkhangelsky signed the First Onega Scan guarantee. As to the
signatures on the Vyborg Loan Scan guarantees, the evidence was “inconclusive”.
734. In relation to other questioned documents, concerning Scan guarantees in respect of
OMG loans not in issue in the proceedings, her findings were “inconclusive”, save for
the Scan guarantee to the 2007 LPK Scandinavia Loan where there was “positive albeit
weak” evidence that the signature was genuine.
735. In her 2014 report, Dr Giles found that there is “strong positive evidence” that Mrs
Arkhangelskaya signed:
(1) Consent to 2008 LPK Scandinavia Personal Guarantee.
(2) Consent to First Onega Personal Guarantee.
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Bank St Petersburg v Arkhangelsky
736. In respect of the Loan Agreement with Dr Arkhangelsky, she considered that the
evidence is “inconclusive”.
737. Dr Giles considered that there was “strong positive evidence” that Mrs Arkhangelskaya
did not sign any of the four consents to the Vyborg Loan Personal Guarantees, or the
consent to the Personal Loan. Dr Giles noted, however, that these signatures:
“…take a form consistent with these being attempts by Vitaly
Arkhangelsky to produce a simulation of the signature of Julia
Arkhangelskaya.”
738. Dr Giles commented on the change in comparators as follows:
“The range of signatures now comprising the “agreed
comparators” is more restricted than used in my previous
examinations.
The previous “agreed comparators” [B1] – [B6] are similar to
the signatures on the questioned Suretyship Agreements dated
17th April 2008 [A36] and 28th March 2008 [A39] and on the
Contracts of Guarantee [A32, A33 and A35]. I found strong
positive evidence to support the view that these signatures [B1 –
B6, A36, A39, A32, A33 and A35] were all written by a single
individual.
This group of signatures [B1 – B6, A36, A39, A32, A33 and
A35] are similar to signatures on a number of other documents
which I have examined in this matter, including a Loan
Agreement dated 28th November 2008 [A21] which also bears
signatures in a style similar to that of a number of the “agreed
comparators” now provided.”
739. Further, in relation to the Personal Loan, in addition to her comments in her 2014 report,
Dr Giles made the following observations in respect of the change in ‘comparators’
which Dr Arkhangelsky had sought:
“…the signatures on the Loan Agreement dated 28th November
2008 [A21] are of two types: signatures on the first page and on
the signature page of this document [A21] are of the more
complex form seen on the other documents listed above, but the
remaining signatures are of the simple form seen on the File F
documents.
If all of the signatures on the Loan Agreement [A21] are
simulations then the person producing the simulations has done
so in two different forms on the same document. Further, the
more complex of these forms is a form of signature which
apparently is never used by Mr Arkhangelsky.
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Bank St Petersburg v Arkhangelsky
The simple forms of signature on the Loan Agreement [A21] are
consistent with being a genuine signature of Mr Arkhangelsky,
albeit the possibility that these are simulations cannot be
excluded. However, if these simple signatures [A21] are indeed
simulations they would be derived from the simple style of Mr
Arkhangelsky’s signature as seen on the documents in File F.
This begs the question as to how the more sophisticated
signatures on the first page and the signature page of this
document have come into being since it is difficult to explain
these signatures by means of simulation and there is, based on
the “agreed comparators”, no feasible model for this signature.
I have remarked in my report dated 10th February 201[4] that a
more credible explanation of the form of signatures on this Loan
Agreement [A21] is that the simple signatures are a form of
initialling as compared to the more complex signatures applied
to the first page and as the main signature on the signature page.
This situation would be more likely to occur in a genuine
document than in one which bore simulated signatures. If this
explanation were to be accepted then it would follow that the
“agreed comparators” now provided do not demonstrate the full
range of variation in Mr Arkhangelsky’s genuine signatures.”
B Mr Radley
740. Mr Radley, who as explained above was instructed not to consider documents [B1]-
[B8], identified five styles of Dr Arkhangelsky’s signature. His view is that all the
disputed signatures are of a “very basic nature”, and due to their variability, “susceptible
to being copied pictorially”. He finds that one style, “Style 5”, is different from the
comparison materials.
741. On his analysis, as regards Dr Arkhangelsky:
(1) There is “weak evidence” that Dr Arkhangelsky signed the First Onega Loan Scan
guarantee, although “the evidence is very far from conclusive and the possibility of
these signatures being simulation has to be regarded as a distinct possibility”.
(2) The signatures on all the other remaining documents “cannot be fully and reliably
assessed”, and so the evidence is “inconclusive” as to whether Dr Arkhangelsky
signed the documents.
742. As to Mrs Arkhangelskaya, in his opinion:
(1) There is “very strong evidence” that Mrs Arkhangelskaya did write the signature on
her consent to the First Onega Loan personal guarantee.
(2) There is “weak evidence” that Mrs Arkhangelskaya did not write the signatures on
her consent to the LPK Scandinavia Loan personal guarantee and the loan
agreement between her and her husband.
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Bank St Petersburg v Arkhangelsky
(3) There is “strong evidence” that the four signatures on Mrs Arkhangelskaya’s
consents to the four Vyborg Loan personal guarantees were written by someone
other than Mrs Arkhangelskaya.
(4) There is “very strong evidence” that Mrs Arkhangelskaya did not write the signature
on her consent to the Personal Loan.
(5) Further, the signatures on Mrs Arkhangelskaya’s consents to the Vyborg Loan
personal guarantees, the Loan Agreement with her husband, and the consent to the
Personal Loan:
“are in a very similar style to that used by Vitaly and not Julia
Arkhangelsky. I cannot exclude the possibility that Mr
Arkhangelsky was the writer of these signatures on behalf of his
wife.”
743. The expert evidence was thus, in broad terms, inconclusive and undoubtedly rendered
less reliable by the lack of comparators of the longer form of Dr Arkhangelsky’s
signature.
My findings and my conclusion that Dr Arkhangelsky did sign and was bound by the relevant
documents
744. I accept and find that it was the Bank’s usual practice to require personal guarantees in
the case of corporate borrowings, and I reject Dr Arkhangelsky’s suggestion that the
Bank through Mr Savelyev (or anyone else on its behalf) agreed to and did depart from
that practice in this particular case.
745. I accept that there is every good reason for such a requirement to bring home and
personalise the risk of borrowing large sums by bodies given the benefit of limited
liability, and that the fact that Dr Arkhangelsky’s wealth apparently lay in the
companies themselves was no reason to depart from it. Indeed, the fact of personal
liability may also be calculated to deter or discourage the controllers of companies from
contriving to take moneys out of the borrowing companies whereby to diminish
recourse.
746. I also accept the evidence of the Bank’s witnesses as outlined above that the
requirement for personal guarantees was made expressly clear to Dr Arkhangelsky, who
cannot have been surprised given that, according to his own lawyer, Mr Ameli, his
arrangements with other lenders also appeared to include them.
747. As to the Scan guarantees, intra-group, inter-company guarantees are common-place
and have an obvious commercial rationale. Further, the fact that they were entered into
by Dr Arkhangelsky on Scan’s behalf is further and even more strongly supported by
the arrangements made for direct debit arrangements which are premised on their
existence and which Dr Arkhangelsky admits to having signed, and by the authorisation
signed by Dr Arkhangelsky for the First Onega Loan.
748. In these circumstances, I consider that I should proceed on the basis that the burden is
on Dr Arkhangelsky to demonstrate that the personal and corporate guarantees
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Bank St Petersburg v Arkhangelsky
apparently signed by him and prima facie authentic were not so. In my judgment, Dr
Arkhangelsky has failed to discharge the burden of demonstrating that the signatures
on the relevant personal and corporate guarantees are forgeries and not his own. Indeed,
I consider it is plainly more likely than not that the signatures are his own.
749. This conclusion accords with my general impression of Dr Arkhangelsky as a
buccaneer, “the “ultimate chancer” as the Claimants put it, whose confidence in his own
abilities and determination to succeed caused him to take on risks that he did not
contemplate would eventuate and which were the necessary price of raising the
enormous sums that he borrowed from the Bank (and others also). Further, he is not a
man for painstaking detail or care: it would be quite in character for him to have either
signed the relevant documents without regard to their effect if the worst transpired,
since he would have regarded that as remote, or even without regard to their content, so
long as the immediate objective of bank lending was secured.
750. I also suspect that Dr Arkhangelsky persuaded himself early on that he had been
wronged by the Bank and Mr Savelyev, and the other parties to what he perceived then
to be a conspiracy to rob him of his corporate empire, and that he was justified in using
any tactic or device to prevent them completing the robbery.
751. In the case of the Personal Loan, plainly on any footing Dr Arkhangelsky’s signature
was required. I am in no doubt that it was provided. I accept the Bank’s evidence and
find that Dr Arkhangelsky desperately needed the money to cover OMG payments due
at the end of November, and a personal loan was recommended to him by the Bank as
the quickest and most efficient way of achieving this: and see paragraph [288] above.
752. I am also satisfied and find that the contemporaneous evidence shows that Dr
Arkhangelsky did sign, and was aware of, the Personal Loan:
(1) The Memorandum, which Dr Arkhangelsky acknowledges he signed, made express
reference to the Personal Loan. Dr Arkhangelsky told me that he simply did not
notice the reference; but especially in view of the catalogue of other documents also
referring to the loan, I cannot accept this. If he had agreed to the Personal Loan, he
might have skipped over the reference; but if he had not, I feel sure he would have
spotted it or someone at OMG would have pointed it out, even allowing for his highlevel
and cavalier general approach to documentation.
(2) A number of documents relating to the Personal Loan are not challenged: the
application for the Personal Loan, signed by Dr Arkhangelsky; and a Scan insurance
policy dated 28 November 2008, signed by Dr Arkhangelsky, with the Bank as
beneficiary, in respect of the ‘Pechora’. The ‘Pechora’ was to constitute the
security under the Personal Loan. The policy makes reference to the Personal Loan.
(3) Dr Arkhangelsky signed an application requesting the transfer of the Personal Loan
monies to an account held by Regata. Dr Arkhangelsky disputed his signature, but
there is no reason to find that he did not sign the document. The account at Regata
was also used in October 2008 for payment of the Tekno loan, (the evidence as to
which does not appear to be in dispute).
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Bank St Petersburg v Arkhangelsky
(4) On 8 December 2008, Ms Blinova emailed OMG in relation to the security given
for the Personal Loan.
(5) On 19 December 2008, Ms Blinova emailed OMG, copying in Dr Arkhangelsky, in
order to set out the upcoming payments under OMG’s loans. The very first loan
which was listed was Dr Arkhangelsky’s own Personal Loan. Dr Arkhangelsky
tried to suggest that he would not have read the email at the time, saying:
“…it’s quite normal that every month several different
employees of the Bank were sending different letters to directors
of each and every company, as well as to financial department,
with their calculations of exact volume of interest and so on. So
it was a kind of such type of e-mails we were receiving for each
and every company and it was kind of standard spam sending by
the Bank, and I think it’s a more technical way, and I have never
been inside these e-mails.
Q. So you think that this e-mail probably went into your spam
box, do you?
A. No, no, I don’t say this. I considered that I – there were some
subjects which I definitely had to read, but not all of them, so I
technically couldn’t read hundreds of e-mails every day.
Q. This e-mail purports to set out repayments due at the end of
December 2008 by OMG, doesn’t it?
A. Yes, most probably.
Q. And can you see the first of the entries under the heading,
«Repayments»?
A. Yes.
Q. «The loan to Arkhangelsky VD —»
A. Yes.
Q. «— 130 million roubles.»
A. Yes.
Q. That would be the personal loan, wouldn’t it?
A. I think so, yes.
Q. Did you, or anybody on your behalf, send back an e-mail
challenging that and saying: what’s that entry all about?
A. I don’t know, just see the disclosure.”
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Bank St Petersburg v Arkhangelsky
It is highly likely that Dr Arkhangelsky did consider this email at the time. The one
overriding matter with which he was concerned was the upcoming number of
payments that fell due for OMG at the end of the month.
(6) Dr Arkhangelsky signed a letter dated 18 December 2008 seeking an extension of
the Personal Loan. The authenticity of the document had not previously been
disputed, but in his oral evidence Dr Arkhangelsky queried the document on the
basis that it looked “very strange” and lacked any stamps from the Bank, but that
appeared to me to be an opportunistic and wholly inadequate basis for disputing its
authenticity.
(7) On 26 March 2009, Ms Blinova emailed Dr Arkhangelsky:
“… I also inform you that the registration of the mortgage for the
real estate of [Western Тerminal] was а condition for the
prolongation of your personal credit in the amount of 130 million
roubles [and] information was received today that the General
Director of [Western Terminal], D.V. Vinarsky refuses to sign
the mortgage agreement.”
This was a yet further reference to the Personal Loan, as Dr Arkhangelsky must
have understood.
(8) These references, my findings as to the fact of there having been a meeting on 28
November 2008, as well as the evidence of the proceeds going to Regata at Dr
Arkhangelsky’s direction, appear also to be inconsistent with the last iteration of
the Defendants’ case to the effect that the Personal Loan was arranged by underlings
(probably, it was suggested, Mr Berezin) and never focused on by Dr Arkhangelsky
(and see paragraph [284] above).
753. Mr Stroilov, relying on Dr Arkhangelsky’s oral evidence that any signatures were
accidental, sought to persuade me that Dr Arkhangelsky, if he had signed any of the
documents at all, had only done so “unintentionally as part of a large heap of documents
he had to sign.” I do not accept this. Not only did the suggestion seem empty, but it is
also, to my mind, was contradicted by the contemporaneous documents referred to
above, and especially by the OMG internal debt schedules prepared by OMG
employees, of which I find Dr Arkhangelsky must have been aware.
754. The Claimants urged me in those circumstances to find further that Dr Arkhangelsky
had always appreciated that he did sign the relevant documents, and his case to the
contrary in all its guises and various jurisdictions was a contrivance, deploying a gambit
oft-used by borrowers at the time. Professor Guriev agreed with the Bank’s expert Mr
Turetsky that:
“…there was abundant practice during the financial crisis
amongst security providers to challenge the provision of
security, especially if such security was provided by entities
other than the borrowers themselves. Grounds for challenging
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Bank St Petersburg v Arkhangelsky
security included absence of corporate approvals, forgery,
absence of corporate benefit, missing co-signatures from the
chief accountant, third party rights to the property, absence of
legal title to the property, and so on.”
755. I suspect the truth to be that Dr Arkhangelsky, who (it is my impression) is not focused
on details or paperwork, and whose general world view, with himself at its centre, does
not focus on any peripheral detail, could not (at least initially) remember, and gradually
convinced himself that he was being victimised and that it was fair for him to take the
benefit of the documentary doubts.
756. In this and other contexts, I suspect that Dr Arkhangelsky convinced himself that in the
‘war’ a certain carelessness as to the true position was commonplace, justified and
necessary to correct what he had convinced himself was an unfair and manipulated
imbalance between borrower and lender, especially having regard to his perception that
there were also malign and self-interested political influences in play against him.
757. In my assessment, that may explain why he did not originally deploy the forgery
allegation in his case in the Russian courts, and why (as submitted by the Claimants)
he appears to have manifested no shock or surprise when the Bank commenced
proceedings to enforce the guarantees. The allegation was part of his armoury and he
deployed it when it became necessary, without any real or careful deliberation as to its
truth. That is not honest.
758. Not until the accumulation of evidence against him, and after extensive prevarication
in the choice or acceptance of comparators, did he accept (though not unequivocally)
that he might have signed the disputed documents, or some of them, mistakenly; and
his efforts to resuscitate his case of forgery under cross-examination confirmed me in
my feeling that by then it was an expedient adopted in the knowledge that it was without
feet in fact, and dishonest accordingly.
759. I suspect that Dr Arkhangelsky did not want the matter to be put to unequivocal test
and that this fuelled the dispute as to comparators, which ripened into a familiar
interlocutory pattern of intransigence. However, I find it difficult and ultimately
unnecessary to determine whether the drawn-out dispute as to the comparators was a
deliberate tactic on the part of Dr Arkhangelsky, or when it became so. In view of the
Claimants’ own reluctance to permit further comparators in documents entered into
with an independent third party, neither side comes out untarnished. I prefer to reach
my decision on other grounds.
760. At trial, Dr Arkhangelsky’s oral evidence in relation to the Personal Guarantees and the
Personal Loan persuaded me only that Dr Arkhangelsky at one and the same time
appreciated the danger, in terms of its potential impact on the court’s assessment of his
credibility, of abandoning his case on forgery, but also the weakness of his case in
seeking to maintain it. He veered from absolute denial of signature to grudging
acceptance that perhaps he might have signed accidentally, and back again. He was
consistent in nothing but inconsistency.
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Bank St Petersburg v Arkhangelsky
761. His resort to unpleaded allegations, such as that the guarantees were contrivances to
help the Bank manipulate its reserves, smacked of desperation and not conviction or
substance; and his suggestion that the documentation was never intended to be given
any legal effect and was signed for show did not impress me as even potentially
plausible.
762. Similarly, his efforts to deny that the OMG debt schedules were reliable by depicting
his own employee (Mr Dubitskiy, OMG’s business development manager) as a “low
level, low quality employee”, confirmed the impression of someone prepared to throw
in any accusation or excuse to deflect a straight question and avoid a straightforward
admission, relying (in effect) on the proposition that, such is the scale and extent of
corruption in Russia, and the participation or connivance of enforcement officers and
others in it, anything is possible.
Spousal consents
763. It was clarified during the trial that the authenticity and validity of the spousal consents
was not, under the relevant Russian law, a pre-condition of the enforceability of the
Personal Guarantees or other arrangements to which they related. Rather, the
importance to the Bank’s case of the spousal consents was the submission that, if Mrs
Arkhangelskaya signed the spousal consent to which a Personal Guarantee relates, then
it must follow that Dr Arkhangelsky himself signed the Personal Guarantee for which
it was given, there being no credible reason why Mrs Arkhangelskaya would have
signed the spousal consent unless her husband had asked her to do so, which he only
would have done had he signed.
764. The Bank relied on the documentation as it appeared to be, and on what it claimed to
be its standard practice. This, as set out in its internal regulations, was to require a
spouse to provide a spousal consent in relation to each personal guarantee (although, as
referred to above, this was not a legal requirement).
765. Mrs Arkhangelskaya denied ever having signed any such document. As in the case of
the evidence regarding the signing of the Personal Guarantees themselves, the direct
evidence that Mrs Arkhangelskaya herself signed such spousal consents is weak.
766. For example, there is no documented record of signature separately from the
documentation, such as might be expected in an orderly bank. Further, the Bank’s
witnesses were hesitant in claiming any real memory of Mrs Arkhangelskaya having
signed. While such consents should strictly have been signed in the presence of a
member of the Investrbank staff, the evidence was that in reality that did not always
happen in the case of Mrs Arkhangelskaya. Ms Blinova explained:
“I remember Mrs Arkhangelskaya coming to the Bank to sign
documents but since she was the wife of one of Investrbank’s
most important customers and because we trusted Mr
Arkhangelsky, Investrbank was sometimes willing to receive
documents that were sent by her or on her behalf which
contained her consent (so as to be helpful and for the
Arkhangelskys’ convenience). For the consents that I
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Bank St Petersburg v Arkhangelsky
countersigned saying that the declaration was made in my
presence, I cannot now be sure that Mrs Arkhangelskaya did sign
each of the individual spousal consents in front of me. I am sure,
however, that in respect of any personal guarantee, spousal
consents were sent to Mr Arkhangelsky’s office at OMG and
even if Mrs Arkhangelskaya did not sign them personally at the
Bank then the documents certainly came back signed in the name
of Mrs Arkhangelskaya.”
767. Against that, Mrs Arkhangelskaya was adamant that she had never, consciously at any
rate, signed such a consent. Her presented demeanour was one of shock at the very
thought. For example, in relation to the first Vyborg consent, she said:
“For 310 million? You must be kidding, sir. That is a guarantee
using my money. I did not have such funds at that point in time.
How could you guarantee something with the funds you haven’t
got?”
Similarly as to the Third Vyborg consent:
“Well, because this involves a large amount of money and it is
generated by BSP and it is my personal guarantee, I think, so I
do not know whether I signed this or not. I must have seen this
some time in the past, but I do not recall signing this.”
768. However, she also acknowledged that she sometimes felt she had to sign documents for
the purpose of her husband’s business or simply because her husband required her to
do so. She accepted that she knew that the Bank was lending significant sums to OMG
companies, and that she provided the Bank with her own details. Mrs Arkhangelskaya
told me that she never really questioned her husband’s business activities. She accepted
that she sometimes had to sign documents at 3am:
“Sometimes I simply have to trust him.”
769. Once again, the disputed issue whether Mrs Arkhangelskaya did sign spousal consents
depends for its resolution on her own evidence and circumstantial and expert evidence.
770. The assessment of Mrs Arkhangelskaya’s own evidence is more than usually difficult
because (as it seems to me) her shock and horror at her and her family’s predicament is
transparently genuine, and her belief that she simply cannot in all sense and reason have
signed documents which appear to have increased their exposure is, by now, deeply
ingrained.
771. I think this is why she demonstrated a certain truculence in the witness box, which may
well also have been the product of depression and anxiety; and an evasiveness and
refusal to commit to an answer which may simply reflect her fear that she is caught up
in something she does not fully comprehend or accept, in which she is terrified of
further prejudicing her young family, and from which she can find no safe exit.
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Bank St Petersburg v Arkhangelsky
772. I have considerable sympathy for Mrs Arkhangelskaya in her predicament and in her
concerns for her young family. However, my assessment is that at the time of the
relevant events in 2008 she neither knew nor wanted to know quite what her husband
was up to; and she rather blindly deferred to his requirements. In reality, I do not think
Mrs Arkhangelskaya has the faintest idea whether or not she signed these consents.
773. I think it more likely than not that she did; but if I am wrong about that, I consider it far
more likely that Dr Arkhangelsky mimicked or simulated her signature than that the
Bank did. That is indeed the possibility canvassed and to some extent supported in the
expert evidence, at least as regards the four spousal consents relating to the Personal
Guarantees for the four Vyborg Loans. In that regard:
(1) Mr Radley’s opinion was:
“The signatures on A7 to A10, A28 and A29 bear certain writing
characteristics which are in a very similar style to that used by
Vitaly and not Julia Arkhangelsky. I cannot exclude the
possibility that Mr Arkhangelsky was the writer of these
signatures on behalf of his wife.”
(2) Dr Giles’ view was:
“Mr Radley and I have both noted that the signatures in the name
Julia Arkhangelskaya on the Consents to Contract [A7] —
[A10], [A28] and [A29] bear certain writing characteristics
which are very similar in style to signatures of Vitaly
Arkhangelsky. Mr Radley states that he cannot exclude the
possibility that Mr Arkhangelsky was the writer of these
signatures on behalf of his wife. I have noted that the form of
these signatures [A7 — A10, A28 and A29] is consistent with
these being attempts by Vitaly Arkhangelsky to produce a
simulation of the signature of Julia Arkhangelskaya.”
774. I find further that Dr Arkhangelsky’s evidence that he had never seen any of the spousal
consents was untrue, and calculated to seek to neutralise the obvious logic that if she or
he had signed spousal consents to the guarantees he must also have agreed to the
Personal Guarantees themselves. That finding further supports the conclusions I have
reached above, both as to whether he signed the relevant documents and as to his true
state of mind.
775. I accept that the Bank was lackadaisical in its approach in respect of the relevant
documentation, probably because it too regarded the primary security for the
borrowings as having a value well in excess of its exposure, and the guarantees as being
more than a salutary reminder to the borrower rather than a reliable source of recourse.
The lack of proper or comprehensive records, and the lack of direct evidence of actual
signature, left it open to the hackneyed but reckless defence to which Dr Arkhangelsky
resorted. This is particularly surprising given the sums involved and its own evidence
to the effect that in Russia borrowers habitually do resort to any available tactics to
defeat or delay claims for repayment.
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776. However, even if the Bank may have contributed to its exposure by its own
carelessness, that is ultimately beside the point: the documents were signed by Dr
Arkhangelsky, for himself in the case of the Personal Guarantees and the Personal Loan
and on behalf of Scan in the case of its guarantees, and he and Scan respectively became
bound by them. I so find.
Additional agreements and amendments to the Personal Guarantees
777. The evidence in relation to the additional agreements apparently entered into (according
to their date at least) in late December 2008 in order to reflect the restructuring of the
principal sums is less strong circumstantially, and inconclusive according to the expert
evidence. Dr Arkhangelsky denies that he entered any additional agreements in relation
to any Personal Guarantee or the Personal Loan.
778. Although framed as a denial, the burden was on Dr Arkhangelsky to demonstrate that
what appeared to be his signatures on the additional agreements were not placed there
by him and are forgeries accordingly. I do not consider that Dr Arkhangelsky carried
that burden. Indeed, in all the circumstances of denials in respect of the original
agreements that I have concluded were plainly false, and having closely observed Dr
Arkhangelsky under cross-examination, I consider that on the balance of probabilities
Dr Arkhangelsky did sign the additional agreements, just as in my view he plainly
signed the original guarantees.
779. Accordingly, I find that Dr Arkhangelsky remained bound as a guarantor in respect of
the relevant loans, as did Scan, notwithstanding the alterations of the underlying
indebtedness effected in late December 2008 and early 2009.
780. Further, I accept Professor Maggs’s ultimately unchallenged evidence of Russian law
to the effect that under that law, if the Personal Guarantees in their original form were
binding on Dr Arkhangelsky, then they would remain binding on him even if an
amendment was not signed by or on behalf of Dr Arkhangelsky.
781. If the underlying loan agreement was itself amended, which is the case here, then the
guarantor’s liability would depend on whether he had given the relevant consent to the
change in the guaranteed obligation, which would be required if there was an increase
in liability or other unfavourable consequence for the guarantor.
(1) In this respect, the Personal Guarantees each contained a clause whereby the
guarantor gave advanced consent to changes in the underlying obligation, including
the interest payment periods and maturity periods.
(2) Dr Gladyshev agrees that it is a question of the terms of the guarantee, but also says
“and/or on posterior agreements between parties”.
Issues if Dr Arkhangelsky did not sign Personal Guarantees or Personal Loan
782. On the basis of my conclusion that Dr Arkhangelsky signed and remained bound by the
Personal Guarantees and the Personal Loan, it is strictly unnecessary to adjudicate the
Russian law arguments which the Bank advanced with the objective of demonstrating
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Bank St Petersburg v Arkhangelsky
that even if he did not sign them he would be bound by and liable under them (save for
the argument already dealt with in respect of the additional agreements).
783. Given that my conclusion is based on findings of primary fact after a detailed exegesis
at trial, it might be hoped to be excessively cautious to address arguments which are
only in point if such findings were to be reversed. In any event, having found as a fact
that Dr Arkhangelsky did sign the disputed guarantees and the Personal Loan, I do not
think it appropriate to enter into a discussion as to what would be the position under
Russian law if the signatures were not his but the signatures of an attorney or other
person authorised by him or whose act was subsequently ratified by him.
784. However, out of an abundance of caution and since it is an issue of fact, I shall briefly
address what, in my view, would be the position under Russian law if (contrary to my
findings) there was no binding agreement at all between the Bank and Dr Arkhangelsky
in relation to the Personal Guarantees or the Personal Loan.

Claims in respect of the Personal Guarantees and the Personal Loan under Article 1064
RCC
785. In those circumstances, the Bank submits that it would have a claim against Dr
Arkhangelsky under the general torts provision in Article 1064 of the Russian Civil
Code (“Article 1064” and “RCC”) for the loss it has suffered.
786. Article 1064 provides as follows:
“Article 1064. General Bases of Liability for the Causing of
Harm
1. Harm caused to the person or property of a citizen and also
harm caused to the property of a legal person shall be subject of
compensation in full by the person who has caused the harm. A
statute may place a duty for compensation for harm on a person
who is not the person that caused the harm. A statute or contract
may establish a duty for the person who has caused the harm to
pay the victim compensation in addition to compensation for the
harm.
2. The person who has caused the harm is freed from
compensation for the harm if he proves that the harm was caused
not by his fault. A statute may provide for compensation for the
harm even in the absence of fault of the person who caused the
harm.
3. Harm caused by lawful actions shall be subject to
compensation in the cases provided by statute.”
787. The elements of a claim under Article 1064 were summarised as follows by Andrew
Smith J in Fiona Trust v. Privalov [2010] EWHC 3199 (a case in which the Bank’s
expert in these proceedings, Professor Maggs, also gave evidence) at [94]-[95]:
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“[L]iability under article 1064 requires (i) harm, (ii) causation,
(iii) fault and (iv) unlawfulness… 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. However, it is not disputed
that the requirements of fault and unlawfulness would be
satisfied if the claimants succeeded in establishing dishonesty,
the sole basis upon which they pursue the claims. The significant
issues about article 1064, if Russian law applies, concern the
requirements of harm and causation.”
788. In my judgment, if (contrary to my findings) the Bank proceeded without obtaining
signed personal guarantees, it has only itself to blame and no claim would lie under
Article 1064 because nothing that Dr Arkhangelsky did was causative of loss, unless it
was induced to believe that Dr Arkhangelsky had indeed signed such agreements
though in fact he had not. In the latter case, a claim would lie under Article 1064.
Article 1102 of the RCC: unjust enrichment in the amount of the Personal Loan?
789. In respect of the Personal Loan, the Bank also makes a claim against Dr Arkhangelsky
for unjust enrichment under Article 1102 of the RCC (“Article 1102”).
790. This provides:
“Article 1102. The Duty to Return Unjust Enrichment
1. A person who, without bases established by a statute, other
legal acts, or a transaction, has acquired or economized property
(the recipient) at the expense of another person (the victim) shall
have the duty to return to the latter the unjustly acquired or
economized property (unjust enrichment), with the exception of
the cases, provided by Article 1109 of the present Code.
2. The rules provided by the present Chapter shall be applied
regardless of whether the unjust enrichment was the result of the
conduct of the acquirer of the property, the victim himself, third
persons, or occurred against their will.”
791. Insofar as the Bank paid sums to Dr Arkhangelsky in the mistaken belief that he had
entered into the Personal Loan, and he has been unjustly enriched by receipt of RUB
130 million, then I accept that under the RCC he would be liable to return the proceeds
to the Bank pursuant to Article 1102.
792. That disposes of the first element of the Bank’s claim, in the Bank’s favour.
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Bank St Petersburg v Arkhangelsky
Issue 2: Was a 6-month moratorium promised and agreed?
793. The question then is whether the Bank was entitled to enforce and call defaults when it
did, or whether Dr Arkhangelsky can establish his case that Mr Savelyev promised, and
the parties made, a legally binding agreement (what the Defendants describe as the
“Moratorium”) in December 2008 that the Bank would not require payment of capital
or interest under any of the loans until (at the earliest) the end of June 2009. This issue
as to whether or not any such Moratorium was promised and/or agreed is relevant in a
number of contexts.
794. The first context in which the issue is relevant is whether the Bank was entitled to call
a default when it did, or whether the Moratorium precluded and rendered ineffective its
purported demands for payment and the events of default which it called in consequence
of non-payment. Those issues principally relate to the Defence, including the Bank’s
computation of and claims for interest, and the Bank’s further claims for declaratory
relief.
795. Secondly, however, the issue as to whether the Moratorium was promised and agreed
(and if so whether it was enforceable) is also relevant to the claims of conspiracy (and
whether, as he claims, Dr Arkhangelsky was in effect tricked into the repo transactions)
and for breach of contract and abuse of right in the Counterclaim.
796. Given its centrality in both contexts, I turn to address the issue in some detail.
Did Mr Savelyev promise a 6-month moratorium? Was that the basis of the repo
arrangements?
797. The twin pillars of Dr Arkhangelsky’s case that a six-month moratorium was promised
by Mr Savelyev, and it was on the faith of that promise that Dr Arkhangelsky agreed to
the repo arrangements for which the Memorandum provides, are that: (1) having in
November sought a 3-year extension of capital repayments and a 1-year moratorium in
interest payments, in December he asked for, and the Bank knew that the minimum he
needed if his companies were to have any chance of restoring solvency was, a 6-month
moratorium and the Bank either agreed to that or allowed him to proceed on the footing
that it would agree to it; and (2) it would have made no sense for him to agree the repo
arrangements (and, as he put it, “transfer all my shares”) on any other basis. Dr
Arkhangelsky ascribes to undue pressure of time (and indeed coercion), alternatively,
oversight or the stupidity of his staff, that the Memorandum itself did not incorporate
this crucial term, but he maintains that the unrecorded promise should be treated as
nonetheless binding.
798. When cross-examined (albeit not in his witness statement), Mr Savelyev admitted that
at their meeting on 25 December 2008, Dr Arkhangelsky had asked him for a 6-month
moratorium. His oral evidence was as follows:
“I do not deny, my Lordship, that Mr Arkhangelsky did request
prolongation of all agreements for six months, but the Bank did
not agree to do it for each loan and did not defer the payments
for six months for all items.
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In particular…I’m not sure whether I stated all the agreements
in the memorandum, but for example, the personal loan
agreements, the PetroLes agreements, are different. The dates
there are different. One could understand that, one could see that,
that the PetroLes loan only was for March. Therefore, overall,
there were no such understandings reached, but there was such a
request on the part of Mr Arkhangelsky, and we did extend part
of the loans for six months.”
799. When questioned further his evidence was as follows:
“MR JUSTICE HILDYARD: Who was to determine which of
the loans were and which were not to be extended to the end
of June? You explained that there was a request from Mr
Arkhangelsky; who was to determine, if it wasn’t agreed by
you on 25 December, which ones were and which ones were
not to be extended?
A. My Lord, there should be a board decision, the board of the
Bank. The collective intelligence should be at work here, and
the board made a decision with regard to the maturity dates
for these loan agreements with regard to time periods.”
800. He had earlier explained:
“Restructuring was with regard to each credit agreement
separately. The Bank could not take all the credit agreements
with different maturities, different amounts, and roll them all up
into one moratorium of six months long. I also wanted to
mention, with some specific loans we did not agree at all that we
would provide any moratorium, for example, with regard to
PetroLes.”
801. The evidence of Mr Guz (who was of course present at the meeting on 25 December
2008) was to like effect. Mr Guz said:
“…in this particular case, the major point was that the client
wanted restructuring of his loans, but he didn’t have any
additional pledge of collateral, and what was being discussed
whether the Bank would agree at all to make any restructuring,
any prolongation, any rolling up and so on, or there was another
opportunity to call a default right at the end of December. That
was the major point.
Q. So the broad terms of the deal, as far as you are concerned
was: no default in the end of December, you transfer the shares
and then we will see, is that —
A. No, no, no. No default at the end of December, transfer of the
shares in exchange of the restructuring agreed with the borrower.
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So this was the major point discussed as far as I can understand
at the meeting.
MR JUSTICE HILDYARD: Restructuring for all the loans?
A. No. Some of the loans, because some of the loans were not
mature at that date. So some of the loans were supposed to be
restructured. Some of the interest payments were supposed to be
rolled up, until the end of the maturity date, or some of them until
the other date, and the other loans were not restructured, I mean,
the repayment of the principal.
So there were no specific details. The details were supposed to
be agreed with the borrower after the meeting.”
802. Although I remain unconvinced that Mr Savelyev had any reliable memory of what was
said, and his reference to specific loans (the PetroLes loans) struck me as likely to be
reconstruction after the event, the general thrust chimes with the lack of any reference
to a general moratorium in the Memorandum, and also with what afterwards actually
happened without objection on behalf of Dr Arkhangelsky (see below).
The lack of any reference to the moratorium in the Memorandum
803. The absence of any provision or reference to a general 6-month moratorium in the
Memorandum signed by the parties, which was intended to capture the principal
elements of their agreement, though not of course conclusive, clearly supports the
Bank’s case that none was agreed.
804. If there was, as Dr Arkhangelsky insists there was, a clear (in legal terms, collateral)
oral agreement between him and Mr Savelyev for a 6-month moratorium which, in his
perception at least, was the single most important aspect of the whole arrangement and
the sine qua non of his agreement to enter into the repo transaction, it seems at least
odd that it was not recorded in the document drafted in respect of the arrangements.
805. It is odder still that Dr Arkhangelsky did not immediately require amendment of the
Memorandum or some further written accord to ensure that this vital matter, the centrepiece
of the deal from his point of view, was defined and could not be disputed. On the
Defendants’ case, the Memorandum failed to reflect the most vital aspect, and the whole
nature of the arrangements was fundamentally misstated. Yet there is no record of any
complaint at the time.
806. Dr Arkhangelsky’s response when this was put to him in cross-examination was that it
was all a rush, he was given no opportunity to query still less amend the document, and
in the end was effectively coerced into signing it without the benefit of legal advice or
proper consideration of its terms.
807. Dr Arkhangelsky’s oral evidence was:
“… I’ve been under so huge pressure, so I haven’t had any chance
to go through the documents. So I [have not] had any chance
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Bank St Petersburg v Arkhangelsky
under the personal threat by Mr Savelyev to argue about
anything. So I was really afraid and I’ve been under huge
personal pressure and family pressure, so I had to sign whatever
I got.” [My interpolation]
He continued:
“I’ve been under so huge pressure and I’ve been under the threat,
and the conditions were extraordinary, and I signed this
document in the office of Mrs Malysheva, so I’ve been really
afraid of me and myself and I haven’t had any chance to get any
advice from even in-house lawyers. So I had — either I had to
sign that or I would not survive during the Christmas holidays.”
808. I accept that Dr Arkhangelsky was indeed under very considerable pressure to have an
agreement signed which was effective before the end of the year. But I do not accept
that he was coerced, nor that he had to sign the agreement in the form proposed without
proper consideration of its terms and without legal advice. After all, his case is also that
the Bank itself needed an agreement just as much, if not more, than he did, to ensure
that it was not required to make reserves on the basis of default at the end of the year.
809. As to legal advice, contrary to Dr Arkhangelsky’s oral evidence, it seems to me to be
plain that OMG lawyers were closely involved in the preparation of the various
documents. For example, on 29 December 2008, Ms Stalevskaya emailed Mr Vasiliev
and Ms Vasilenko, OMG’s lawyers, in respect of a number of matters including,
specifically, the “Memorandum”. In his oral evidence, Dr Arkhangelsky tried to suggest
that this was reference to a different memorandum, but this appeared to me to be a
panicked expedient:
“… It says memorandum, but it doesn’t specify which particular
memorandum and which particular text, and as far as I
understood, no attachments, and as Mrs Stalevskaya said to you
under cross-examination, there were different versions of
possible memorandum.
Q. Yes, but the only document that was being considered at that
time by the parties concerned, called «memorandum», was the 30
December memorandum, wasn’t it?
A. Yes. Yes.
Q. And it looks, doesn’t it, from this e-mail, as if there was some
exchange between the Bank and your lawyers concerning the
memorandum?
A. I assume so, but we have not discussed the final version,
because a final version of the memorandum I signed in the office
of Malysheva, 30 December, and I signed the document she
given to me. So not any looked on by the lawyers or anybody
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Bank St Petersburg v Arkhangelsky
else, we haven’t had a chance to do that, because I either had to
sign or I had to create a problem to myself.
Q. Dr Arkhangelsky, do you want to revise your evidence as to —

A. No, I don’t want.”
810. I do not accept that evidence: in my view, it was contrived in a desperate but untruthful
attempt to muddy the waters and obscure the fact (as I find it to be) that OMG’s lawyers
were given the opportunity to review the Memorandum, and did so.
Subsequent individual loan extensions not consistent with the general moratorium alleged
811. Further, even if the fact that no general six-month moratorium (which is what the
Defendants maintain the ‘Moratorium’ comprised) is anywhere contemporaneously
recorded and the fact that (in my assessment) Dr Arkhangelsky resorted to a false
expedient to explain the omission of any reference to it in the Memorandum, are not
conclusive, the further fact that, thereafter, the OMG companies individually entered
into additional loan-specific agreements extending the payment dates for the loans in
different terms according to the specific repayment dates (as summarised in paragraph
[381] above) tilts the balance further, and to my mind conclusively, against the
Defendants’ case that a general, across-the-board, moratorium was established. The
Bank submitted, and I accept, that the terms of these additional agreements are not
consistent with any overall 6-month moratorium.
812. Although, when cross-examined, Dr Arkhangelsky sought to revive an argument that
the additional agreements were not authentic, that argument had been formally
withdrawn before trial and the relevant parts of the Re-Re-Amended Defence and
Counterclaim disputing the additional agreements were struck through. Dr
Arkhangelsky sought to contend that he did not understand the function of pleadings;
and I have taken his status as a litigant in person into account. But the formal withdrawal
of the allegation was clear, and even if (as Dr Arkhangelsky confirmed) the relevant
correspondence was prepared by Mr Stroilov, I think I must take it as binding,
especially given the arrangements between Mr Stroilov and the Defendants for him to
represent them.
813. In any event, Dr Arkhangelsky struggled to find any coherent basis for any attack on
the documents’ authenticity. He was reduced to saying that his case on the moratorium
“had to be like this”, and confronted with the additional agreements said:
“It’s not possible…It’s not possible this. It’s not possible this.”
But that is as it was.
814. Mr Stroilov submitted that the Defendants’ and OMGP’s case on the moratorium
derived assistance from the fact that the interest payments were, as it happened, in some
cases deferred until the end of June. However, the Bank countered that the deferral was
not because there was any alleged six-month moratorium, but simply reflects the fact
that 28 June was the date before the Bank’s half-year financials and was thus a natural
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and obvious choice if payment periods were to be extended. It is a long stretch to
extrapolate from that any promise from Mr Savelyev that OMG would not need to make
payment until then: too long, in my judgment.
815. Dr Arkhangelsky also sought to divert the questioning about the additional agreements
by querying the internal Bank registration stamps, suggesting the OMG employees who
signed the agreements were put under pressure by Lt. Col. Levitskaya or under the
“control of the Bank”, or saying that he was not party to the agreements. I do not accept
any of this.
816. Then in the last resort he sought to put the blame on other people. Thus:
“Definitely, agreement with the Bank was that all the loans are
prolonged, so it would be completely stupid of me to make an
agreement or memorandum unless I know that all the problems
are solved, otherwise I cannot see any reasons for giving all my
businesses to the Bank.”
He continued:
“My understanding, and strong belief, that the agreement was
that all — you know, it’s the standard personal logic. If I given all
my assets to the Bank in exchange to the prolongation of the
loan, so each and every loan should be prolonged by the date
agreed, and this manipulation and insinuation that if, whatever,
from 25 loans, three were not prolonged, or two were not
prolonged, where is the logic? I cannot understand that.
So I may assume that some of my employees were not good
enough, so maybe they were misled…at that time, or they were
simply stupid. But I absolutely believe that the moratorium been
existing, otherwise I would not sign — I would not sell to the
Bank my companies for zero value.”
817. This was not accurate. Dr Arkhangelsky did receive extensions for interest payments
and principal payments, and they were not of “zero value”. Such extensions, in
accordance with the terms of the additional agreements, gave OMG a valuable
breathing space or lifeline without which default before the end of the year was
inevitable.
818. As to blaming his subordinates, that was not out of character: but I have not been
persuaded of any fair basis for it. There is also an inconsistency in him seeking to blame
his employees for something which on his own case he agreed personally with Mr
Savelyev and which was not otherwise recorded. On a matter so important it was surely
for Dr Arkhangelsky personally to ensure that he got what had been agreed.
819. During his cross-examination of the Claimants’ witnesses, Mr Stroilov, on behalf of the
Defendants and OMGP, floated a number of new suggestions of factual contexts, put
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Bank St Petersburg v Arkhangelsky
forward for the first time and without any evidential basis, to fit their ‘Moratorium’ case
(or some variant of it) with the contemporaneous agreements. Thus:
(1) In relation to the PetroLes and Vyborg loans, Mr Stroilov suggested to Mr Guz that
it was “intended”, presumably at the end of December 2008, that these loans would
be “further extended” from their maturity dates. Any such new “agreement” or
“intention”: (i) is not pleaded; (ii) has no basis in the evidence of the Defendants
and OMGP; and (iii) is inconsistent with and undermines the contention that there
was any agreement for a six-month moratorium. Mr Guz denied any such intention.
I can see no basis for inferring it.
(2) As a variant on the above, Mr Stroilov also suggested to Ms Volodina that:
“… it was intended that the restructuring would take place in two
stages: one by way of various additional agreements dated
December 2008, and then in January or February or March, there
would be further additional agreements to various loan
agreements, which would avoid the need to form results and to
reflect them in 2008 reporting to the Central Bank.”
Again, this was not pleaded, nor was there any evidential basis for it. Ms Volodina
rejected the suggestion, explaining that instead, the Bank was to reassess the
position in March:
“In January and February the Bank hoped to receive a financial
recovery plan from the client until the PetroLes maturity on 5
March, a decision was expected to be made as to what we do
going forward. But the client did not provide that plan, nor did
we receive any proceeds with respect to the timber shipment.”
(3) Mr Stroilov further suggested that the loan extension for Vyborg Shipping must
have been agreed for longer than that set out in the additional agreements because
the Bank could never have expected Vyborg Shipping to meet its payment
obligations by March/April 2009, since the shipping business in St Petersburg was
frozen from December to March. However, though that appeared telling at first
blush, the point assumed that the vessels were operating into and out of St
Petersburg. This does not appear to have been the case. As far as the Bank
understood, and as Vyborg Shipping presented the position without contradiction,
its vessels were operating abroad away from St Petersburg. The places at which the
three vessels were arrested seem also to support this.
820. In summary, in my judgment, the available evidence does not support the Defendants’
case that an across-the-board 6-month moratorium was promised by Mr Savelyev and
agreed by the Bank in return for Dr Arkhangelsky’s commitment to the repo
arrangements in December 2008. The lack of any reference in the Memorandum to such
an important element of the overall deal, and the fact that Dr Arkhangelsky made no
objection either to that omission or to subsequent written agreements inconsistent with
an overall 6-month moratorium are, in my judgment, fatal to the allegation.
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Bank St Petersburg v Arkhangelsky
821. In reaching that conclusion I have had much in mind Dr Arkhangelsky’s main point
that, without the alleged ‘Moratorium’, the repo arrangements exposed OMG to a ‘raid’
without any sufficient quid pro quo, and that it stands to reason that he would never
have agreed such terms. But in my judgment, the truth is that Dr Arkhangelsky, by
December 2008, was desperate. Unlike the Bank, he knew how serious the position had
become (illustrated by the arrest of the ‘Tosno’, the deficits across the companies’
accounts, and his inability to fund the retainer proposed by BNP); and the repo was all
he had left to offer to keep the Bank at bay.
822. My assessment is that Dr Arkhangelsky is a chancer with a belief that something will
turn up in the end, so long as he can keep kicking the can down the road; and that he is
capable of convincing himself in retrospect of things which have not in fact happened,
and of denying any possibility that he personally may have made a mistake.
823. It may well be, in my view, that he has gradually persuaded himself that a general
moratorium must have been finalised or treated as having been so. Alternatively, it may
be that matters were left so fluid at the 25 December meeting and thereafter that the two
sides had different views as to what had been agreed. Mr Savelyev struck me as
someone adept at leaving an interlocutor feeling that he had agreed something without
in fact committing himself.
824. Whatever may be the explanation, in my judgment, there is no sufficient evidence that
Mr Savelyev committed the Bank to a general 6-month moratorium; and the
documentation is flatly against Dr Arkhangelsky’s case. In all the circumstances, I find
that no such moratorium was agreed.
Relevance and effect of Russian law if (contrary to my primary conclusion) there was some
form of agreement for the across-the-board moratorium alleged
825. In the light of that conclusion it is not strictly necessary for me to consider the Bank’s
alternative case that even if the factual evidence could support some form of
‘agreement’ for a 6-month moratorium in the terms alleged, the ‘agreement’ would be
flawed and ineffective as a matter of Russian law.
826. For comprehensiveness, however, I should summarise as shortly as possible what I
consider to be the scope of the issues and my views and conclusions in that regard.
827. The Bank, relying also on the label “Memorandum”, as distinct from “Agreement” or
“Contract”, submitted that the relevant document:
(1) Was informal, and plainly no more than a declaration of intent which looked
forward to some far greater and particular drafting of commitments which by the
Memorandum were only intended to be adumbrated and not legally defined or
legally binding;
(2) Was not signed by any legal OMG entity, the stated party being “Group Oslo
Marine Holding”, defined as “the ‘Group’”, which is not a legal entity, but a
collective expression, and the only parties to the Memorandum being the Bank and
GOM, and not OMGP or Dr Arkhangelsky;
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Bank St Petersburg v Arkhangelsky
(3) Was at most an aide-memoire recording the discussions between the Bank and
OMG companies: the only binding agreements being: (i) the individual agreements
between the Bank and the OMG borrowing companies; and (ii) the repo
arrangements. The formality of those agreements is to be contrasted with the
Memorandum, and the necessity for them speaks for itself;
(4) If sought to be re-characterised as in the nature of a “preliminary contract” or
agreement to agree, the Memorandum did not fulfil the conditions of Article 429
RCC in any event, and even if intended to be binding, lacked the “essential terms”
required by Article 432 RCC to establish an enforceable “preliminary contract” for
a contract to be made in the future under Article 429 RCC; and, furthermore
(5) Would be of no ultimate legal utility to the Defendants, since to establish an agreed
moratorium it was necessary for them to establish the interpolation or collateral
effect of oral terms (there being no written reference to a 6-month moratorium) in
contravention of Article 162(2), which precludes the addition of terms “not in
simple written form” and invalidates any oral element.
828. The Defendants submitted that none of these contentions is well-founded. In particular,
it was submitted on their behalf that:
(1) The very fact that the parties sought to record the “agreement” in writing indicates
that they intended it to be binding: they would not have gone to the trouble of
creating the Memorandum otherwise; further, the agreement helps to make sense of
the peculiar tripartite arrangements between the Bank, the OMG companies and the
purchasers, which are otherwise not fully or adequately documented. There is no
reason why the parties should be taken not to have intended those arrangements to
be given contractual effect.
(2) The identity of the parties is a question of construction. The fact that the seal
imposed was that of GOM is not definitive, and it cannot have been intended to
make GOM the only party, not least because it makes no sense for GOM to be
committed to transfer shares in Western Terminal: the only logical and sensible
interpretation is that the agreement was made by Dr Arkhangelsky on behalf of both
GOM and OMGP, which respectively agreed to transfer their shares in Western
Terminal and Scan.
(3) The importance of the “agreement”, the fact that it was immediately acted upon,
and the important commitments, described as undertakings, expressed within it, all
bely any attempt to treat it merely as an aide-memoire: the fact that there were
subsequent contracts does not detract from its own status as such.
(4) Articles 161 and 162 of the RCC are, quite simply, irrelevant since the admissibility
of evidence to prove the existence and content of an agreement, and the weight to
be accorded to that evidence, are questions of procedure governed by English law
as the lex fori. Mr Stroilov cited the long-standing position at common law that
“Questions as to the admissibility of evidence are decided in accordance with the
lex fori. Thus a document may be received as evidence by the English court
although it is inadmissible by the lex causae” (Dicey, Morris and Collins at [7-
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Bank St Petersburg v Arkhangelsky
017]). See also Bain v. Whitehaven Railway Co (1850) 3 HL Cas 1, 19 per Lord
Brougham:
“Whether a certain matter requires to be proved by writing or
not, whether certain evidence proves a certain fact or not, that is
to be determined by the law of the country where the question
arises.”
829. It seems to me to be plain that:
(1) The Memorandum listed the loans for which the repo arrangements proposed would
provide further security without any provision for their extension: its provisions
(and the undertakings recorded) related only to the proposed repo arrangements.
(2) In that regard, it paved the way for but did not itself comprise the terms of the
repurchase agreements, and in particular did not specify the price or any other
details necessary for a concluded share purchase agreement.
(3) However, the undertakings given were intended to be legally binding if and when
the repo arrangements were agreed.
(4) The failure to identify the correct parties does not signify anything more than that
the draft was hurried, insufficiently thought out and defective, it being implicitly
recognised that it would to all intents and purposes (save possibly in relation to the
undertakings) be overtaken by or merge into the repo arrangements when finalised
and agreed.
(5) To that extent, it was no more than an aide-memoire or statement of intent, which
contemplated further more definite contractual documentation to regulate as a
matter of law the arrangements between the relevant parties.
(6) The laxness as to the stated parties is consistent with that; and in any event, I do not
think it is right to substitute a raft of parties for the only named party by a purported
process of construction. I accept Professor Maggs’s evidence that a Russian court
simply would not entertain such a process or result. The cases he cited seemed to
support his observation that:
“…Russian courts are highly formalistic and they are not going
to put someone in as a party when it is signed in the name of
someone else.”
(7) The Memorandum was in the nature of an agreement to agree. In English law an
agreement to agree is unenforceable: Walford v Miles [1992] 2 AC 128. The special
provision in Russian law for a preliminary contract must be subject to the rules
under and conditions under and by which it is given effect. I accept that under the
applicable Russian law:
(a) Such a contract to make a contract must meet the requirements of Article
429 RCC and contain the essential terms as set out in Article 432 RCC;
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Bank St Petersburg v Arkhangelsky
(b) Failure to observe the simple written form and/or the purported interpolation
of an oral element is fatal to validity; and
(c) The Memorandum cannot be given effect as a preliminary contract since the
above requirements were not fulfilled.
(8) Furthermore, the Memorandum does not itself provide for or refer to the
‘Moratorium’ asserted by the Defendants, whose case relied on the interpolation of
oral terms, or establishing a self-standing oral agreement. Even if Russian law does
permit oral terms or agreements to be established by witness testimony unless the
parties have stipulated or the general law provides otherwise, Dr Gladyshev
appeared to have no answer to Professor Maggs’s evidence that Article 161(2) RCC
applies to provide otherwise in the case of a term or contract such as the Defendants
assert, save to argue that this was a procedural and not substantive provision of
Russian law. This argument does not seem to me to be substantiated by the cases
cited.
(9) More generally, the rules of evidence of the lex fori cited by Mr Stroilov are not
applicable in the particular context: the formation, validity and interpretation of a
contract (including what evidence is admissible in that context) are matters of
substance for the putative applicable law, in this case, Russian law. The question is
not a procedural one going to the mode of proof of a fact in contention or mode of
trial: it is a substantive one of the essential qualities and requirements to establish a
legal relationship and define the rights and obligations incidental to it (in this case,
in contract).
830. In all the circumstances, I would accept the Bank’s alternative case that even if the
factual evidence could support some form of “agreement” for a 6-month moratorium in
the terms alleged, the “agreement” would be flawed and ineffective as a matter of
Russian law.
Consequences of these findings for the Defence: there being no agreed or promised general
moratorium as alleged, the Bank was entitled to call in its loans as and when it did and to
enforce the repo arrangements
831. Dr Arkhangelsky’s contention that the Bank was “clearly in breach of the December
2008 Agreement” in refusing formal extensions of loans to PetroLes and Vyborg
Shipping in March 2009 and then in calling in the loans as it did falls in light of my
conclusion that no general 6-month moratorium such as he alleges was ever promised
or agreed. The denial in the Amended Defence (at paragraph 21) that Vyborg Shipping,
LPK Scandinavia and/or Onega defaulted in their debts and the plea that “the companies
did not default as pleaded by the Claimants” was based on the alleged moratorium and
falls away accordingly.
832. Similarly, the plea in paragraph 25 of the Amended Defence that the defaults were
called “to create spurious grounds for claim under the fabricated ‘personal guarantees’”
fails, both because (as previously held) the Personal Guarantees were not fabricated,
and also because the Bank was entitled to call the defaults and was relying on its
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Bank St Petersburg v Arkhangelsky
contractual rights and not spurious grounds in doing so: and likewise, in the case of the
Personal Loan.
833. More generally, Dr Arkhangelsky’s contention that “he” (by which I take him to mean
the relevant companies) are not “defaulting debtors” cannot be sustained.
834. Just as, if not even more, important from the Defendants’ and Counterclaimants’ point
of view is the further consequence that the Defendants’ contention that the Bank tricked
Dr Arkhangelsky into the repo arrangements and was not entitled to implement the repo
transactions in reliance on contrived defaults it then called must fail also (unless, of
course the repo arrangements are invalidated on some other ground, as to which see
below).
835. Even if it could be established that the Bank had ulterior and self-interested motives in
putting in place and implementing those arrangements, the fact remains that it flows
from my findings that Dr Arkhangelsky agreed to them as the price of the Memorandum
and the agreements that followed, without insisting on any general moratorium, and the
Bank was contractually entitled to act as it did in implementing the repo agreements
upon default.
836. Any claim in respect of the repo arrangements and their implementation can in such
circumstances only be based on the theory that the repo arrangements were invalid or
entered into pursuant to a conspiracy that renders them void or voidable; or that the
repo shares were misused, in effect to steal Dr Arkhangelsky’s companies, in such a
way as to confer a right of action on the Counterclaimants.
837. Those arguments, though relevant also to the Defence, are more conveniently dealt with
in the context of the Counterclaim; and indeed, except for the claim relating to the
Defendants’ marriage contract, all the remaining issues in the Defence seem to be
addressed more conveniently in that context too. Those issues are:
(1) The issue as to whether the Bank’s security over the pledged assets was in reality
sufficient to cover the indebtedness, and if so, whether there was any proper warrant
or justification for any claim under the guarantees, and further whether the Bank
has been in continuing breach of its duty properly to account; and
(2) Whether the claim is an abuse of this court as being “in aid of the unlawful
persecution of the Defendants by the Russian regime” (as pleaded in paragraph 79
of the Re-Amended Defence under the heading ‘Public Policy Considerations’) or
on some other ground than “misleading the Court by producing forged documents”
(pleaded in that same paragraph 79, but in my view unsustainable in light of my
previous findings as to the disputed documentation).
Issue 3: Claim to set aside the Defendants’ Marriage Contract
838. Before turning to the Counterclaim, therefore, the remaining issue relevant to the
Defence which I should deal with now is the Claimants’ claims to set aside transfers of
assets from Dr Arkhangelsky to his wife under a marriage contract dated 5 May 2009
(“the Marriage Contract”). I have described the Marriage Contract and the Deed of
Donation which followed it in paragraphs [557] to [559] above.
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Bank St Petersburg v Arkhangelsky
839. The Claimants allege that the purpose of the Marriage Contract and the Deed of
Donation was to protect some of Dr Arkhangelsky’s assets from his creditors. They say
that the agreement was designed to defeat the claims of Dr Arkhangelsky’s creditors,
and the transfers were in effect shams. They claim that the transactions should be set
aside under section 423 of the Insolvency Act 1986 (“Section 423”), on the basis that
this provision may be given extra-territorial effect where there is sufficient connection
with this jurisdiction, and/or Article 170 RCC. It is on this basis and by reference to
these claims (as well as the more general declaratory relief that was sought against both
Dr and Mrs Arkhangelsky) that the Bank joined Mrs Arkhangelskaya as a party.
840. It is clear that Section 423 may be given extra-territorial effect: see re Paramount
Airways Limited (No. 2) [1993] Ch 223 and more lately, Erste Group Bank v. JSC VMZ
Red October [2015] EWCA Civ. 379 at [116]-[119].
841. However, it is equally clear that for this purpose a sufficient connection with this
jurisdiction must be shown. As Sir Donald Nichols V-C (as he then was) put it in the
Paramount Airways case (endorsed in Erste Group by the Court of Appeal), the court
has to be satisfied that, in respect of the claimed relief, the defendant is sufficiently
connected with England for it to be just and proper to make the order against him despite
the foreign element. The question is not strictly one of jurisdiction but of the discretion
to exercise it or not.
842. Even taking into account the agreement for matters to be adjudicated in this jurisdiction,
I do not consider that there is such a sufficient connection in this case. The alleged
wrong was not committed here; and none of the relevant property is here or governed
by or connected with this jurisdiction (and nor now are the Defendants except by this
litigation). Further and in any event, I note especially from paragraph 80 of the
Particulars of Claim that the Claimants disavow any claim to the Petrograd shares and
the French properties, since those are the subject of proceedings elsewhere. This
confirms the tenuous connection with this jurisdiction, and reinforces my conclusion
that the plea is not one which it is just and proper should be adjudicated here.
843. But even if that were not so, I would not be minded to grant relief.
844. The relevant state of mind is that of the debtor/transferor (here, Dr Arkhangelsky) rather
than the recipient (see Moon v Franklin [1996] BPIR 196), and what has to be
demonstrated is that a material part of the purpose of the transferor in making the
transaction was to defeat or delay his creditors (see Section 423(3)): it is not necessary
to show that such was the dominant purpose, but purpose must be distinguished from
effect or consequence, and the latter will not suffice: see IRC v Hashmi [2002] 2 BCLC
489, especially per Arden LJ at pp504-505. The focus (albeit not exclusive) on Mrs
Arkhangelskaya’s state of mind was misplaced.
845. Her evidence, however, did corroborate her husband’s to the effect that the purpose was
not to put property which belonged to him beyond the reach of creditors but to safeguard
her pre-existing interest in certain assets acquired in her or joint names (including a flat
that she told me she had owned since before their marriage). According to their
evidence, in other words, it was in effect in the nature of a ‘post-nup’, the purpose of
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Bank St Petersburg v Arkhangelsky
which was to protect Mrs Arkhangelskaya’s pre-existing rights, and, for the future, to
insulate and safeguard any assets she might herself acquire.
846. The timing of the Marriage Contract invites concern, and suggests that at least part of
its purpose might have been to ensure that creditors would be delayed or defeated in
enforcing against the assets to which it related. But it has not been demonstrated to my
satisfaction that those assets were Dr Arkhangelsky’s or that the purpose was to put his
assets beyond their reasonably straightforward reach.
847. I therefore decline to make any order under Section 423 in respect of this claim.
848. That leaves, in respect of the Marriage Contract, the claim under Article 170 RCC.
Professor Maggs (the Claimants’ expert on Russian law) referred in his Consolidated
Report to “several differing legal regimes for setting aside transfers made to avoid
payment of creditors including: (1) the special provisions of the Russian Law on
Insolvency (Bankruptcy); (2) certain provisions of company law; and (3) general
provisions of the Civil Code applicable where the obligor is not in bankruptcy
proceedings.” He addressed only the latter, being the only one of those provisions
prayed in aid by the Claimants.
849. Professor Maggs described the scope and effect of Article 170 RCC as follows:
“If the transfer is fictitious and exists only on paper and not in
reality, such as a “sale” to evade creditors in which the owner
never gave up possession of the property and never collected the
price, the transfer arrangements can be undone on the basis of
Paragraph 1 of Article 170 of the Civil Code. It provided:
1. A mock transaction, i.e. a transaction made only for
appearances without an intent to create the legal
consequences corresponding to it, is void.”
850. Sham is asserted in paragraph 79 of the Re-Amended Particulars of Claim, but only on
the alleged basis of a plea that the transfers were to defeat creditors and that “in the
absence of full consideration being provided, all such transactions were shams and
liable to be set aside…”.
851. That is not, in my judgment, on the basis of the approach of English law, a proper plea
of sham; nor was the evidence such as or sufficient to support one. In the context of an
allegation of sham (unlike Section 423) it is the collusive and dishonest intention of the
parties to enter into documents which are not intended to be given their stated effect
which is the gist. There is no proper or sufficient plea that Dr and Mrs Arkhangelsky
shared the requisite collusive and dishonest intention to create a ‘mock’ or sham
transaction; and the particular proof required of such intention was not established (and
see Snook v London & West Riding Investments Ltd [1967] 2 QB 786 and ISIS
Investments Ltd v Oscatello Ltd [2012] EWHC 745 as to the plea and proof required in
English law). No different approach under Russian law has been asserted.
852. I dismiss the Marriage Contract claim, and with it the proceedings against Mrs
Arkhangelskaya.
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Bank St Petersburg v Arkhangelsky
853. I have been left with the impression, reinforced by the somewhat incidental way in
which the claim was advanced and the overlap with other pre-existing proceedings it
involved, that the plea was introduced as the means of bringing Mrs Arkhangelskaya
into the fray. This may be relevant to the question of costs, but also may provide an
insight into the relentless nature of the Bank’s pursuit of the Arkhangelsky family.
854. I turn to the Counterclaim and the matters which I have previously indicated I
determined would be more conveniently addressed in that context, including, I should
add, the claims in the Re-Amended Particulars of Claim seeking declarations which to
a large extent are in form the obverse mirror-images of the allegations in the
Counterclaim.
Counterclaim
Summary of claims and defences to counterclaim
The claims
855. The conspiracy giving rise to the ‘claim for causing harm’ is described in the
Counterclaim as ‘The Scheme’, and alleged in the round as follows:
“…the seizure of ownership and control of Western Terminal
and Scandinavia Insurance took place pursuant to an agreement
or combination between the parties involved to seize those
businesses by unlawful acts and/or means (the “conspiracy”).”
856. Dr and Mrs Arkhangelsky, as ultimate owners of Western Terminal and Scan through
OMGP and GOM, together with OMGP itself as the 100% shareholder of Western
Terminal (together “the Counterclaimants”) bring their counterclaim as the victims of
the harm alleged.
857. Although that is, if established, and subject to the application of the ‘reflective loss
principle’ discussed further below, a recognisable form of action also under the English
law of torts, the Counterclaimants seek to establish liability ‘for causing harm’ under
Article 1064 of the RCC, as to which see paragraphs [785] to [788] above.
858. It is common ground that under the Russian law, the intentional causing of harm
satisfies the requirement of fault. This includes a situation where the defendant knows
that his actions will inevitably cause harm, whether or not he specifically desires the
harm that his actions result in. Indeed, it also includes a situation where the defendant
should have known it would cause harm and went ahead nevertheless.
859. If there are a number of causes leading to harm, the Court’s task is to identify which is
the predominant one, “the main decisive basic circumstances which is a cause” (as
described in a leading textbook). Or, as Andrew Smith J put it in Fiona Trust v Privalov
[2010] EWHC 3199 (Comm.):
“The defendant’s action must be a direct or immediate cause of
the harm.”
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Bank St Petersburg v Arkhangelsky
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.
861. For the avoidance of doubt, it would not be a lawful justification for the Claimants to
say that they or any third parties acted in accordance with contractual arrangements that
they had entered into with OMG companies or others, in circumstances where they had
acted dishonestly. As Professor Maggs confirmed, only the good faith enforcement of
rights is sufficient to negate fault for the purposes of Article 1064:
“Q. And you give some examples in your consolidated report of
lawful justifications for harm. At paragraph 147 you say that a
lawful justification might be self-defence, fair competition or the
good faith enforcement of property rights.
[…]
[W]here you refer to the good faith enforcement of rights, you
would agree that it is not open to a defendant to plead a lack of
fault if he has enforced his rights in bad faith?
A. It is unlawful under Article 10 of the Code to enforce your
rights in bad faith.
Q. So if you enforce rights but in bad faith or dishonestly, that
wouldn’t amount to lawful causing of harm for these purposes;
is that right?
A. That’s correct.”
862. 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.
863. In addition, Professor Maggs appeared to agree under cross-examination that steps
taken intentionally to subject a pledged asset to some form of encumbrance to make it
less attractive to potential buyers and/or reduce the pool of potential buyers and thus its
realisable value would, if proven to be causative of harm, be wrongful, and actionable
accordingly.
864. In my view, and although this was not expressly put, the same analysis may apply where
the value of pledged assets under the same pledge is reduced by the way in which they
are presented for sale: for example, if two assets in the same ownership, pledged under
the same agreement in respect of the same debt and having together a marriage value
in excess of their individual value are sold in separate sales for no good or sufficient
reason. 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.
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Bank St Petersburg v Arkhangelsky
865. 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.
Outline of findings sought by Counterclaimants
866. In paragraph 9 of their written Closing Submissions, the Counterclaimants set out what
they described as the outline of key findings which they submit should be made and
establish their claim.
867. I set out below the findings sought, elaborated by reference to, and culled from, other
parts of their Submissions:
(1) As regards the “December 2008 Agreement”:
(a) The Bank and Mr Savelyev promised Dr Arkhangelsky that, in
consideration of the transfer of shares under the repo arrangements, the
Bank would restructure the Group’s loans so as to implement a 6-month
moratorium on all payments (the alleged Moratorium).
(b) When Dr Arkhangelsky prevaricated, Mr Savelyev made threats to Dr
Arkhangelsky and his family.
(c) Dr Arkhangelsky was induced to enter the repo arrangements by (i) the
promise of the Moratorium; and (ii) the threats made by Mr Savelyev.
(d) The agreement was a legally binding contract under the Russian law, and
was partly written and partly oral.
(e) The 6-month general moratorium as alleged was a material term of the
agreement, or a term collateral to it.
(f) The repo arrangements were highly unusual and in a form and on terms
calculated to enable the fulfilment of the objectives of the conspiracy.
(g) The Bank entered the Memorandum and the repo arrangements in bad faith,
with the dishonest intention to use the repo arrangements to establish control
over Western Terminal and Scan, so as to appropriate their respective assets
and businesses for the Bank and/or Mr Savelyev and his associates, and
fraudulently.
(2) The Original Purchasers and the Subsequent Purchasers, Sevzapalians and the
Renord-Invest Group, Baltic Fuel Group, Kontur and SKIF are all beneficially
owned by Mr Savelyev and/or the Bank.
(3) In any event, all the above entities and groups, whether or not beneficially owned
by the Claimants, acted pursuant to the Bank’s instructions as given by or at the
instance of Mr Savelyev and/or Mrs Malysheva (who took over control of the
Bank’s relationship with OMG in order to coordinate and pursue the objectives of
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Bank St Petersburg v Arkhangelsky
the conspiracy) and those reporting to them in all matters pertaining to OMG assets,
and at all stages; they were vehicles for the commission and concealment by the
Bank and/or Mr Savelyev of their frauds on the Counterclaimants.
(4) The transfer, pursuant to the repo arrangements, of the shares in Western Terminal
and Scan to Sevzapalians (in the case of Western Terminal) and the Original
Purchasers (in the case of Scan), both Sevzapalians and the Original Purchasers
being entities ultimately owned and/or controlled by the Bank and/or Mr Savelyev
“or those connected with them” was part of the conspiracy: those entities were
“vehicles for the commission and concealment by the Bank and/or Mr Savelyev of
their frauds on the Counterclaimants”.
(5) Also in order to further the conspiracy and to put irresistible pressure on Dr
Arkhangelsky, the Bank fabricated the Personal Guarantees and Personal Loan (and
the additional documents relating to them) and procured the forgery of Dr
Arkhangelsky’s signature on them.
(6) As regards the events of March to April 2009:
(a) In March 2009, the Bank resolved to refuse formal extension of loans to
PetroLes and Vyborg Shipping. That was a breach of the Moratorium
promised to Dr Arkhangelsky, and/or pursuant to the Bank’s plan to
appropriate the assets of Scan and Western Terminal (which required a
cross-default of the Group). The intention was to contrive a premature event
of default before Dr Arkhangelsky had had the time for repayment that he
understood had been agreed.
(b) The Bank knew that its actions were unlawful, and therefore anticipated that
OMG would take successful legal actions in Russia. To pre-empt and defeat
the potential judgements against it, the Bank caused the transfer of Scan
shares from the Original Purchasers to the Subsequent Purchasers for a
nominal consideration and as a cloak for and in continuing furtherance of
the Bank’s and/or Mr Savelyev’s fraud.
(c) The decision to replace the management of Scan and Western Terminal was
taken by the Bank at around the same time as the decision was taken to
transfer the shares, in close connection with it, and for the same purpose.
The intention was to enable the new management to transfer both
companies’ assets to other affiliated companies, who would pose as bona
fide purchasers. That decision was taken before the Morskoy Bank’s loan to
Western Terminal, and therefore was not a reaction to it (contrary to the
Bank’s case).
(d) Dr Arkhangelsky repeatedly sought to contact Mr Savelyev to clear what he
perceived to be a misunderstanding or a fraud by a third party. Mr Savelyev
evaded such contact, which is to be explained on the basis that he and the
Bank were the initiators of that fraud.
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(e) The Bank made significant efforts to encourage criminal investigations and
prosecutions against Dr Arkhangelsky by the Russian authorities. The Bank
did so because it was concerned about Dr Arkhangelsky’s lawful resistance
to its fraud, e.g. by taking legal action or complaining to the police.
(7) As regards events from May 2009 onwards:
(a) The Bank procured the wrongful institution of enforcement proceedings in
the Russian courts against (i) Scan and Western Terminal, which were not
contested by either because by now they were under the control of the Bank
and/or Mr Savelyev, and (ii) Dr Arkhangelsky, on the Personal Guarantees
which he says were forged.
(b) At least in some cases (e.g. the Morskoy Bank loan case), the Bank knew
that it was making false allegations against Dr Arkhangelsky; in particular,
the claim that the Morskoy Bank loan was improper and “behind the Bank’s
back” was contrived, first to justify removing Dr Arkhangelsky and Mr
Vinarsky as Directors-General of Scan and Western Terminal, respectively,
and subsequently (in March 2010) to prompt and procure the institution of
criminal proceedings against Dr Arkhangelsky, based on false evidence by
multiple individuals in order to: (i) put further pressure on him and his wife,
(ii) distract them from seeking to challenge the fraud, and (iii) provide the
basis for an extradition request after they had fled to France.
(c) Using its contacts with the police (in particular, Gen. Piotrovsky and Lt. Col.
Levitskaya) and benefitting from friends in high places (in particular, Mrs
Matvienko and Mr Sergei Serdyukov (“Mr Serdyukov”), the son of a former
Russian defence minister), the Bank procured the forcible taking of physical
control on behalf of Sevzapalians of Western Terminal’s premises on 20
June 2009, “with the assistance of St Petersburg police and OMON (riot
police)”.
(8) As regards the latter half of 2009, and through to 2012 and the enforcement of the
judgments obtained:
(a) From an early stage (probably even before December 2008), the Bank
and/or Renord-Invest were interested in Western and Onega Terminals as
complex income-generating assets with synergistic value, not as a collection
of different “land plots”. Their strategy was (as described by Ms Mironova)
to “unify to maximise”, by bringing together and parcelling assets for
ultimate sale to pre-arranged purchasers: this was aimed at maximising the
value of the appropriated assets only once brought together for the benefit
of the ultimate purchasers, and not in order to maximise the amounts to be
applied towards the OMG indebtedness, but rather to benefit Mr Savelyev,
Mrs Malysheva and others within the Bank, and parties connected with
them.
(b) The Bank procured through Renord-Invest and SKIF the packaging and
subsequent sale of substantially all of the assets of Scan and Western
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Terminal (and of the individual Counterclaimants) in collusive sales at a
‘fraudulent undervalue’ to entities owned and/or controlled by the Bank
and/or Mr Savelyev or persons connected with them.
(9) The long series of transactions whereby Western Terminal and Onega Terminal
assets were repeatedly transferred or ‘sold’ between different Renord-Invest and
SKIF companies (including the purported realisation of pledges, at purported
‘public auctions’ or otherwise), were collusive, dishonest, and had the following
objectives:
(a) To enable the ‘buyers’ to pose as bona fide purchasers.
(b) To ensure that the entirety of Western Terminal would end up in the hands
of Baltic Fuel Company and the entirety of Onega Terminal would end up
in the hands of ROK No. 1 Prichaly.
(c) To maximise the synergistic value of each terminal and income generated
by it.
(d) To reduce artificially the value of assets in the initial sales out of Western
Terminal and Scan by creating various encumbrances calculated to (i)
prevent any genuine bids by third parties at the ‘public auctions’, (ii)
facilitate sales to connected parties at fraudulent undervalue and (iii)
minimise the credit against sums outstanding which would be given by the
Bank to OMG borrowers.
(10)Damages should be awarded in respect of the harm caused by the conspiracy as
alleged. Ms Simonova’s evidence on the market value of OMG assets is to be
accepted: that evidence demonstrates a huge discrepancy between the sums
achieved for application in diminution of the loans and the true value of the relevant
assets evidences or confirms the fraudulent conspiracy alleged.
868. The findings are sought by the Counterclaimants in order to establish from them an
inference of fraudulent conspiracy as being their only reasonably likely explanation.
The Counterclaimants accept that they have no evidence of an actual agreement
amounting to a conspiracy. They say, in effect, that the findings of fact which they seek,
if made, make good the gap. As to the origin of the conspiracy, the Counterclaimants
put forward various case theories.
869. Further to a series of amendments in February 2016, the Counterclaimants’ final version
of their claim as to the genesis, formation of, and persons involved in, the alleged
conspiracy was put as follows:
(1) They allege a “Conspiracy […] formed mainly in or around December 2008”. This
is the primary case. This alleged conspiracy asserts at least eight separate
agreements over seven months involving numerous individuals (including Mrs
Matvienko, Gen. Piotrovsky, and other unidentified “corrupt officials in Russian
law enforcements agencies in St Petersburg” and/or companies).
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(2) Alternatively, they allege a “Conspiracy […] mainly formed in or around FebruaryMarch
2009”. This claim of conspiracy asserted at least seven separate agreements
over four months involving numerous individuals (including Mrs Matvienko, Gen.
Piotrovsky, and other unidentified “corrupt officials in Russian law enforcements
agencies in St Petersburg” and/or companies).
(3) In the further alternative, in the final iteration of their claim which they introduced
by amendment in February 2016 (just after commencement of the trial), the
Counterclaimants have invited the Court to infer that, if not established in December
2008 or February-March 2009, the conspiracy must have been established some
(unspecified) time after the Bank sought repayment in March 2009 but “prior to the
fraudulent transactions aimed at dissipation of assets”. On this third iteration of a
conspiracy claim, the inference is said to arise from the fact that the events of June
2009 (and especially the transactions between connected persons) cannot be
explained except by reference to some form of dishonest agreement allegedly
between the Bank (acting principally by Mrs Malysheva and/or by Mr Savelyev as
the Chairman of its Management Board) and Renord-Invest (acting by Mr Smirnov)
resulting in collusive sales at undervalues inconsistent with honesty.
870. This third iteration or alternative plea (introduced into the Counterclaim by a new
paragraph 179A), is premised on the Counterclaimants having failed to prove any
dishonest collusion before June 2009, and it focuses on the nature of the transactions
undertaken thereafter, and especially the connections between the parties to them and
their common ingredient or characteristic of (as the Counterclaimants would have it)
gross undervalues.
871. In this last iteration, it is the Counterclaimants’ case that the transactions were
contrivances of which the object was to establish the appearance of open market sales,
and the differentials between the true values and the values struck were so extreme as
to be inexplicable except by reference to, and thus themselves (especially given the
connections between the parties) demonstrative of, fraudulent intent.
872. It should be noted, however, that although the third iteration of the conspiracy case is
most reliant on it, the issue of value has been and remains at the heart of the
Counterclaim in all its iterations. Indeed, as I see it, the various iterations differ
materially only in the alternatives they offer as to the date when the same conspiracy to
‘raid’ the assets of the OMG companies was hatched, and in what events along the
continuum after December 2008 may be relied on as demonstrating it.
873. Put another way, although the alternative claims as to the timing and constitution of
conspiracy in either December 2008 or February to March 2009 are based on alleged
agreements, in the end the Counterclaimants’ case in all its iterations was primarily
based not on proving the fact and content of particular meetings, exchanges or
correspondence, but on the inference of collusion and dishonest purpose as the only
plausible explanation of the conduct of the Bank and its connected parties, and the
transactions and events which occurred, at and after the relevant times (December 2008
in the case of the first iteration, February to March 2009 in the case of the second, and
June 2009 in the case of the third).
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874. The Counterclaimants thus ultimately base their case on inferring fraudulent conspiracy
from all these factors in the round, and most especially the huge disparities between the
sums realised in respect of the assets and their alleged true value, as being the only
logical and plausible explanation for the fact patterns which the evidence discloses.
This has always been an inherently difficult case to establish.
875. As to harm and loss, it is the Counterclaimants’ case that, whenever established (that
is, whichever of the three iterations of their case is established), the conspiracy alleged
has resulted in them losing assets having a value of some US$467 million.
876. This sum is calculated by reference to the value which the shares in Western Terminal
and Scan would have had at the date of judgment plus the distributable income which
the Counterclaimants would have received (or which the Claimants have or should have
received) by virtue of their ownership and control of the shares between 31 December
2008 and the date of judgment: paragraph 181B of the Re-Re-Amended Defence and
Counterclaim.
The Claimants’ basis for rejecting these claims
877. The Claimants reject every aspect of these claims, and seek to dismiss the Counterclaim
as a fabrication of the Arkhangelskys. They submit that the wide-ranging allegations
are as extravagant as they are false, and that there is no evidence at all to support any
of the ‘conspiracy’ cases alleged. They somewhat exuberantly describe the claim as
“one of the most remarkable fictions to come before the English Court”.
878. The Claimants contend that the measure of Dr Arkhangelsky and the merits of his case
is that on his own evidence, the potential development of at least one asset (and perhaps
others) was dependent on the payment of huge bribes, and that in respect of that asset
(Western Terminal) he sought to raise finance on the basis of a monumental and
shameless deceit of potential lenders.
879. They contend that he has contrived and advanced a fanciful case to obscure the truth as
to why OMG could not meet its payment obligations in late December 2008 or
thereafter: this (according to them) is that the OMG businesses were a mirage.
880. According to the Claimants, Dr Arkhangelsky ran, or at least presided over, a business
which had no real business: a shipping fleet whose only ships were arrested for nonpayment
of their bunkering charges, an insurance firm without any genuine clients, a
‘port’ at Onega Terminal which did not have its own berth, and a container port at
Western Terminal which was in a state of such dilapidation that it required vast
expenditure to enable it to function at all, which it never received.
881. The Claimants’ case is that Dr Arkhangelsky was in fact running a fraudulent ‘Ponzi’-
type scheme: he pledged all of OMG’s material assets to raise funds which the lenders
thought were being invested in the OMG businesses but which instead (for the greater
or most part) he funnelled to offshore entities for his own ultimate benefit, necessitating
increasingly frantic efforts on the part of OMG to delay repayment and borrow more
money to pay the interests charges which the businesses could not service.
882. It is the Claimants’ case that:
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(1) The forgery allegations were trumped up by Dr Arkhangelsky not only to deny
personal liability but to substantiate a claim of conspiracy; and their revelation as
false infects, and indeed negates, the Counterclaimants’ case.
(2) Similarly, the Counterclaimants’ failure to substantiate any part of their claims in
relation to the events of December 2008, and in particular their failure to establish
either (a) that there were any threats or intimidation against them or (b) that they
were induced to enter into the repo arrangements on a false basis of the promise of
a general moratorium, fatally undermines the Counterclaimants’ case that the repo
arrangements were the means by which Western Terminal and Scan were ‘stolen’.
They submit that unless there was an agreed moratorium, so that the calling of
defaults from March 2009 onwards was in breach of it and enabled the Bank to open
the trap-door of default and foreclose any repurchase of the shares, the
Counterclaimants have no basis for claim.
883. The Claimants accept that the repo arrangements were novel but contend that these
were put in place as a necessary expedient to seek to give the Bank the means of control
in the event of default and to enable the Bank to defeat Dr Arkhangelsky’s avowed aim
of delaying the Bank’s recovery by any means available to him. Likewise, they say, the
introduction of the Original Purchasers was necessary because the Bank could not take
the repo shares onto its own books, but for no improper purpose.
884. The Claimants contend that Mrs Malysheva and Mr Sklyarevsky were introduced only
when the Bank’s relationship with OMG was plainly foundering and likely to lead to
default. They contend that the Bank had no real option but to refuse extensions of the
PetroLes loans and that the various steps they took after the resulting cross-default,
including the transfers from the Original Purchasers to the Subsequent Purchasers, the
removal of Dr Arkhangelsky and Mr Vinarsky as Directors-General, and the imposition
of encumbrances over OMG assets (such as the Gunard Lease) were similarly intended
to insulate the Bank’s security and the repo arrangements from the Arkhangelsky’s
efforts to undermine or invalidate them. They deny bringing improper pressure to bear
with state assistance, as they deny any other impropriety.
885. The Claimants submit that the Counterclaimants “have not come even close to adducing
the necessary evidential foundation for their allegations, or to proving each of the
numerous agreements involving numerous parties, which are necessary for any part of
the ‘conspiracy’ to get off the ground.” As they have put it in their Closing Submissions:
“On whichever version of the ‘conspiracy’ case they pursue, to
succeed the Defendants and OMGP must show the agreement
and involvement of a very large number of people, not only a
large number of employees in the Bank, but also employees of
Renord-Invest and of SKIF, St Petersburg law enforcement
officers, Mrs Matvienko, Mr Piotrovsky, Russian judges, court
bailiffs, employees of the Russian Auction House and other
auctioneers. The list is implausibly long.”
886. The Claimants further submit that the fact that the conspiracy case in each of its
iterations is a fabrication (on any of its alternate bases) is revealed by the lack of any
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substance, fatal they say to the claim, in what they depict as two of its key components:
(a) the allegation of forgery; and (b) the allegation that Dr Arkhangelsky was somehow
tricked or coerced into agreeing the repo arrangements made in December 2008 and the
transfer of the Western Terminal and Scan shares as there provided.
887. As to the Counterclaimants’ alternative pleas of conspiracy at various dates along the
timeline:
(1) On the Counterclaimants’ alternative case that if there was no conspiracy in
December 2008 there was one in February or March 2009, any allegations of a
‘corporate raid’ on Western Terminal and Scan make no sense. Such a conspiracy
would post-date the relevant event, that is, the transfer of the Western Terminal and
Scan shares under the repo arrangements in late December 2008.
(2) On the further alternative case of a ‘conspiracy’ after March 2009, which
commenced at the earliest in June 2009, then (as mentioned above) it necessarily
follows that all facts before June are consistent with innocent explanation. Again,
in such circumstances, again any allegations of a ‘corporate raid’ on Western
Terminal and Scan are incoherent.
(3) Furthermore, the Claimants contend that the underlying suggestion that at some
time prior to June 2009 they and others must have developed a plan or scheme to
arrange a series of sales so as to ensure that all (or materially all) Western
Terminal’s and Scan’s assets ended up in the hands of Renord-Invest or its partners
or connected parties supposes a far-sightedness and ability not only to predict but
also control random events, such as the intervention of Morskoy Bank in relation to
the assets of Western Terminal (see above), which is entirely fanciful. As Mr
Sklyarevsky put it when cross-examined:
“…This was not a plan; in other words, there was no original
plan of conducting affairs or working with OMG group. SKIF,
the Bank, or Renord did not have a plan. All decisions were
made based on the information that was — and, as and when it
was becoming available. Had there been a plan and a
distribution of roles, everything would have happened
differently. All those things, Berezin, criminal cases,
obtaining control over the companies, bankrupting
Scandinavia, this is a chain of events that could not have been
planned one step ahead: this was something that was
happening opportunistically, as it were. As information
became available, it was being analysed and decisions were
made.
Now, what you are trying to say now, you are trying to present
this as a plan, but if you look at this from the point of view of
the theory of probability, this is not something that could have
been planned in January 2009 or in March 2009, because the
theory of probability works against you, sir. I’m sorry about
it, this is not something that can be prognosticated. This
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cannot be forecast. One could not forecast that he would get a
loan from Morskoy Bank and would not let BSP know.
Not only did he raise a debt from Morskoy, he siphoned the
money off out of the company in an unknown direction. No
one could have forecast that, or one day Mr Arkhangelsky was
going to have a criminal case opened. No one could have
prognosticated that the insurance company would stop
performing its obligations in January 2009.
Now, if you are looking at this from the point of view of a preexisting
plan, this means, this presupposes that we had known
that this was going to happen, but we’re not gods; we could
not in any way forecast this. Everything happened
opportunistically if and when the information became
available, while Mr Arkhangelsky is trying to portray this in
a way that this was a pre-existing plan. How on earth can I
remote-control Mr Arkhangelsky?”
888. As to the Counterclaimants’ contention that conspiracy may be inferred in all the
circumstances if the asset sales are shown to be at gross undervalues, the Claimants
reject the reasoning entirely. They contend that it is not only based on a false factual
premise (gross undervalue sales) but also circular. In paragraph 634 of their Closing
Submissions they put their point in this way:
“…none of the assets was sold fraudulently at a gross
undervalue. In any event, the reasoning is circular: the
Defendants and OMGP allege the assets were sold at a gross
undervalue; that ‘fact’ is alleged to ground the inference for the
‘conspiracy’; the conspiracy is alleged to be the sale of the assets
at gross undervalue. Such a case is hopeless. Unless the
Defendants and OMGP can (separately, without reliance on the
inference from alleged ‘undervalue’) prove the ‘conspiracy’,
there is no reason to doubt that the sale of the assets at auction
achieved market value at that point in time for those assets.
There is no basis for the Court to draw any ‘inference’ against
the Claimants, let alone any inference to support the fraudulent
‘conspiracy’ as alleged.”
889. Further, the Claimants reject the suggestion that the ultimate purchasers of the Onega
Terminal and Western Terminal assets and businesses, ROK No. 1 Prichaly and Baltic
Fuel respectively, were owned or controlled by the Bank and/or Mr Savelyev or their
“loyal friends” and associates, and they reject any suggestion that there was all along,
or indeed ever, a conspiracy to ensure that those ultimate purchasers should be enabled
to acquire the assets and businesses at a knock-down price.
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Limitation defence to ‘new’ conspiracy claim
890. Before addressing the disputed elements of the Counterclaim (some of which I have
already adjudicated in the context of the Defence), it is convenient to deal with a
limitation point raised by the Claimants in respect of the third iteration of the
Counterclaim as introduced by paragraph 179A of the Re-Re-Amended Defence and
Counterclaim.
891. As a procedural matter, I permitted the introduction of the amendment introducing this
third iteration of the claims in the Counterclaim on the basis that the Claimants should
be permitted to contend at a convenient moment later that this aspect of the claim
amounted to a new claim and (having been raised some seven years after the alleged
conspiracy) was time-barred. The Claimants included in their written closing a short
recitation of this background and an assertion of the alleged time-bar; but they did not
elaborate on this initially, and it was not until their oral reply that (in response to Mr
Milner’s argument that under English law and the concept of ‘relation back’ the ‘new’
claim was not barred) Mr Birt contended to the contrary. By then, Mr Milner was no
longer available. Argument has thus not been as full as might have been useful, but its
ambit was as follows.
892. The Claimants submitted that the relevant paragraph 179A constitutes a new claim
and/or new claims (whether under Articles 1064 RCC and/or 1080 RCC) on the basis
(they submit) that by definition the claim does not (indeed it positively cannot) rely on
the same facts and matters as the Counterclaimants’ primary formulation of the
‘conspiracy’ claim.
893. The Counterclaimants submitted that, to the contrary, the claim was not ‘new’ but rather
the assertion of an alternative date for the same basic conspiracy (to ‘raid’ OMG and
steal its assets further to the steps and stratagems identified above).
894. This is a notoriously difficult area. The cases demonstrate how fine may be the
distinction between an amendment which merely adds a detail or particular to an
existing cause of action, or prays in aid a different legal inference from the same facts,
and an amendment which seeks to add a distinct cause of action. In this case, the
difficulty is the more acute, since the inference invited is of collusive agreement at some
different dates to the existing plea.
895. However, I have concluded that the new plea does not constitute a new claim or cause
of action for the purposes of the Limitation Acts. I accept the submissions of the
Counterclaimants that the cause of action has always been of conspiracy to ‘raid’ the
assets of the OMG; and that the amendment at heart simply offers an alternative date at
which the conspiracy was hatched between the same primary actors with (substantially)
the same objectives.
896. I am happy to reach that conclusion for other reasons also. First, it would be bizarre and
unjust if the Counterclaimants were precluded from asserting the plea, given that the
Claimants seek declaratory relief that there was no conspiracy at all: and the composite
form of the relief sought seems to me may also support my conclusion that the plea
does not introduce a new cause of action. Secondly, the conclusion avoids further
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debate on the proper construction of my Order of 23 March 2016 which on one view
(though by consent) might be said to foreclose my discretion under CPR 17.4(2), which
would be inadvertence on my part and contrary to my intention as expressed in the
hearing. Thirdly, for the avoidance of doubt, I confirm that I would have exercised my
discretion under that Rule in favour of the amendment, and would have been inclined
if necessary (and subject to any argument as to jurisdiction) to vary the Order under
CPR 3.1(7) for that purpose.
My approach to the various iterations of the conspiracy claims
897. The fact that, as noted above, the Counterclaimants’ case, though it does identify a
number of meetings and their alleged participants, is ultimately based on inferences
from the fact patterns and the alleged gross undervalues achieved for OMG’s assets,
requires careful analysis of each element alleged to give rise to the inference in respect
of each of the three alternative dates proposed as being the date of first dishonest
collusion.
898. In point of approach, Mr Stroilov made the valid point that “the very nature of fraud is
that it should look all right from the start” and he urged me to analyse the events:
“in reverse chronological order, to look at the end result, and then
the final stages of it, and then to go backwards to see whether
it’s still consistent with innocence, and then go backwards in
time to try and understand when it may have gone wrong, at what
stage it went wrong, or whether it was all wrong from the
beginning. So I would suggest starting from the so-called public
auctions, then looking into the wider context of various transfers
between Renord companies which led to those public auctions
and into the transfers of both shares and assets, as they are all
interrelated. And then we effectively arrive to the repo
arrangement, and I will submit that the trial has shown that the
agreement was intended by the Bank to be the means of
appropriating OMG assets from the start.”
899. This is understandable; but there are considerable dangers in making assumptions as to
the past from observations about the present; and even more dangers in using hindsight
to assume from what in fact occurred a plan that they should so occur, whereas events
are often not pre-planned and are more random: in days gone by known as the fallacy
of post hoc ergo propter hoc.
900. 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.
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Primary facts relied on by the Counterclaimants as demonstrating conspiracy and collusion
901. Accordingly, I turn to deal with the Counterclaimants’ contentions as to the factual
elements of their claim as summarised in paragraph [867] above, but in the following
slightly adjusted sequence:
(1) The forgery allegations and the ramifications and consequences for the
Counterclaim of my earlier rejection of them in the context of the Defence;
(2) The events of December 2008 and the consequences in the context of the
Counterclaim of my findings in the context of the Defence that there was no agreed
general moratorium and none was promised;
(3) The allegedly “unusual features” of the repo arrangements (including the fact of the
Original Purchasers having been introduced as counterparties) which are said of
themselves, and in context, to suggest dishonest collusion and ‘raiding’;
(4) The introduction of Mrs Malysheva to control and direct implementation of the
Bank’s strategy in all matters concerning OMG, subject to the direction of Mr
Savelyev and the Management Board;
(5) The refusal in March 2009 of extensions to the PetroLes and Vyborg Shipping loans
and the allegation that the Bank and/or Mr Savelyev wilfully contrived to ensure an
event of default before Dr Arkhangelsky and his companies had had the time to
arrange repayment they had been promised (which is naturally linked with the issue
as to the alleged moratorium, see (2) above);
(6) The rationale and true objectives of the transfers of shares in Scan from the Original
Purchasers to the Subsequent Purchasers in late March/early April 2009;
(7) The allegation that the Bank procured the removal of Dr Arkhangelsky and Mr
Vinarsky as Directors-General of Scan and Western Terminal respectively on a
trumped-up basis and in furtherance of the alleged conspiracy;
(8) The wars in the Russian courts, the curious stances in them of the protagonists and
their ultimate resolution in favour of the Claimants;
(9) Mrs Malysheva’s (in each case aborted) efforts to put transactions in place in
relation to the assets of Western Terminal and Scan, such as the Gunard Lease,
which could have no legitimate justification;
(10)The allegations as to the unlawful seizure of control of Scan and Western Terminal,
and as to the use of political and police connections in order to deploy policeassisted
force to take physical possession of Western Terminal;
(11)The allegation that the Bank waged a relentless campaign against Dr Arkhangelsky
causing him to flee to France with his family in June 2009 and thereafter to seek
asylum and abandon any prospect of safe return;
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(12)The allegation that criminal charges brought against Dr Arkhangelsky (and Mr
Vinarsky) in respect of the Morskoy Bank loan were concocted and coordinated by
the Bank with the assistance of the state and subsequently deployed in extradition
proceedings;
(13)The submission that the events in the round display tell-tale signs of a classic ‘raid’;
(14)The allegations as to the true nature and purposes of the long series of transactions
relating to the assets of OMG and the allegations that the sellers and purchasers at
each of the auction sales at which the pledged assets were ‘sold’, and the ultimate
purchasers thereafter of the assets and businesses, were in fact also connected
parties owned or controlled by the Bank and/or Mr Savelyev;
(15)The allegation that at an early stage (probably even before December 2008), the
Bank and/or Renord-Invest were interested in Western and Onega Terminals as
complex income-generating assets with synergistic value which could be enhanced
by acquiring control of all their assets, including unpledged assets; and
(16)The disputed valuation evidence and any conclusions or inferences to be drawn
from it.
902. Much of the factual material has already been traversed, and where I have made
findings already in the context of the Defence I include references back to avoid undue
repetition.
Forgery allegations and the Counterclaim
903. By the end of the trial, and despite Dr Arkhangelsky’s unimpressive attempts to revive
the issue of forgery during his cross-examination (see paragraph [758] above), Dr
Arkhangelsky’s attempt to turn the tables and claim that the Bank had fabricated
documents and that each such fabrication was an overt act demonstrative of the alleged
conspiracy had become largely a source of embarrassment for the Counterclaimants.
Ultimately it was the Claimants who prayed in aid the issue as confirming the contrived
character of the Counterclaim as a whole.
904. The alleged forgeries were not mentioned at all in the Counterclaimants’ written closing
submissions; and in oral closing, Mr Stroilov on their behalf kept open the possibility
that documentation was only put in place and then backdated when in about December
2008 the Bank realised that guarantees were not in place, but otherwise (and primarily)
sought to marginalise the issue as going at most to credibility.
905. In their Closing Submissions, Counsel for the Claimants submitted that the attempts on
the part of the Counterclaimants “to downplay the centrality of the forgery case to the
conspiracy” reflect their “realisation that the conspiracy case is dealt a decisive and
fatal blow if the forgery case were to collapse”. They went on to suggest that:
“It will be appreciated immediately that since, for the reasons
given above, the forgery allegations are false, the ‘conspiracy’
loses one of its key components. Just as Mr Arkhangelsky has
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Bank St Petersburg v Arkhangelsky
dishonestly alleged forgery, so he dishonestly alleges a
‘conspiracy’ against him.”
906. Of course, if forgery by or at the instance of the Bank had been established, that would
have told heavily against the Claimants; conversely, the abandonment or collapse of the
plea knocks out a pillar of the structure of the Counterclaimants’ case, and further
undermines Dr Arkhangelsky’s reliability and credibility. That is so especially in any
context where his word is essentially the only evidence (such as in the context of his
claims of coercion) or where his reliability and credibility is crucial (such as in the
context of the claim that he was promised a general 6-month moratorium at the
December meeting). 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.
907. However, the reality in this case is that the conspiracy claim will stand or fall, not on
Dr Arkhangelsky’s credibility in asserting it, but on the consistency and credibility of
the Claimants and their witnesses in defending it. The abandonment or collapse of the
forgery allegation does not, in my view, inevitably cause the collapse of the conspiracy
case in all its iterations. It removes a brick, but not any corner-stone. I do not agree with
the Claimants’ suggestion that it constitutes a “fatal blow”.
908. The fact that Dr Arkhangelsky contrived one allegation does not of itself mean that
there was no such conspiracy as is alleged. The guarantees were not a pre-requisite or
necessary ingredient of the conspiracy alleged (in any of its iterations). It is not as if
either the Personal Loan or the guarantees was the cause of default and of the
Counterclaimants losing the repurchase option and thus all control of or entitlement to
the shares. Subject to the alleged moratorium, it was the fact that the Bank became
entitled to call in the loans themselves and to deploy or realise their securities, including
the repo shares, that was crucial.

Effect of my findings that there was no agreed general moratorium in December 2008
909. My findings as regards the alleged Moratorium, however, are more problematic for the
Counterclaim. It may assist to recall the basis of the Counterclaimants’ case in this
regard.
910. In summary, the Counterclaim asserts claims in respect of the Moratorium and the
Memorandum as follows:
(1) That Dr Arkhangelsky would never have agreed to even the temporary transfer of
shares under the December 2008 repo agreements if he had not believed that a 6-
month moratorium had also been promised and would bind the Bank: that should
stand to reason, since he was thereby handing to the Bank the keys to the Group’s
entire assets, pledged or unpledged, which would have been nonsensical unless he
had been given enough time to restore financial stability and thereby the prospect
of repaying the debts and unwinding the repo;
(2) That he only entered into the repo arrangements in December 2008 before the
documentation for (as he understood it) a general 6-month moratorium had been
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Bank St Petersburg v Arkhangelsky
formally documented because of threats made by Mr Savelyev which put him in
fear of his and his family’s lives, and because Mr Savelyev represented and he
believed that a 6-month moratorium had been agreed and the documentation would
formally so provide;
(3) That if the December 2008 agreements did contain, or should be read as being
subject to, a binding agreement for a 6-month moratorium, the Bank was in breach
of it by (a) procuring or permitting the onward transfers of shares in Western
Terminal and Scan; (b) committing, permitting or procuring interferences in the
businesses of those companies; and (c) demanding repayment of the loans within
the moratorium period;
(4) That, alternatively, without the general moratorium the agreement in December
2008 was a ‘kabalnaya sdelka’ (‘one-sided transaction’); and
(5) That on the basis of either threats or deceit, or its one-sided nature, the 2008 repo
agreement was liable to be set aside.
911. Thus, the Counterclaimants maintain that the promise of the moratorium was the carrot
to add to Mr Savelyev’s stick and that its denial and/or breach not only subverted the
basis of the repo arrangements but also, taken together with the implementation of those
arrangements, demonstrate the ‘trick’ deployed to sneak in and snaffle the underlying
businesses before the Counterclaimants had the chance they thought they had bargained
for to save them.
912. The Counterclaimants’ principal case has always been that those constitute overt acts
from which a conspiracy in December 2008 and its true objectives can and should be
inferred. Consistently with the logic of that case, that it was the control conferred by
the shares which were transferred under the repo arrangements which enabled the
alleged theft of the Group’s assets by the Bank, the Counterclaimants’ contention (for
many years) was that the alleged conspiracy “must have been before the conclusion of
the Memorandum”.
913. Their most recent pleading deletes that sentence, but they have not withdrawn any of
Dr Arkhangelsky’s evidence that it was at the “end of 2008” that the “Claimants,
together with other connected parties, effectively stole many of the Group’s most
valuable assets”.
914. Had I found that Dr Arkhangelsky was threatened by Mr Savelyev or deceived into the
Memorandum and repo arrangements before obtaining written agreement of the alleged
6-month moratorium that would have been a powerful point in favour of the
Counterclaimants’ conspiracy theory: but I have not done so. On the contrary, I have
earlier found against Dr Arkhangelsky’s claim that Mr Savelyev promised him a
general 6-month moratorium and he would otherwise never have agreed the repo
arrangements and parted with his shares, although I have accepted that this may be what
Dr Arkhangelsky convinced himself thereafter to have been the upshot of their
December 2008 discussions.
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Bank St Petersburg v Arkhangelsky
915. In point of credit, these findings cast yet further doubt on Dr Arkhangelsky’s reliability
as a witness, and reinforce the conclusion that he has indeed been prepared to concoct
any claim that appears to him, from time to time, to support his general case that he has
been deprived of ownership of valuable businesses.
916. In point of substance, these findings at the very least narrow the range of overt acts on
which the Counterclaimants can rely as evidence of a conspiracy in December 2008.
Indeed, in my view, my findings that no general moratorium as alleged by the
Counterclaimants was promised or agreed by the Bank is undoubtedly destructive of
two important elements of the Counterclaimants’ case.
917. First, the corollary of the findings is that (subject to the claim that though Dr
Arkhangelsky did not understand this at the time, their form, content and effect were so
unusual as to demonstrate fraud or conspiracy and betray the true intentions of the
Bank) the repo arrangements were consensual, and not induced by or premised on or
subject to the alleged moratorium. That negates the claim that Dr Arkhangelsky was
tricked into agreeing them, and leaves his only basis for complaint that he
misunderstood their true effect and intended use (and/or that they were put to improper
use).
918. Secondly, those finding negate the claim that the Bank acted wrongfully in refusing to
extend the PetroLes and Vyborg Shipping loans and in demanding repayment before
June 2009: there being no agreed moratorium in the form alleged, that was the Bank’s
contractual entitlement.
919. However, though seriously damaging, I do not consider that my findings that Dr
Arkhangelsky was not coerced by threats or intimidation, nor induced by a false
promise of a general moratorium, into agreeing the Memorandum and the repo
arrangements are necessarily fatal to the Counterclaimants’ allegation that the
Memorandum and the repo arrangements were the origin and engine of the conspiracy.
920. Neither the fact that Dr Arkhangelsky is not to be believed in this important context,
nor the fact that he must be taken to have agreed to the repo arrangements without a 6-
month general moratorium, necessarily means that the repo arrangements were benign.
Neither demonstrates that the Bank’s purposes were to try “to assist their client in
difficult times” (as its Counsel submitted in closing), or negates the Counterclaimants’
case that the Claimants intended to and did deploy the repo arrangements and the
likelihood of default as the means of taking his companies and their enterprise value for
nothing and pocketing as proceeds all but the (allegedly) derisory sums achieved on the
sale of assets and applied in diminution of the loans.
921. I do not consider that the fact that Dr Arkhangelsky did, under financial pressure, but
without improper threats or coercion, agree to the repo arrangements without securing
the moratorium he wanted, is definitive about the objectives of the Bank and “connected
parties”. Further, I think it entirely possible that by the end of December 2008 the Bank
had measured Dr Arkhangelsky to be a character who was unfocused on detail and who
could be strung along by vague but unenforceable assurances.
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Bank St Petersburg v Arkhangelsky
922. The question remains of whether the repo arrangements were put in place purely to
fortify the existing security; or whether, even at this early stage, the Claimants had their
sights on a ‘raid’ and extracting the assets of Dr Arkhangelsky’s companies and
realising their enterprise value, not with a view to recovering as much as possible of the
debts, but with a view to substantial benefit and profit for themselves and their
associates.
923. I turn then to the indications relied on by the Counterclaimants as suggesting that, by
December 2008 and in formulating and insisting on the repo arrangements in unusual
form and with the Original Purchasers in place of the Bank as repo counterparties, the
Claimants did have in mind a classic ‘raid’.
Unusual features of the repo arrangements: the competing views
924. The Counterclaimants, supported by their banking expert, Professor Guriev,
condemned the repo arrangements as “not only irregular, but clearly improper”.
925. They especially emphasised the following features of the form and provisions of the
repo arrangements (in addition to the omission from the Memorandum of any reference
to a moratorium) which in their perception have fed the notion that in insisting on the
repo arrangements the Claimants had their eyes, not simply on enhanced security for
their loans, but on seizing the surplus value of the assets and the enterprise value of the
companies to which the arrangements related:
(1) First, the Bank already had pledges over the real estate interests of both Western
Terminal and Scan: the Bank’s insistence on the repo arrangements in such
circumstances was (it was argued) indicative that the repo arrangements were
intended, not for the purposes of security, but to establish the mechanism for
snatching control of the underlying companies and their enterprise value.
(2) Secondly, although sought to be justified by the Claimants as being intended simply
to enhance the Bank’s existing security, the Bank was not itself named as a party to
any of the repo arrangements (except the Memorandum which paved the way for
them): the buyers were not the Bank but the Original Purchasers; and on the Bank’s
own evidence, its arrangements with the Original Purchasers were made by a purely
oral agreement between Mrs Malysheva, Mr Smirnov and Mr Zelyenov. Nothing
whatsoever was recorded in writing.
(3) Thirdly, the Share Purchase Agreements for the ‘sale’ of shares by OMG to the
Original Purchasers made no mention on their face of any repurchase right or
agreement. The sales were on the face of things absolute, it being provided in clause
5.1 that:
“Upon transfer to the Buyer of the title to the Share, the Buyer
shall acquire and incur all rights and obligations associated
with the aforesaid Share as contemplated by the Company’s
Articles of Association and the current laws of the Russian
Federation.”
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Bank St Petersburg v Arkhangelsky
(4) Fourthly, there is no provision in any of the repo arrangements regulating whether
the control afforded by the shares should (a) entitle the holder to income generated
by Western Terminal and Scan during the period of the legal ownership of those
companies pending repurchase (or whether such income should be applied in
reduction of the indebtedness for which the repo arrangements were presented as
providing further security); (b) restrict the holder (beyond a broadly stated
obligation of good faith) in the exercise of rights attached to the shares; or (c)
require the holder of the shares to account (or procure the company to account) for
any surplus value received on sale of assets in excess of the amount repayable under
the loans intended to be further secured by the arrangements.
926. That last omission may be especially notable in circumstances where (as I understood
to be agreed, but in any event, I find) the Bank, at the relevant time, supposed (on the
basis of the Lair valuations) that the value of the assets considerably exceeded the
amounts outstanding.
927. The Counterclaimants contrasted these features with standard repo arrangements,
suggesting that:
(1) At least in legitimate banking practices (in contrast to what the Counterclaimants
asserted to be the known patterns of fraudulent raiding – see further below), a repo
arrangement, used as a form of additional security, usually involves a temporary
transfer to the bank or its fully owned subsidiary. It is unusual for a transfer to be
made to third parties.
(2) In each case the repo sale in this case was for a purely nominal consideration, rather
than the usual repo sale for the market price with an agreed haircut.
(3) One might expect both sides (the purchase and repurchase sides) of the transaction
to be provided for or at least recorded in an agreement between the bank and the
borrower (a) in full in a single document and (b) in a formal contract. The
Counterclaimants contend that in each case its informality was contrived (in that,
according to Mr Savelyev’s evidence in the BVI Proceedings, there had been
detailed discussions within the Bank prior to the 25 December meeting and it was
not, to use Mr Sklyarevsky’s phrase, a repo contract written on the back of the
envelope) and “intentional” (in order to allow the maximum flexibility for the
facilitation of the ‘raid’). Both it is said are indicative of fraud because (so Mr
Stroilov submitted) “they didn’t want to leave unnecessary records of that”.
(4) Repo agreements are typically used by Russian banks as a form of additional
security where a loan is only secured by a pledge of shares, so there is a risk of
‘asset tunnelling’, which would reduce the value of the shares. In such cases, a repo
sale of the real estate may be used as security in addition to the pledge of shares. In
the present case, the usual arrangement was turned ‘upside down’: in addition to the
registered pledges of real estate (which are considered the most reliable form of
loan security), the Bank required a repo of the shareholding of the companies which
held that real estate. That too, it was contended, revealed the true ‘raiding’ purpose
of the arrangements.
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Bank St Petersburg v Arkhangelsky
928. Professor Guriev described the repo arrangements, and the Memorandum, as “very
informal and intentionally confusing”. He considered that the use of third parties, in the
person of the Original Purchasers, for the purposes (according to Mr Sklyarevsky and
others) of reducing the impact of the transactions on the Bank’s capital, constituted a
knowing attempt “to deceive Russian prudential regulators” and to “mislead the
market”. He was not able to say how unusual the structure was: he accepted it might be
quite common-place, but said that in which case he would characterise it as “common
malpractice”.
929. He rejected Mr Turetsky’s attempt to equate the position with a good bank/bad bank
model under which the bad bank does no lending but is a repository for bad loans and
non-performing assets (‘toxic assets’), with the sole job of restructuring and/or
enforcing them, which he accepted as “transparent and regular”.
930. He also instanced as particularly objectionable the lack of any provisions clearly
covering issues that would inevitably arise. In particular, he said in his report that a:
“conventional arrangement of a similar kind, e.g. a ‘repo’ sale
to a ‘bad bank’, would normally be recorded in a formal,
carefully drafted contract, clearly setting out the material terms.
In particular:
(1) If the borrower transferred the assets in exchange for a
restructuring of its debt, that would normally be clearly recorded
in the contract. Moreover, the exact terms of that restructuring
would also be recorded in the contract…
(2) I would expect the contract to specify who was entitled to any
income generated by Western Terminal and Scan during the
period while the two companies remained under the control of
the Bank (or third parties nominated by the Bank). If the Bank
(or nominated third party) was entitled to derive that income, the
contract would also specify whether it should be applied to
reduce the debt.
(3) I would expect the contract to address the possibility of the
collateral being sold off at public auction, and whether the
surplus value recovered at such auction should be returned to the
OMG.”
931. Professor Guriev noted, I accept correctly, that the absence of such provisions was
exceptional and of far-reaching effect. Whether inadvertent or intentional (a question
of fundamental importance to the Counterclaim, to which I shall return), the lack of any
stipulation as to the exact terms of restructuring had given the occasion for the entire
dispute; and which could only be challenged by uncertain legal action, and opened the
door to income generated enuring solely to the benefit of the purchasers by way of pure
gain and not by way of security.
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Bank St Petersburg v Arkhangelsky
932. The Claimants, on the other hand, submitted with the support of their banking expert,
Mr Turetsky, that none of these features is such as to cause concern let alone such as to
constitute evidence of bad faith or collusion in a ‘raid’.
933. In turn, it was Mr Turetsky’s opinion:
(1) As to the rationale of the repo arrangements in the particular circumstances, the
Bank was concerned to protect its existing security in the form of the pledge of
assets by obtaining the ability in the event of default to control the companies which
had pledged those assets and thereby prevent them engaging in spoiling tactics
which had become a common expedient amongst distressed borrowers in Russia at
about that time. To quote the Claimants’ Closing Submissions:
“…the Bank wanted to avoid having to face an
unscrupulous borrower and minimise problems of
enforcement in the event that became necessary because
the ability of the borrower to engage in spoiling tactics
would have been curtailed. In any enforcement process, it
wanted to face a friendly counterparty rather than a
borrower who had declared war on the bank.”
Mr Turetsky elaborated on this as follows:
“…if there is a mortgage registered, then the borrower
would not be able to sell it without the Bank’s consent. So
it is a very good negative protection. However, with respect
to positive protection, ability for the Bank to take over that
asset, my conclusion and that of my colleagues was not as
robust, because in the end the Bank would probably be able
to enforce, to foreclose, but there would be so many hurdles
along the way, and the legislation, which dates back to the
early 1990s and is somewhat inconsistent, is such that you
really rely in many instances on cooperation from the
borrower, so that the law says that in certain instances the
borrower has to agree valuation, the borrower has to agree
certain types of enforcement, and if you are in court then
the borrower may raise all sorts of objections in court some
of them may even be frivolous and they could still defer the
time when enforcement comes. So it wouldn’t be an
unrealistic estimate that the Bank may spend two or three
years trying to enforce. Probably they would enforce at the
end, but they would lose so much time, and value may have
been reduced over time, and certainly they need money
now as opposed to money in three years…”
(2) There was nothing covert or improper about the Western Terminal and Scan shares
being acquired by the Original Purchasers rather than the Bank. As noted
previously, OMG was well aware of the identities of the Original Purchasers. They
were custodians not thieves. The Original Purchasers agreed not to interfere with
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Bank St Petersburg v Arkhangelsky
the business or assets of the underlying companies unless and until default and
entered into written agreements obliging them to return the shares upon repayment
of the loans, and assumed an express obligation towards OMGP and GOM to act in
good faith in and about the holding of the shares. The Bank enrolled the Original
Purchasers for legitimate and not nefarious reasons: whereas much larger banks,
such as Sberbank or VTB, had their own investment houses, such as Sberbank
Capital or VTB Capital, that was not the case for the Bank, which did not have the
capital resources to establish subsidiaries to acquire toxic assets onto its balance
sheet but could not in regulatory capital terms take them onto its own books. Mr
Turetsky did not consider the arrangements to be particularly unusual, and to be a
practical necessity in the context of the shares not being listed securities. As to the
latter, he explained that under Russian Central Bank rules, the bank could not take
unlisted shares onto its books as being held under a repo, since there was no market
for them and no ability to ‘mark to market’. The Bank would have had to take in
the shares as its own absolute property: but would have then to make provision
accordingly. Mr Turetsky explained that this was common-place and
unobjectionable:
“…assuming that the OMG companies (of which
Scandinavia Insurance and Western Terminal were a part)
[were] in a dire financial position, like many companies in
Russia during the global financial crisis, then I am not
surprised that the Bank structured the repo transaction with
the assistance of third parties. I am familiar with the
practice of Russian banks of not consolidating any
distressed companies acquired in enforcement scenarios
due to negative consequences for the bank’s financial
results and pressure on regulatory capital requirements.”
(3) As to the lack of any written record or definition of the Bank’s relationship with the
Original Purchasers, the Claimants maintained simply that they trusted the Original
Purchasers in respect of the repo transaction. According to the Claimants, the Bank
(and more particularly Mrs Malysheva) asked for a favour from long-standing
clients; Mrs Malysheva knew and trusted Mr Smirnov, Mr Zelyenov, and (later) Mr
Sklyarevsky; because of such trust and confidence, a written record was not a
priority. While it might have been sensible to have recorded the arrangement
between the Original Purchasers and the Bank, the fact that it was not is if anything
inconsistent with any pre-arranged plan to deprive OMG of its Scan and Western
Terminal assets.
(4) It is not unusual, nor should it be thought suspicious or troubling, that the transfers
were at nominal value. Dr Arkhangelsky accepts that his companies entered into
the sale and repurchase agreements, and that “it was the plan that we get it back”.
The price for the retransfer of shares back to the relevant OMG company under the
repurchase agreement was the same ‘nominal’ price as the price for the transfer of
shares to the Original Purchasers: as Dr Arkhangelsky said, “it was the same price”.
(5) The Counterclaimants (and their expert, Professor Guriev) had overstated the
informality of the arrangements: they were set out in documented sale and
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Bank St Petersburg v Arkhangelsky
repurchase agreements, together with documented restructuring agreements.
Professor Guriev acknowledged that the Western Terminal sale agreement, which
(astonishingly) he had not seen before the trial, was “a formal agreement”, and that
the accompanying repurchase agreements were also “contracts…formal
documents”. He agreed that the annex which set out the form of the repurchase
agreement (which before his cross-examination he had not seen either) was “an
important part of that main contract”.
(6) As to any inadequacies, and the failures to make express provision for matters such
as who, pending repurchase, should be entitled to income and how it should be
applied, and who, on default, should be entitled to any surplus (whether of asset
values realised or share values), Mr Turetsky suggested this:
“… you saw the witnesses: some of them are, I guess, still
quite young, and eight years ago they were even younger,
so this was the first crisis they encountered in their
lifetimes. They were faced with the extreme pressure of
having to decide what to do with all these borrowers
defaulting, and they were trying to find a solution, and they
haven’t had the precedence [precedents], they haven’t had
the legal document they could use, someone mentioned the
repo, they tried to work out how to do that, they’ve done it.
I mean, obviously they might have not done it as properly
as it could have been done had they had the benefit of time
or involvement of an experienced law firm, but what else
were they supposed to do; they had to save the Bank.
So I do appreciate that there are some differences into how
different banks reacted, and some banks did this, some
banks did that, but you could just understand why this was,
just because they didn’t study in the university what to do
when your borrower defaults and threatens not to pay.”
(7) Further, the Claimants submitted, the terms of the Provisional Share Purchase
Agreements (the ‘repurchase’ side of the repo arrangements) imposed on the
Original Purchasers (by clause 6.1) a duty to act “reasonably and in good faith
during performance of their obligations under this Agreement”, and (by clause 5.2)
an obligation to arrange for the re-transfer of the shares by January 2011.
934. Thus, in effect, the Bank prayed in aid the need to finesse the regulatory restraints and
accounting difficulties as the justification for warehousing the shares with third parties
with which it had an undefined but nevertheless trusting relationship. As Mr Savelyev
put it:
“We draw in the companies that we understand and trust, and
trust them to work with the Bank, and we ask them to operate
together on commercial terms with regard to toxic or problem
assets.”
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Bank St Petersburg v Arkhangelsky
My assessment as to whether the form of the repo arrangements itself demonstrates or
supports an inference that the Bank was planning a ‘raid’
935. There can be no doubt that the repo arrangements presented the Bank with the keys to
Dr Arkhangelsky’s empire. The combination of the peculiar features and the eventual
implementation of the repo arrangements upon default conferred on (in the event) the
Subsequent Purchasers (see later) full control over the assets of OMG, whether pledged
or not, and enabled the ultimate sale of those assets without affording the
Counterclaimants any recourse to, or share in, any surplus or enterprise value. The
arrangements were capable of being used to achieve a result which was to the same
effect as a ‘raid’.
936. However, that is not to say that the arrangements, with their curiosities, were contrived
or calculated for that purpose when the arrangements were drafted, agreed and put in
place. The question is whether these curiosities demonstrate a hard bargain which the
Bank was in a position to and did drive in order to enhance its security and the prospect
of full recovery; or whether, even at this early stage, the Claimants had their eyes not
on repayment of the loans but on seizing the businesses. 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.
937. 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 pledger 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.
Control of the borrower achieved though 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”.
938. It may be that in 2008/2009 the use of repo arrangements to enhance such security was
unusual. But it was not entirely novel. Mr Stroilov put it to Mr Turetsky that, even so,
it would surely be rare to insist on both a pledge of a company’s real estate and a repo
arrangement in respect of its shares. Mr Turetsky admitted that he had no personal
involvement in such a case; but he instanced at least one other case in which it had been
done, and another three where it probably was done, and commended the “logic” of
having both forms of security, especially in the crisis conditions at the end of 2008.
Professor Guriev considered that “a further registered pledge of real estate would be a
more reliable form of additional security”; but he did not contradict the logic of ensuring
the means of securing control of the company providing that security. Nor did he
contend that combining a repo arrangement with an existing mortgage of real property
was inherently wrongful or necessarily sinister, even if it was unusual.
939. Furthermore, in this case there were assets of the underlying companies which remained
unpledged: so that the repo arrangements did in fact enhance the extent as well as
(indirectly) the quality of the security available to the Bank. Indeed, it became clear
from the evidence of the Bank’s witnesses at trial that at least part of the purpose of the
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Bank St Petersburg v Arkhangelsky
repo arrangements was to enable the Bank, by the exercise of the control conferred by
the shares under those repo arrangements, to enable unpledged assets to be made
available with pledged assets if that would provide synergy value. As Ms Mironova put
it in the course of her cross-examination:
“So in 2008, when the repo deal was being set up, the only
purpose of that was to have an opportunity to realise, to get the
asset in its entirety, which is obviously going to get the highest
price when sold to any final buyer…”
940. Thus, in this case, the repo arrangements did in fact extend and enhance the Bank’s
security. Although it seems to me clear that the arrangements were capable of being
implemented and utilized in a way that went beyond the Bank’s avowed intention of
providing itself with an effective means of realizing the assets pledged even if Dr
Arkhangelsky were later to determine to stymie enforcement proceedings, that
possibility of misuse does not of itself indicate that such was the intention.
941. The question then is whether the Bank’s nomination and use of the Original Purchasers
as the holders of the repo shares, and the lack of documentation to establish their true
relationship and the Bank’s consistent equivocation in that regard, signifies and
evidences or suggests an inference of an intended ‘raid’. (In answering that question, I
leave out of account for the present, but return later to, the fact of the later transfer by
the Original Purchasers to the Subsequent Purchasers.)
942. It is not easy for an English judge to determine on the basis of this opposing and
somewhat general evidence whether the arrangements were in compliance with Central
Bank requirements and accounting fairness; and I am relieved that it is not necessary
for me to attempt to do so, since that is not properly an issue in the case. What is
necessary for me to decide is whether the justification offered is a plausible one. In my
view, the rationale that the Bank simply could not take the shares into its own books,
and that there would be regulatory difficulties if it tried, seems to me plausible, even if
it may not provide the whole story; and the explanation that the Original Purchasers
provided a solution similarly so.
943. The Claimants’ reticence in explaining their true relationship with the Original
Purchasers has excited further suspicion. So too (and the points are of course related)
has the complete absence of any formal record of the arrangements and obligations
between the Bank and the Original Purchasers, purportedly (or rather, according to the
Claimants) because of the “trust” between them.
944. However, the fact that the Original Purchasers, rather than the Bank itself, were to be
the counterparties to the repo arrangements was plain to see on the face of the
Memorandum and the repo documentation which followed: it was not dissembled or
disguised; and Dr Arkhangelsky did not object at the time.
945. I have concluded, and find, that the interpolation of the Original Purchasers was not,
when the repo arrangements were incepted, contrived or intended to pave the way for a
‘raid’. I accept the Claimants’ case that it was intended to enable the Bank to have the
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enhanced security offered by the repo arrangements without taking the shares onto its
own books.
946. The separation of the two ‘sides’ of the repo arrangements into two documents with no
cross-referencing between them, resulting in the transactions appearing to be absolute
sales, does seem to me to be odd and a departure from the norm: it was confusing and
remains substantively unexplained. It has caused me concern.
947. However, it is to be remembered that the parties agreed to these documents; and it is
not as if there were no arrangements for repurchase and re-transfer of the shares back
to OMGP and GOM. As to the express provisions:
(1) Clause 5.2 of the Provisional Share Purchase Agreement required the parties to
conclude a ‘Master Agreement’ for the retransfer of the shares in the form of Annex
1 on or before 1 January 2011. Accordingly, OMGP and GOM had the right to buy
back the shares at a nominal price by that date and could have commenced a claim
to do so. Professor Maggs noted that the preliminary agreement was “very simple
to enforce”: “you merely need to get a court declaration saying that the agreement
you promised to make should be considered made”.
(2) Clause 5.3 of the Provisional Share Purchase Agreement provided further that:
“should any party evade conclusion of the Master Agreement,
the other party shall have the right to file a lawsuit to the
Arbitration Court of St Petersburg and Leningrad Region
seeking the enforcement of the Agreement conclusion.”
(3) Clause 6.1 of the provisional share purchase agreements, provided:
“The Parties undertake to act reasonably and in good faith
during performance of obligations under this Agreement.”
948. The Master Agreement required to be concluded was to contain a provision for the sale
back at the same price as that paid for the shares under the original Share Purchase
Agreement. I consider Mr Turetsky’s summary of the intent and effect of the
arrangements in this regard to be broadly accurate:
“So I think what they were trying to do was they were trying to
come up with a bespoke document which would achieve the
same objective, and I reviewed this repurchase agreement and it
seemed to me that someone has put some thought into it, because
the way they have done it is if they just wanted — for the sake of
argument if they just wanted to get the shares and dispense with
Dr Arkhangelsky, they would just have an agreement and some
vague obligation to sell it back. What they have in reality come
up with is an elaborate document which contains three parts,
which is the original sale agreement, then the preliminary
agreement to agree on a reverse sale, and then they attach to it
the actual instrument of transfer for the eventual sale back.
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So I wouldn’t say that this is a perfect structure, and I agree that
I haven’t seen it done this way precisely, but it kind of suggests
to me that they have put some thought into how they would
enable Mr Arkhangelsky to buy the shares back at the time.”
949. In the event, the failure to cross-refer to the repurchase arrangements resulted in Dr and
Mrs Arkhangelsky succeeding at first instance in the Russian proceedings in presenting
the purchase arrangements as being for no consideration and invalid. That unforeseen
and unintended consequence does not establish that the Claimants had no ulterior
purpose in structuring the two sides of the arrangements as separate contracts; but it
does suggest that error or unfamiliarity with the novel arrangements rather than malign
intent is more likely as an explanation. It may seem a strange omission; but I have to
bear in mind that the arrangements were novel, so far as the Bank was concerned; and
their drafting was entrusted to people who were largely ‘flying blind’ and without the
benefit of precedent or (as far as I can tell) established practice.
950. On the whole, I accept that the failure to match up the two sides of the repo
arrangements by express cross-references was not intended to prevent or impede Dr
Arkhangelsky in exercising his right to repurchase if the conditions under which the
right arose were satisfied in time.
951. Of greater concern, to my mind, are the obvious and material omissions from the repo
arrangements in terms of defining the rights of the vendors (OMGP and GOM). Most
glaringly, as it seems to me, is that none of the forms of agreement specify what was to
happen to any right to repurchase the shares in the event of default.
952. Another puzzling and concerning feature of the Claimants’ case in defence of the repo
arrangements was their inconsistency in explaining whether the right to repurchase the
repo shares would ever be exercisable after default in the event of there being a surplus
after repayment of the Bank’s loans, or whether in the event of such a surplus it would
enure to the benefit of the Original Purchasers (or, later, the Subsequent Purchasers).
953. I raised a question in this regard in the course of Mr Birt QC’s oral submissions in reply
for the Claimants:
“MR JUSTICE HILDYARD…on the Bank’s case, pursuant to
these [interesting] but undocumented arrangements, the excess
in value of the pledged assets over the loan inured not to the Bank
but to the Subsequent Purchasers, is that right?”
954. After a period for further thought, the answer given on behalf of the Claimants can be
summarised as follows:
(1) “…there’s no evidence that they were really thinking about that at all. There’s
nothing in the documents which suggests that specific thought was given to it, or
specific appreciation was given to it.”
(2) The “general market understanding of a repo transaction was that rights expire upon
default” (as indeed both Mr Turetsky and Professor Guriev had opined would be
the case here).
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(3) Nevertheless, Mr Birt suggested, the position here was, or at least might be,
different:
“My point is when one looks at the terms of the repo
arrangements, that’s not a term of it…And the position we are
positing which is that Western Terminal has in fact ended up
with a surplus amount, there’s no reason to think that it
wouldn’t be reasonable and in good faith for Dr Arkhangelsky
to ask for the shares back. Or indeed, it may be unreasonable
for the original purchaser in that circumstance not to allow
them to be retransferred back. So that would be, we say, on
analysis, possibly a machinery by which that would be
solved.”
(4) Mr Birt then added:
“Of course, as we say, in the reality, nobody, when they were
entering into these arrangements, envisaged that there would
be such a surplus. That’s why I say nobody thought about
it…”
955. I have found this difficult to accept; and the inconsistency and equivocation in the
explanations offered reinforced rather than mitigated my concerns. Even if (and the
evidence was scant) the Bank had little or no expectation of surplus, notwithstanding
the considerable margin of pledged assets over indebtedness according to the Lair
valuations, I find it difficult to accept that the Bank simply gave no thought as to where
any surplus would go: there is no suggestion in the evidence that as at December 2008
or until mid-2009 it had serious doubts about the Lair valuations, although it is fair to
suppose that the general economic conditions would have justified the supposition of
material erosion. I suppose it is possible (as Mr Birt seemed to me to be suggesting)
that its focus on stymieing manoeuvring by the borrower blinded it to the true effect of
the arrangements: but that seems to me as a general matter unlikely, and the more so on
my particular view of the Bank and its personnel.
956. Further, it is difficult to see any basis in the evidence before me for the possibility,
floated by Mr Birt in this connection for the first time in his oral reply in closing, to the
effect that the Original Purchasers would have been bound to account for any surplus,
or at least to deliver back the shares and thus the keys to any such surplus. This
suggestion was not supported by any evidence of usual practice; and it was contrary to
the Bank’s own witness Mr Turetsky’s evidence, who was quoted in paragraph 412(4)
of the Claimants’ written Closing Submissions as stating that “in any repo transaction
if a borrower were to default on payment when due, then he lost the rights to buy back
the shares.”
957. On that basis, it was an egregious feature of the repo arrangements that upon default
and the exclusion of the repurchase right, the value of the businesses would enure to
the purchasers, subject only to an obligation to apply sums realised for pledged assets
in repayment or reduction of indebtedness. A further consequence is that any income
generated by Western Terminal and Scan, so far as not applied in reduction of the
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Bank St Petersburg v Arkhangelsky
interest and capital outstanding on the relevant loans, would also accrue to the
purchasers as holder of the shares free, in effect, of anything like an equity of
redemption.
958. That undoubtedly served to increase the leverage over Dr Arkhangelsky and his
companies enjoyed by the Bank. However, I do not think it necessarily connotes that
the repo arrangements were being put in place and given effect with a view to ‘raiding’.
Seeking to have the ‘whip-hand’ on a recalcitrant borrower is one thing; expropriation
is another. The more benign interpretation can only be dislodged by evidence of
sufficient strength to oust it in favour of a more malign one.
959. I have taken carefully into account that the curiosities of the original ad hoc drafting
did favour the Claimants. I have also borne in mind the use ultimately made of the
curiosities. But I do not consider any of these justify a finding that the repo
arrangements were contrived ab initio to implement a ‘raid’. In my judgment, none of
that is enough, of itself or in combination, to warrant an inference that when the Bank
initially agreed the repo arrangements with Dr Arkhangelsky and put them in place it
did so with the intention of later stealing the Group’s assets. The arrangements were
harsh; and they did confer the keys to Dr Arkhangelsky’s companies on default. But the
Bank was entitled to drive a hard bargain; and the arrangements are consistent with the
Bank wanting to avoid facing the delaying tactics of a recalcitrant borrower. The
Counterclaimants’ expert, Professor Guriev, acknowledged that the value of collateral
is in substantial part a function of the ability to control its disposition, and that upon
default a creditor bank’s main job is to “assure the control over the collateral” (as he
put it in his report). Indeed, although he avoided giving a direct answer, when it was
put to him that it was plainly a legitimate aim and advantage for a creditor bank to seek
ways of vesting control of collateral in the event of default in friendly hands, Professor
Guriev offered no cogent basis for denying it.
960. In other words, there is in my judgment, nothing sufficient to contradict the more benign
view of the facts that (as it was put in the Claimants’ written closing submissions) “the
Bank wanted to avoid having to face an unscrupulous borrower and minimise problems
of enforcement in the event that became necessary because the ability of the borrower
to engage in spoiling tactics would have been curtailed. In any enforcement process, it
wanted to face a friendly counterparty rather than a borrower who had declared war on
the bank.”
Significance of the introduction of Mrs Malysheva in place of Messrs Guz and Belykh
961. As previously mentioned (see paragraph [449] above), prior to December 2008, Mr Guz
and his subordinate Mr Belykh were the top managers in charge of day-to-day relations
with OMG. They ceased to be so some time in late December 2008, or possibly right at
the beginning of January 2009, when Mrs Malysheva (Deputy Chairman of the Bank)
became involved.
962. The Counterclaimants submit that that the introduction of Mrs Malysheva in place of
Mr Guz and Mr Belykh, and in combination with Mr Savelyev, as the persons in charge
for the Bank of its relationship with OMG, is further evidence of the commencement
of a conspiracy to ‘raid’ the assets of OMG. The Counterclaimants emphasised not only
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her introduction and key role but also her personal and family interests, direct and
indirect, including in the Renord-Invest Group, and the (they would say) curious
transactions she promoted.
963. Mr Guz (who, interestingly, makes no mention at all of Mrs Malysheva in his witness
statement) told me during his cross-examination that his involvement stopped in late
December 2008. He sought to explain the involvement of Mrs Malysheva as part of a
process of problem borrowers being allocated between top managers of the Bank. This
did not really explain his replacement: he was a Deputy Chairman of the Management
Board at the time.
964. Mr Belykh does not mention Mrs Malysheva in his witness statement either. He
confirmed that he was not involved himself after December until March 2009, and then
only when the BKK was asked to consider extension of the First PetroLes Loan due to
be repaid on 5 March 2009. He presented Ms Mironova as the person primarily involved
in the restructuring.
965. Mr Savelyev refers to Mrs Malysheva only fleetingly in his witness statement, but it
became obvious as the trial developed, and in particular, during his cross-examination,
that they worked very closely together. In cross-examination, he referred to her as
having been “instructed to look into the OMG toxic assets” (presumably by him, given
her status as Vice-President of the Bank). As an indication of her supporting role, Ms
Stalevskaya said that it was Mrs Malysheva who “must have organised” for Mr
Savelyev to sign the Memorandum.
966. Mrs Malysheva’s central role from 2009 onwards is clearly apparent from Mr
Smirnov’s witness statement, where he described her as a personal friend of some 20
years’ standing, whom he trusted and respected “as a key figure in the banking industry”
and also from the evidence of Mr Sklyarevsky.
967. Mr Sklyarevsky explained that it was Mrs Malysheva who contacted him in late
December 2008 “to ask if Renord-Invest would assist the Bank in relation to some
problems it was having with OMG” by holding the repo shares “on behalf of the Bank”
because the “Bank did not itself want to hold the shares – it was not the Bank’s core
business.”
968. He related her continuing involvement, and in particular that it was Mrs Malysheva
who (a) informed him in March 2009 that it had been determined that OMG would
default, (b) caused Mr Sklyarevsky to be involved, and (c) procured the transfer of the
repo shares from the Original Purchasers to the Subsequent Purchasers.
969. As will appear later, I have considerable concerns about the later role of Mrs
Malysheva, especially in orchestrating the replacement of the directors of Scan and
Western Terminal and the auction sales which followed. These concerns have not been
dispelled by the evidence available, and could not be dispelled by Mrs Malysheva
herself since she apparently declined to give evidence and attend to be cross-examined.
However, I have not been persuaded that either her introduction in place of Mr Guz and
Mr Belykh or her engagement of Mr Sklyarevsky, of itself indicates anything more
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sinister than that the Bank regarded default as all but inevitable, and was bringing in
persons with particular experience of handling such an event.
Did the Bank wilfully contrive to ensure an event of default?
970. An event of default in effect foreclosed the repurchase side of the repo arrangements,
and cleared the way for the transferees (by now, the Subsequent Purchasers) on behalf
of the Bank to use the keys of Dr Arkhangelsky’s kingdom.
971. The Counterclaimants’ case is that (a) the promise of a moratorium lulled them (and
was intended to lull them) into an expectation that no payments would be due or
demanded until at the earliest June 2009 and (b) the Bank set about engineering the
conditions for, and to justify, an event of default which would (c) trigger cross-default
across all the companies in the group and liability under any guarantees. I have
previously addressed (a); and I now discuss (b) and (c).
972. The Counterclaimants put forward a number of supposed machinations or contrivances
of which the purpose was suggested to be to put the Counterclaimants into default and
justify calling cross-default.
973. First and foremost, of course, the Counterclaimants depicted the Bank’s refusal to
extend the First PetroLes and Vyborg Shipping loans and defer capital repayment from
March 2009 until at least June 2009 (as had been the other loans) as being the springing
of a trap set when the Bank had treated the PetroLes and Vyborg loans differently from
the other loans and extended them only to March 2009 and not June 2009. That, they
contend, was a breach of the moratorium, and part of a pre-calculated scheme intended
to enable the Bank to use almost inevitable default on the PetroLes and Vyborg loans
to undo all its other commitments to extend the other loans by working a cross-default.
974. I have already explained why I consider that the Bank did not in fact make any
commitment in December 2008 to extend the PetroLes and Vyborg Shipping loans
beyond early March 2009, even if Dr Arkhangelsky chose to believe that this is what
was the effect of what he had been promised. I have also explained why I do not accept
Dr Arkhangelsky’s various contentions as to why the Additional Agreements for the
PetroLes and Vyborg Shipping loans should be treated as invalid or signed in error.
975. That does not, however, answer the question why the Bank chose to treat, and felt
justified in treating, the PetroLes and Vyborg Shipping loans differently from the other
loans. Nor does it answer the question whether in doing so the Bank was intentionally
laying a trap for the Counterclaimants knowing that they would be unable to make any
repayments by March 2009 and arming itself in effect to negate the rest of the agreed
extensions by calling a cross-default once it had (a) got round having to make provisions
at 2008 year-end to satisfy regulatory conditions without making further reserves and
(b) put in place the repo arrangements.
976. It is, at first sight at the least, a curiosity that the PetroLes loans and Vyborg Shipping
loans were treated differently from the rest. Its potential to undermine all the other
arrangements, as ultimately it in fact did, seems obvious. Default in one loan could
trigger cross-default in all the others, and bring the newly reconstructed house down.
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977. For the Counterclaimants, and in the alternative (presumably) to the primary case that
in providing for more restricted extensions the relevant additional agreements were
misleading or defective, Mr Stroilov submitted that, so far as Dr Arkhangelsky was
concerned, the intention was always that these loans would be extended, but at a later
stage than the others, at a second stage.
978. This suggestion that the Bank was committed to a second round of restructuring was
not pleaded, but in the unusual circumstances of the case I permitted Mr Stroilov to put
it to Ms Volodina, so as not to interrupt the flow of his prepared cross-examination and
to allow flexibility for a later amendment, if justified.
979. As it was, Ms Volodina agreed that there was to be a second review in about February,
but asserted that this was premised on Dr Arkhangelsky delivering on various
commitments (including a promise of a RUB 300 million to PetroLes for timber), and
denied any commitment to further extension on the part of the Bank. The following
exchange from Ms Volodina’s cross-examination illustrates the position:
“Q Now, Ms Volodina, I put it to you that…it was intended that the
restructuring would take place in two stages: one by way of
various additional agreements dated December 2008, and then in
January or February or March, there would be further additional
agreements to various loan agreements, which would avoid the
need to form results [sic] and to reflect them in 2008 reporting
to the Central bank. I hope it is not too complex a question.
A. No, no, no, this is not too complex. No, this is not what was
intended. No additional restructuring was intended. In January
and February the Bank hoped to receive a financial recovery
plan from the client until the PetroLes maturity on 5 March, a
decision was expected to be made as to what we do going
forward. But the client did not provide that plan, nor did we
receive any proceeds with respect to the timber shipment…in
other words, the client did not perform under any of the
obligations that he had assumed.”
980. I accept Ms Volodina’s explanation, which also seems to me to provide a not
implausible answer to the question as to why the PetroLes and Vyborg Shipping loans
were differently treated. It seems to me not implausible that the Bank should have (as
Ms Volodina put it in her witness statement) wanted to “keep these payment obligations
as indicators of OMG’s financial position” and to review matters without commitment,
and according to whether or not Dr Arkhangelsky made good on his assurances, which
I accept he gave, and on which the Bank was entitled to rely.
981. Of course, with the benefit of hindsight, default in March unless an extension was
granted, and the refusal of the Bank to agree to one on the basis of the financial position
as it transpired to be, seems always to have been inevitable. But that does not mean that
it appeared to be so at the time. As I have said before, Dr Arkhangelsky is a chancer,
prone to Micawberism: I think it more likely than not that he trusted to being able to
convince the Bank when the time came. As it seems to me, that explanation is likelier
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than the Counterclaimants’ somewhat contorted, and at least in part unpleaded,
explanation that the Bank, on some regulatory pretext, gulled Dr Arkhangelsky into
relying on a second stage reconstruction on terms it knew would not be satisfied and
which it calculated would prove his undoing.
982. An alternative contention advanced on the part of the Counterclaimants in support of
their case that the Bank was working from the end of 2008 and throughout early 2009,
not to assist the Counterclaimants, but to call in the loans, was that the Bank machinated
to ensure that Vyborg Shipping would be unable to ensure payments to avoid default.
It is suggested also that the Bank knew well in the case of Vyborg Shipping that the
winter months would be likely to be difficult, not least because of the likelihood that St
Petersburg port might be closed by ice.
983. In particular, Mr Stroilov put to Ms Mironova that the Bank persuaded the Russian
Federal Tax Service to make an order dated 26 January 2009 freezing the bank account
of Vyborg Shipping at the Bank’s Investrbank branch further to the alleged failure to
pay tax in the derisory sum of RUB 99.63 (about £2.50), and that the purpose of this
was “to assist the Bank to paralyse the operations of Vyborg Shipping and to create the
conditions for a default”.
984. Ms Mironova rejected this as not having “anything to do with reality”, asking Mr
Stroilov whether the question was a “sort of way of being funny?” In other words, the
suggestion was dismissed as fanciful.
985. But on any view, the fact of such a freezing order is remarkable, even if it is the case
(as Ms Mironova emphasised) that it was the tiny amount rather than the account itself
that was frozen: it seems almost inconceivable that a tax authority would consider it
appropriate and proportionate to issue a freezing order on the basis of non-payment of
such a “laughable” sum (to quote Ms Mironova), not least in that payment of the amount
would undo the freeze.
986. But, though remarkable, it is not, without more, evidence of collusion; and I note that
the point was not pressed by the Counterclaimants in their closing submissions, written
and oral. Failure to pay a small sum may well be more revealing than failure to pay a
larger one; and the authorities may have been acting with the future in mind. And as the
Claimants submitted, the fact appears to be that Vyborg Shipping was already paralysed
by this stage: it had no money left, not even the £2.50 or so it needed to avoid default,
and none was coming in to it.
987. The Counterclaimants also suggested that the Claimants simply had no proper
justification for declining to extend the PetroLes and Vyborg Shipping loans, and had
sought falsely to contrive one and to present the decision as based on changed
circumstances to disguise the fact that they were acting out of improper self-interest,
and in defiance and negation of the logic which underpinned the extensions of the other
loans.
988. Thus, it was suggested that the Claimants’ resort to an attempt to justify refusing an
extension, on the basis that Dr Arkhangelsky proved himself in the couple of months
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following December 2008 to be what Ms Volodina described as a “mala fide borrower”
in whom the Bank had for good reason lost all trust, was a contrivance.
989. In particular, the Counterclaimants rejected as a pretence the Bank’s claim that they had
not been informed of or heard about, and that Dr Arkhangelsky had concealed from the
Bank, for a month or more, the fact of the arrest of the ‘Tosno’ in Tallinn, Estonia in
December 2008. The Bank’s suggestion was that he did this lest revelation of the arrest,
and the dire financial position it signified, precluded the debt restructuring he
desperately needed.
990. Dr Arkhangelsky, in his witness statement for trial, maintained that the Bank had been
well aware of the ‘Tosno’s’ arrest since shortly after it was made (which was in
December 2008); he said he had discussed it with Ms Borisova, Ms Prokhor and Mr
Platonov as persons in the know within the Bank, and so he believed, with Mr Savelyev
when they met. On this basis, he contended that the Claimants had falsely alleged
concealment as a pretext for denying any further funding or leeway notwithstanding the
agreements reached in December 2008. Under cross-examination, however, he
accepted that he could not in fact remember informing Mr Savelyev, and his evidence
became that he:
“assumed that people in the Bank been well informed,
considering that we were normally fulfilling all the obligations,
and especially Mrs Krygina, who was directly communicating
with the Bank and knowing quite a lot of the people there.”
991. Dr Arkhangelsky has a propensity to re-write history; and I do not accept that he
informed Mr Savelyev or anyone else at the Bank of the arrest of the ‘Tosno’ in
December 2008 as soon as it had happened. I accept Ms Mironova’s evidence that the
Bank first heard of the arrest from the representative of the creditor which had procured
it (Bergen Bunkers AS) in February 2009 or perhaps early March 2009, and that, after
delaying for as long as he felt he could, it was not until some time in April 2009 that Dr
Arkhangelsky told the Bank.
992. That is also supported by the following:
(1) On 24 March 2009, Ms Krygina emailed Dr Arkhangelsky to explain that Vyborg
Shipping was obliged to tell the Bank about the arrests, not least since the vessel
was just about to be put up for auction – which suggests that it had not previously
done so.
(2) The only written record of a communication from OMG to the Bank about the
arrests was in Dr Arkhangelsky’s letter of 3 April 2009 to Mr Savelyev. It is likely
to be the first communication from OMG to the Bank on the point.
993. 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
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Bank St Petersburg v Arkhangelsky
the financial information he has 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.
994. It is no answer for Dr Arkhangelsky to complain that the Bank was acting in its own
self-interest; that is what commercial enterprises, including banks, sometimes have, and
are entitled, to do. Only if some breach of previous commitment, or some overriding or
paramount illegitimate reason for the decision, is demonstrated is that pursuit of selfinterest
improper.
995. The last question becomes whether there is anything else in the wider circumstances of
the refusal to extend the PetroLes and Vyborg Shipping loans which casts such a
different light on the decision as to demonstrate that in truth the Bank made its decision
predominantly for reasons different from the normal commercial criteria above
identified (for example, as the Counterclaimants would have it, a plan to raid the two
companies under the repo agreement).
996. The circumstances principally prayed in aid on behalf of the Counterclaimants (in
addition to those I have addressed above) are (a) the Bank’s alleged failure to consider
attempts to refinance; (b) the reversal of earlier recommendations in favour of
extending the relevant loans when the matter was referred up to Mr Savelyev, Mrs
Malysheva and the Managing Board, (c) the apparent availability of collateral well in
excess in value to the amount of the loans outstanding and (d) the immediate aftermath
of the refusal to extend, all of which are alleged to show the impropriety of the Bank’s
decision and its true and improper motivation.
997. As to (a) (in paragraph [996] immediately above), the Counterclaimants maintain that
the Bank’s true intention of procuring a default in order to further its ‘raid’ is
exemplified by its failure to explore or take any account of Dr Arkhangelsky’s efforts
to obtain refinancing at the end of 2008 and in early 2009. They say that Dr
Arkhangelsky “had a lot to show to reassure his creditors…” and that the Bank was
provided with details of his refinancing projects, including the Western Terminal IM,
but apparently chose to ignore or attach no importance to them, even to the point of
being unable, at least in the case of Mr Guz for example, to remember being aware that
Dr Arkhangelsky had been trying to negotiate such projects.
998. In assessing this point it is not easy to put out of mind the fact that the IM was, to put it
lightly, flawed and misleading, and that such refinancing interest as there was is likely
to have been based on misleading, indeed fundamentally false information. Nor is it
easy to exclude from consideration that fact that the refinancing efforts came to nothing
(see paragraphs [390] to [393] above). But I accept that strictly neither has any more
than limited relevance to the issue under immediate consideration, which is not whether
refinancing might have been available, but whether the Bank’s lack of any interest in
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the possibility betrays that it was not by now acting as a banker interested in OMG
refinancing its debts, but as a ‘raider’ interested in extracting its assets.
999. The premise of the point is that the Bank was provided with, or at least had available to
it, documentation and information that it chose to ignore. That premise was disputed;
and I have earlier rejected (see paragraph [224] above) Dr Arkhangelsky’s suggestion
that he had kept the Bank informed about his negotiations with prospective lenders, and
he “kept the Bank appraised in relation to the development plans partly to demonstrate
that the Group had a bright future and that its debts would be repaid”. The Claimants
insisted that Dr Arkhangelsky did not inform the Bank in any detail of any refinancing
negotiations: and I accept that.
1000. It seems to me to be most likely that Dr Arkhangelsky, who is not a person shy of
trumpeting his contacts and successes in broad sweeps generous to himself, would have
talked in general terms of refinancing projects, and the interest being shown by large
European institutions, but that the Bank was apt to discount all this, and in any event
by February/March 2008 to regard it as ‘pie in the sky’. Mr Guz’s answer to Mr
Stroilov’s question about refinancing seems to me to capture the sceptical outlook of
the Bank:
“Q. What about Mr Arkhangelsky’s refinancing negotiations?
A. I don’t remember anything about refinancing. I was not
discussing this with Mr Arkhangelsky, and I was not reported
[to] about that. And even if I would, I wouldn’t believe that,
because of their situation. I wouldn’t believe that Mr
Arkhangelsky could get any refinancing from anywhere at
that particular stage and at that particular situation.”
1001. That appreciation of the matter seems to me to be understandable; and it is not to my
mind indicative of a decision to turn a blind eye to achieve a different victory. In my
assessment, it does not show any lack of interest in OMG refinancing; it simply betrays
a recognition that it was a false hope. I accept Ms Mironova’s evidence that:
“… had such refinancing been provided I would have been
joyous at it, and if the Bank of St Petersburg had to assist Oslo
Marine Group to obtain such refinancing, I am positive we would
have rendered comprehensive assistance”.
1002. As to (b) in paragraph [996] above, the Counterclaimants rely on the rejection by the
Management Board of lower level (MKK and BKK) recommendations in favour of
extending the PetroLes and Vyborg Shipping loans, and its consequent decision to
refuse extensions to either, as illustrating that whereas at the pure banking level the
extension was considered logical, once it was referred upward to the strategic level the
banking outlook no longer held sway. The issue is as to the real reasons for the matter
being referred on to the Management Board.
1003. The Counterclaimants depict the decision to refer the matter to the Management Board,
despite what they contend were clear decisions of both the MKK and the BKK to
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Bank St Petersburg v Arkhangelsky
approve extensions, as being intended to ensure that the matter should not be decided
as a banking issue in the ordinary way but that it instead be determined as part of the
Bank’s overall strategy by Mr Savelyev and Mrs Malysheva, with the assistance of Mr
Sklyarevsky, they being the principal ‘raiders’ and intent on using the crisis to their
own advantage. Mr Stroilov went further, and put to Ms Mironova in cross examination
that the votes in favour of the extension at the MKK and the BKK were intended to
keep the ‘raiding plan’ which had been devised secret from members of those
committees who were not in the know and disguise the true ultimate strategy.
1004. The Claimants reject all this. Their position, as indicated in paragraphs [399] to [405]
above, is that in fact both the BKK and MKK declined to make a final decision except
to extend by a few days (to 26 March 2009) the repayment date for the First PetroLes
Loan, both so as to correlate it to the repayment date for the Second PetroLes Loan and
to permit further consideration by the Management Board, and that it was entirely
appropriate that a decision of such import should be referred to the Management Board.
They contend that all the outcome shows is a considered and readily justifiable view as
to the unlikelihood of an extension of the loan leading to recovery. They reject any
suggestion of secrecy or contrivance.
1005. The assessment of these competing presentations is complicated by the opaqueness of
the documentary record and some apparent inconsistencies, both in the documents
themselves and between them and the uniform explanation offered by all the Bank’s
witnesses who gave evidence on the issue.
1006. As I have outlined in paragraphs [399] to [404] above, the minutes of the BKK meeting
are less than clear. However, the Bank’s witnesses who were questioned on the point
(namely, Mr Guz, Mr Belykh, Ms Volodina and Ms Mironova) were adamant that
although the wording used appeared to suggest an extension of the date for capital and
for interest payments to be rolled up and deferred to 28 June 2009 (consistently with
the alleged moratorium) that was not in fact the decision. According to all of them, the
decision of the BKK at least was only (a) to extend the First PetroLes Loan from 5
March to 26 March to coincide with the repayment date of the Second PetroLes Loan,
and (b) to enable the request to extend both loans to be referred to the Management
Board and for it to have time to consider the position. They all ascribed the
inconsistency between the wording and their evidence as to the true decisions as being
down to “typos”, a “sort of misunderstanding” (according to Mr Belykh) or (according
to both Mr Guz and Ms Volodina) a “technical mistake, most likely”. They uniformly
emphasised that the intention of the MKK and the BKK was to leave the final decision
to the Management Board. Ms Mironova (who voted at the MKK in favour of
recommending an extension) put it this way when cross-examined:
“As far as my voting is concerned, and the voting of the rest of
the members of the minor credit committee [MKK], to prolong
or extend the credit committee I explained to you twice…We
were not ready at the level of the branch to assume this huge
responsibility for the actions of the Bank. Yes, we shifted it on
the back of the top managers, of the management of the Bank.
Maybe it was very small-minded of us, but that is true.”
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1007. Mr Guz’s evidence as to the similar decision of the BKK (as he portrayed it) was to like
effect:
“..the big credit committee [BKK] understood that this particular
question would be transferred to the decision of the management
board. This was the first reason. The other reason was that the
big credit committee agreed for a short prolongation only for less
than a month. So in this case anyway, the decision was to be
made by the board, and the big credit committee just didn’t want
to make this decision, let’s say…”
1008. The uniform nature of this evidence caused me some unease. So too did the disparity
between that evidence and the documentation. I have been in some doubt whether the
BKK decided on the matter or simply referred the substantive issue (apart from a short
extension for the reasons stated) to the Management Board. In the end, however, I have
concluded that there is no sufficient reason for departing from the Bank’s oral evidence
as to the intended effect of the decisions made at the MKK and BKK.
1009. Further and in any event, my conclusions as to the broader and more central points
which Mr Stroilov submitted were supported by the documentary evidence of the
meetings and its inconsistencies with the oral evidence tend to diminish the importance
of the dispute as to what truly happened at each level of credit committee. Those
conclusions are that:
(1) I do not accept Mr Stroilov’s principal submission that the decisions of the MKK
and the BKK as recorded in writing give away that all concerned had in mind and
considered the Bank to be bound by the alleged moratorium. I need not add further
to my earlier assessment that no general moratorium was ever agreed, even if Dr
Arkhangelsky subsequently persuaded himself that it had been. (For the avoidance
of doubt, I confirm that I have had well in mind Mr Stroilov’s submission in
reaching that assessment, which I have reconsidered in the light of it.)
(2) I do not accept Mr Stroilov’s submission that the decisions as recorded in writing
in favour of extensions were a pretence to disguise and keep secret a settled plan to
engineer a default on the PetroLes and Vyborg Shipping loans and then a crossdefault
across all the other loans also. In this regard, Mr Stroilov relied heavily on
an internal Bank email dated 11 March 2009 discussing a proposal to declare a
cross-default upon default on the PetroLes loans. The gist of the parties’ respective
positions appears from the following exchange during the cross-examination of Ms
Mironova:
“Q. Isn’t the real explanation, Ms Mironova, that your plan,
which you were asked to put together, the plan for cross-default
was treated as quite secret at that stage. So you wouldn’t want
other members of the small credit committee [MKK] to know
about it, and that’s why you voted unanimously to extend the
loan, whereas you knew that the decision was not to extend it?
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A. Mr Stroilov, my letter, dated 11 March, as we can see
from the chronology of the events, I was copying even to the
regular employees Ms Yashkina, Ms Blinova. What secrecy,
what conspiracy are you talking about in relation to the members
of the minor credit committee if I copied the ordinary members
of staff with it?”
1010. As to (c) in paragraph [996] above, there is no evidence that the Bank doubted the Lair
valuations prior to the summer of 2009. It is urged on behalf of the Counterclaimants
that the apparent availability to the Bank of collateral well in excess in value of the
amount of the loans outstanding is a further reason to suppose that the Bank, in calling
default precipitately, had objectives well beyond or distinct from those of a banker
simply concerned to take such steps as necessary to ensure repayment of debt. Put
another way, they question why at a time of financial crisis post-2008 and severely
reduced asset values, a bank would, if truly acting as a lender seeking full recovery and
with no other perspective or ulterior objective, press so hard and move so quickly to
cross-default and the negation of arrangements justified as being to enhance further its
security made a mere few months before.
1011. Mr Stroilov put questions to this effect to Mr Savelyev. Mr Savelyev’s answers were
an unsettling mixture of condescension and evasiveness. His main theme, so far as
discernible, appeared to me to be that although the Bank did indeed have no reason to
doubt the Lair valuations, either at the dates of loans, or at the date of the repo
arrangements, or at the date of the refusal to extend the PetroLes and Vyborg Shipping
loans, since those valuations subsequently turned out to be wrong (on the Bank’s case)
the Bank had been justified in taking the steps it did.
1012. This will not do. As Mr Stroilov submitted, the Bank’s actions before the revaluations
have to be explained on the basis that it perceived the value of the pledges to be well in
excess of the indebtedness (the loans in respect of Western Terminal, for example,
being only some 38% of its valuation). Mr Savelyev’s repeated evasion, and attempts
to throw Mr Stroilov off course by seeking, more often than not without good cause, to
criticise the questions, fuelled Mr Stroilov’s supposition that Mr Savelyev had
something to hide.
1013. Coupling this evasiveness to the virtually complete absence of any documentary
evidence to explain the Bank’s thought process in calling a default in March 2009, Mr
Stroilov suggested that what Mr Savelyev was concerned to hide was that the Bank
wanted to grab the assets or their surplus value for itself or those associated with it.
Inevitably, when Mr Stroilov put this to Mr Savelyev, the latter (now forthrightly)
disclaimed any such intention, referring, as quoted in paragraph [420] above, to the
Bank’s lack of interest in “toxic assets” and reiterating that he:
“never wanted to own the assets that Mr Stroilov has in mind.
It’s just not interesting to me from the start. I confirm again
before this court that we are only interested in one thing: to
maximise the return of our funds from the sale of the pledged
property…”
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Bank St Petersburg v Arkhangelsky
1014. I take that to mean, as I think Mr Savelyev did mean, that his and the Bank’s only
objective was to reduce the indebtedness to the maximum extent possible pursuant to
the sale of assets. As previously noted (see paragraph [421] above) the reference to
‘toxic’ assets is an interesting anachronism (since they were not considered ‘toxic’ at
the relevant time prior to default). That too might invite scepticism and some suspicion
that Mr Savelyev might have been protesting too much and seeking to shift the focus
of enquiry.
1015. But there is a real difference between, on the one hand, a detectable shiftiness as to
whether the Bank ever really had the borrower’s interests in mind or simply had lost
confidence and wanted out, without regard to the consequences for the borrower, or
even other potential strategies, and on the other hand, proof of a dishonest intention to
effect a ‘raid’.
1016. In my judgment, there is every sign that by March 2009 the Claimants had determined
to act in their own interests, without any real consideration as to the possibility of being
able to assist the OMG companies to trade through and overcome their difficulties, and
safe in the knowledge (as it then seemed) of well-adequate security. Indeed, I suspect
that all the Bank had by then set its sights on was realization of its security in an auction
process beyond challenge by Dr Arkhangelsky, abiding by the letter of the process
required by law, but not taking any steps to seek to further the interests of OMG and
the Arkhangelskys. However that may be, it does not seem to me that there is any
sufficient basis for inferring from that commercially self-centred and ruthless approach
an intention to ‘raid’.
1017. To my mind, Mr Stroilov’s submissions that the inference from the fact that the Bank
set its face so precipitately against refinancing despite having (so it appeared) more than
adequate cover is that “by that time the Bank was already determined…to seize the
assets” in a ‘raid’ is based upon a false premise that, even if there was no moratorium,
the Bank was obliged to refinance unless it had good reason not to do so. In my
judgment, the Bank had no such obligation. Upon default, which it had no duty to assist
the borrower to avoid, it was entitled to act exclusively in its own interests subject to
realising the security in a manner consistent with the law and its duties under relevant
law to the borrower.
1018. That brings me to (d) in paragraph [996] above, and the immediate aftermath of the
Bank’s refusal to extend the PetroLes loans, with the resulting series of defaults. The
salient features were: (a) the withdrawal of Mr Zelyenov, and the introduction of SKIF
into the repo arrangements further to the transfers of the repo shares to the Subsequent
Purchasers; (b) the removal of Dr Arkhangelsky and Mr Vinarsky as Directors-General
of Scan and Western Terminal (respectively); (c) proceedings brought first by OMG
and Mrs Arkhangelskaya and then the Claimants in the Russian courts; and (d) the
extraordinary series of steps orchestrated by Mrs Malysheva to ensure that the assets of
Scan and Western Terminal were beyond recovery by the Arkhangelskys: see paragraph
[901(6)], [(7)], [(8)] and [(9)] above. I turn to each in turn.
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Bank St Petersburg v Arkhangelsky
The transfers to the Subsequent Purchasers
1019. The details of the transfers from the Original Purchasers to the Subsequent Purchasers
of their respective Scan shares which were the subject of the repo arrangements, and
the identities of the Subsequent Purchasers, are set out in paragraph [476] above. The
precise date of the transfers is unclear, but it was in the period from 20 March 2009 to
6 April 2009, by which time Mrs Malysheva had assumed day to day control of the
Bank’s relationship with OMG (though reporting to Mr Savelyev) and Mr Sklyarevsky
was working with her. As previously explained, the shares in Western Terminal the
subject of the repo arrangements continued to be held by Sevzapalians.
1020. Except that there is a dispute as to the true ultimate ownership and/or control of SKIF,
it is common ground that all the Subsequent Purchasers were in the Renord-Invest
Group.
1021. The Claimants openly acknowledged that the transfers were directed by Mrs Malysheva
and (as Mr Sklyarevsky put it in his witness statement):
“the transfer of the shares to the Subsequent Purchasers was an
attempt to make it more difficult for Mr Arkhangelsky to unwind
the transfers.”
1022. The Claimants suggested as a further reason for the transfers that Mr Zelyenov, who
was a record owner of two of the Original Purchasers (namely, Agentstvo Po
Upravleniyu Aktivami LLC and Gelios LLC) and a trusted customer of the Bank whom
Mrs Malysheva had known for many years, wanted to withdraw “his” companies from
the arrangements.
1023. According to Mr Smirnov’s evidence on behalf of the Bank, this was because Mr
Zelyenov “did not want to get into any fight with OMG”. However, the
Counterclaimants allege that there is a more sinister explanation for Mr Zelyenov’s
withdrawal: Mr Stroilov put it to Mr Sklyarevsky that “the reason why Mr Zelyenov
withdrew from the arrangement…[is]…that he was afraid of getting involved in a
fraud.” Mr Stroilov put this to Mr Sklyarevsky (Mr Zelyenov was not a witness):
“Q. Isn’t the reason why Mr Zelyenov withdrew from the
arrangement, isn’t the reason that he was afraid of getting
involved in a fraud?
A. No. Of course not. Mr Zelyenov, as far as I recall, the
conversation with Mr Zelyenov at that point in time, it was
based around the fact that I think his asset management
company had some project. Now, I don’t recall at all what
the project was about, but basically he didn’t want the project
very much, and he either wanted to sell the company or to
raise some finance against it. It probably would be best to ask
Mr Zelyenov about that, and he was not interested in some
additional court proceedings. So he took the position that he
needed to free the company of risks.”
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Bank St Petersburg v Arkhangelsky
1024. Whilst the explanation is neither very clear nor entirely compelling, I take from it that
Mr Zelyenov anticipated becoming enmeshed in battles between the Bank and Dr
Arkhangelsky unless he got out: and he wanted out. But I do not think that necessarily
indicates any appreciation or even private suspicion of fraud on the part of the Bank.
1025. But what the transfers to the Subsequent Purchasers do show is the influence of Mrs
Malysheva and Mr Sklyarevsky and their determination to bring all the Bank’s planning
under their control. The transfers directed by them also confirm the direct control of the
Bank over the Renord companies concerned.
Removal of Dr Arkhangelsky and Mr Vinarsky
1026. The removal of Dr Arkhangelsky as Director-General of Scan and Mr Vinarsky as
Director-General of Western Terminal at the instance of Sevzapalians and the
Subsequent Purchasers by the (subsequently challenged) exercise of the votes attached
to the repo shares was an event of obvious significance. It deprived (to the extent
effective) Dr Arkhangelsky of the control of his companies.
1027. It seems clear that the decision to remove was made by Mrs Malysheva (reporting,
presumably, to Mr Savelyev): see also paragraph [520] above. Mr Sklyarevsky more
than once indicated to me that he was uncomfortable with the decision, and what he
portrayed as Mrs Malysheva’s emotional insistence on immediate action: he thought it
was bound to exacerbate the situation. But, he told me, he had to accept that Mrs
Malysheva was in effect “a client, a customer” and she was in control and had the final
say.
1028. Mr Sklyarevsky sought to illustrate his misgivings and desire for a less confrontational
approach by emphasising his avowed efforts to secure a meeting with Dr Arkhangelsky
before the resolutions took effect on registration (it being the Russian law that they
could have no effect unless and until registered). Dr Arkhangelsky for his part contends
that he would have welcomed a meeting, but his efforts to arrange one were evaded
(and see also paragraph [1036] below). I doubt that a meeting would have resulted in a
change of course; but the question of whether it was Dr Arkhangelsky or Mr Savelyev
and/or the Bank which sought to avoid one is of relevance: see paragraphs [1036] to
[1038] below.
1029. Mrs Malysheva had no doubts. The Counterclaimants contend that this was not an
“emotional” response, but was part of a careful raid, with this step being one of many
pre-choreographed. The Claimants are adamant that this was not the case, and that it
was only to preserve the assets and prevent Dr Arkhangelsky (and Mr Vinarsky, who it
was not disputed would act in accordance with Dr Arkhangelsky’s wishes) entering into
transactions outside the ordinary course of business and (it appeared) for his own
personal advantage.
1030. In his oral evidence, when questioned as to the purpose and the correlation between the
transfer and the replacement of Dr Arkhangelsky and Mr Vinarsky as directors (see
above), Mr Sklyarevsky elaborated as follows:
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“Q.…the decision to replace the management in the two
companies [Western Terminal and Scan] and the decision to
transfer the shares of Scan from the original purchasers to
subsequent purchasers, including SKIF, these two decisions and
these two steps are part of the same plan, isn’t that a fair
inference?
A. Possibly so. That was a decision to protect the repo.
Q. Quite. So really, the main purpose of both these steps…well,
it’s a series of steps, but both these sequences, was to protect the
assets of both companies from a potential lawsuit from Oslo
Marine Group’s side; is that your understanding?
A. There were two main messages and two main things that Mrs
Malysheva mentioned. The first one was to gain control for the
directors so that Mr Arkhangelsky would not take out loans in
other banks and not burden the collaterals under other loans, and,
secondly, indeed we expected that Mr Arkhangelsky will dispute
the transactions under the repo transaction, and the Renord part
and the side of the Bank were getting ready for the claims and
getting ready for lengthy court proceedings, and part of the
companies that were the original purchasers didn’t feel
comfortable to be part of that.
So SKIF came in, and in that project started – SKIF started
playing some role in the project and we bought 18 per cent of
Scan.
But at that point in time, as far as I understand from Mrs
Malysheva, the main objective was to protect the Bank’s interests
and to stay in the repo transaction, and she thought that Mr
Arkhangelsky would try to exit the repo transaction, plus,
encumbering the Western Terminal assets and the Scan assets
with other loans, and that’s what happened with Morskoy Bank.
That was the main logic behind it. We never had an issue about
how we’re going to manage Western Terminal or how we’re
going to manage an insurance company. We didn’t even discuss
that. There was an issue of controlling the signature. And if you
mean this as part of a plan, then this is what I’m trying to
elucidate here.”
1031. As already explained, the Claimants sought to justify the step on the basis that Dr
Arkhangelsky had forfeited all trust especially in light of what Mrs Malysheva claimed
was his impropriety in taking out a loan from Morskoy Bank without authority and in
alleged fraud of Sevzapalians, and had declared war by issuing proceedings (in the
name of his wife).
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Bank St Petersburg v Arkhangelsky
1032. Mr Sklyarevsky’s evidence as the purported justification for their removals was as
follows in his Witness Statement:
“Following the meeting with Morskoy Bank, I had an urgent
meeting with Mrs Malysheva and Mr Smirnov to brief them on
the situation. I recall that Mrs Malysheva was very angry to learn
of the situation. She informed me that OMG was continuing to
fail to perform its obligations to the Bank, Mr Arkhangelsky
could no longer be trusted, and the assets of Scandinavia
Insurance and Western Terminal which formed the Bank’s
security, needed to be protected. As a first step Mrs Malysheva
instructed us to change the management of Scandinavia
Insurance and Western Terminal. In her opinion, this would
protect the Bank’s security and would force Mr Arkhangelsky to
the negotiating table.”
1033. I have earlier concluded and held (again see paragraphs [511] to [516] above) that
actually the revelation of the Morskoy loan post-dated the removal resolutions and thus
could not justify them.
1034. The Counterclaimants’ case is that this “diplomatic” description of an attempt to protect
assets is built on an inaccurate chronology and gives a false impression. In particular,
they contend that given that the decisions to effect the transfers and replace the directors
were taken before the Bank became aware of the Morskoy loan, and before OMG had
issued proceedings and accordingly was not in response to either, the real reason and
the true purpose was (a) to put the shares beyond risk of their recovery by OMG, in
circumstances when (it is said) they knew the repo arrangements to be indefensible and
fraudulent and (b) to secure control of both companies and their assets so as to be able
to mandate without fear of opposition or interruption transfers of their assets to
associated companies posing as bona fide purchasers.
1035. But however that may be, the parties are in effect agreed that the purpose of changing
the management was for the Bank and/or Renord-Invest to secure control of the assets
and prevent Dr Arkhangelsky having any access to them: the real point between the
parties is as to whether the Bank had the far-sighted objective of exercising its control
to pass the assets out to Renord-Invest or SKIF (as subsequently did, in fact, occur).
1036. In this regard, the Counterclaimants pray in aid also, in support of their contention that
the removals of the Directors-General constituted the first step in a pre-planned and
fraudulent ‘raid’, that Dr Arkhangelsky repeatedly sought to contact Mr Savelyev to
explain the situation and clear the air, but Mr Savelyev conspicuously evaded such
contact (and see paragraphs [496] to [501] above). When Mr Savelyev initially denied
this, Mr Stroilov put to him in cross-examination numerous letters from Dr
Arkhangelsky to Mr Savelyev which the latter was constrained to accept did appear to
make clear that Dr Arkhangelsky had repeatedly sought a meeting. Mr Savelyev’s later
evidence that he had not seen the letters and would have left such matters to deputies
did not carry conviction, in my view. Mr Stroilov submitted that Mr Savelyev’s evasion
at the time, and false misrepresentations now gave rise to an inference of dishonesty:
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“Q. So, Mr Savelyev, you knew that you were in the process of
committing a fraud against him, did you not?
A. No, this is not true. My Lord, since when disposition of
collateral in order to maximise recovery for the Bank, since when
does this qualify as fraud? We were lawfully using our rights…”
1037. In my judgment, the evidence is, as I see it, that Mr Savelyev and his managers did
avoid having a meeting; and it is clear that the Bank (through Mrs Malysheva, her team
and Mr Savelyev) had no wish to negotiate with Dr Arkhangelsky.
1038. But the question is whether that, combined with the precipitate decisions to remove the
Directors-General, is evidence of a ‘raid’, as distinct from a determination to wrest
control from Dr Arkhangelsky as a means of securing the assets. Put shortly, I do not
think the inference sought by Mr Stroilov can fairly be drawn from those facts,
especially given the nature of the inference sought to be drawn. If an inference is to be
drawn it must be by reference to other facts which combine to show unequivocal
intention to ‘raid’.
The wars in the Russian courts
1039. I have already described the series of proceedings brought by Mrs Arkhangelskaya and
Bissonia each as a shareholder of OMGP, by Mrs Arkhangelskaya as a shareholder of
GOM, and by GOM itself in order to seek to set aside the repo arrangements and
invalidate the removal resolutions: see paragraphs [552] to [556] above.
1040. Not only did OMG commence civil proceedings in April 2009, but in early May 2009
OMG also made criminal complaints in respect of the replacements of the Directors
General. Mr Sklyarevsky, in particular, said that these (unlike, by inference, the civil
claims) came as a surprise and he expressed concern in this context that at least part of
the rationale was to put pressure on Mr Sklyarevsky and Mr Smirnov personally. He
told me (with complete disregard apparently for the fact that what he expressed to fear
on his and his family’s account was with his concurrence being visited on Dr
Arkhangelsky and his family):
“…with regard to Mrs Arkhangelskaya’s claim, the transactions
could have been declared null and void, therefore the
consequences of the transactions, there would have been none.
In the case of us losing the claims, the criminal proceedings
[brought at the instance of Dr Arkhangelsky and Mr Vinarsky]
would have been initiated lawfully, and I personally would have
suffered, and Mr Smirnov would have suffered. So that was an
issue of my personal safety, my personal reputation…”
1041. I do not think it necessary or helpful to elaborate the details of the various claims. Their
relevance is really as to (a) the lengths to which the Counterclaimants were prepared to
go to seek to negate the effect of the repo arrangements, and (b) an understanding of
the Bank’s reaction to the full-scale war which ensued.
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Bank St Petersburg v Arkhangelsky
Counterclaimants’ civil and criminal proceedings
1042. Although Dr Arkhangelsky’s determination to protect what he saw as his assets and his
companies from the effect of what, in retrospect, he recognised had been a disastrous
deal is understandable, the basis on which proceedings were brought on his behalf, and
indeed were initially successful in the Russian courts, was thoroughly curious. Mr
Sklyarevsky described them as having been an “elegant solution” designed by Dr
Arkhangelsky’s lawyers to “trick” the Russian courts. But even more extraordinarily,
it was a trick in which Mrs Malysheva played along: see below.
1043. The following features of the claims against the Claimant to set aside the repo
arrangements have particularly struck me:
(1) First, Mrs Arkhangelskaya’s claims relied on the proposition that Dr Arkhangelsky
had acted without her knowledge and in bad faith against the interests of OMGP
and herself in executing the sale and purchase agreement (being in fact just one side
of the repo arrangements) at a price (RUB 9,900) “knowingly” lower than the
purchase price of the shares (stated in the proceedings to be RUB 1.069 million) in
order to conceal a ‘gift’. The artificiality is obvious, and brought home by the fact
that Dr and Mrs Arkhangelsky had the same lawyer (Mr Erokhin) and OMGP was
represented by a Mrs Abarina, also one of Dr Arkhangelsky’s lawyers. Dr
Arkhangelsky, in the course of his cross-examination, told me that this had given
rise to rumours of their impending divorce, which he affected to find “quite a funny
development”; but this struck a rather discordant note.
(2) Secondly, and just as extraordinarily, neither side appears (at any point, including
appeals) to have relied on the repurchase side of the arrangements, and none of the
court decisions appear to have considered the repurchase obligation to be relevant
or perhaps even admissible. Although Mr Sklyarevsky told me in the course of his
cross-examination that Mr Erokhin did in fact refer the judge to the repurchase
documents, his understanding was that they “are not legal documents under Russian
law, and they were not accepted by the court.” This apparent exclusion of the
repurchase side of the repo arrangements to some extent suited Mrs
Arkhangelskaya, whose case on ‘gift’ was assisted if there was no right of
repurchase; but it is remarkable that the Bank based its defence, not on the fact of
the repurchase agreement and the alleged fairness of the arrangements when viewed
as a whole, but on the contention (apparently dictated by Mrs Malysheva) that the
transaction was purely one of absolute sale and that the price of just under RUB
10,000 was itself fair.
(3) Having lost at first instance and on appeal, the Claimants did eventually succeed on
final appeal; but the grounds are notable: being (a) that as there was no clause in the
repo arrangements which conveyed the “obvious intention to give property as a gift”
it could not be construed as a gift of a “fictitious deal” even if the price was
hopelessly inadequate; and further (b) that “underestimation of the price” “was
wrongly judged by the courts as abuse of right”.
(4) Further, whilst Counsel for the Claimants remonstrated in their Closing
Submissions that the “…entire OMG presentation of the transfer to the Russian
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courts appears deliberately to have ignored telling the courts about the mirror
repurchase arrangements”, that is one-sided (since the Claimants conspicuously
avoided referring to the repurchase side) and probably inaccurate, being directly
contrary to the evidence of Mr Sklyarevsky as above rehearsed.
1044. What inferences or conclusions may be drawn from these curiosities? In my view:
(1) The propensity of both sides to press the bounds of propriety and to contrive the
basis for legal claims against each other in an attempt to achieve or restore control
is evident.
(2) However, the suggestion that the Counterclaimants determined deliberately not to
disclose the repurchase side of the repo arrangements to improve their case on ‘gift’,
which was much emphasised on behalf of the Bank, ignores the Bank’s own
presentation and Mr Sklyarevsky’s evidence on behalf of the Bank that Mr Erokhin
on behalf of Mrs Arkhangelskaya did show the court the repurchase side but the
court ruled it irrelevant.
(3) By contrast, the determination of the Bank to demonstrate that the nominal purchase
price that had been ascribed to the shares on the basis of the repurchase side was in
fact the full market price in an absolute sale which Dr Arkhangelsky had decided
upon is open to various interpretations. It might be explicable most
straightforwardly on the basis that the apparent ruling of the Russian courts that the
repurchase side of the arrangements was excluded from consideration left the Bank
with no choice but to uphold the sale side. A more Machiavellian explanation would
be that (a) the Bank was uneasy about the repo arrangements as a whole; and/or (b)
the Bank had other objectives in seeking to establish the nominal price as the real
price and the sale as an absolute one (with there being nothing equivalent or
analogous to an equity of redemption or right of repurchase).
(4) The general picture which emerges once again is that the Bank, by the end of March
2009, was intent on removing from the Counterclaimants any control over the assets
of the OMG companies by any means available to it, without regard to the interests
of the borrower or even the constraints of the legal arrangements that had given it
legal power over the shares which enabled such control.
(5) But though consistent with, that does not, in my view, necessarily mandate, the
inference that the Bank was seeking to ‘raid’ the assets and parcel them out to its
associated companies without accounting for their true value and intending to
snaffle the surplus for its or their benefit free of any claims by OMG.
(6) It is, as it seems to me, consistent with a shorter term and less complex objective of
protecting and ensuring efficient realization of its security by making sure that Dr
Arkhangelsky had no legal right or means of practical access to the assets or control
of the companies by which they were held.
(7) Being a matter of Russian law, it is difficult and sensitive, and requires careful and
cogent evidence, for an English court to doubt the reasoning of the Supreme Court
in Russia which ultimately upheld the Bank’s appeals: but to an English eye, the
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reasoning appears frail to the point of inviting enquiry, given the now accepted view
that the Russian judicial system can be susceptible to other pressures, especially
political pressure: see JSC Mezhdunarodniy Promyshlenniy Bank v. Pugachev
[2014] EWHC 4336 (Ch) at [110] and Cherney v Deripaska [2008] EWHC 1530
(Comm) especially at [218] and [248].
Mrs Malysheva’s extraordinary proposals in relation to Western Terminal and Scan assets
1045. There seems to me to be no doubt that the Arkhangelskys’ initial successes in the
Russian courts prompted Mrs Malysheva and those working with her (and especially
Mr Smirnov and Mr Sklyarevsky) into devising further and better ways of finessing any
adverse orders and ensuring that the arrangements they had put in place (the pledges
and the repo arrangements) were not undone.
1046. These devices included (a) a proposal in June 2009, which was approved by the
Management Board but apparently never actioned to transfer, subject to the Bank’s
pledge, the pledged assets of Western Terminal to SKIF; (b) a proposal at the same time
which was also approved by the Management Board but again never actioned to
transfer, subject to the Bank’s pledge, a large part of Onega Terminal (a Scan asset) to
a company called ‘CJSC Nazia’ or ‘Naziya’; and (c) the “dodgy” Gunard Lease (see
paragraph [562] to [568]; and [575] to [581] above).
1047. The Counterclaimants submitted that while the transfers of assets mentioned in (a) and
(b) above did not in fact go ahead in June 2009, “it has to be inferred that at that time,
the Bank had the intention to facilitate such transfers, for the fraudulent purpose of
defeating the potential judgements in favour of OMG”.
1048. They also sought to rely on the fact that the relevant Management Board resolutions
were not disclosed until an order for specific disclosure was made in September 2015;
and that the record of the decision relating to the transfer of Western Terminal assets to
SKIF was sought to be deleted by the substitution by Ms Blinova of many dozens of
documents – the entire sequence of Investrbank’s weekly ‘bad debt reports’ – solely to
delete the one entry referring to that transfer.
1049. As to the role of Mrs Malysheva in each of these transactions, her intent in promoting
them and the collaboration they assumed and required, it was confirmed by Ms
Volodina under cross-examination that the proposals in each case were put forward by
her. Ms Volodina told me that Mrs Malysheva’s stated rationale in each case was “to
protect the assets”, which accords with Mr Sklyarevsky’s description of the rationale.
When pressed as to what Ms Volodina understood by this in the context of the proposed
transfers, she said:
“I did not discuss this with her because she was responsible for
the strategy of working with the company, and since I headed the
BKK, and in order to include this into the agenda she called me
and explained that this operation is done to protect the assets.”
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The Gunard Lease again
1050. Perhaps the most unusual of the transactions was the Gunard Lease, to which I have
previously referred. There is no doubt that the terms of the Gunard Lease (relating to
all the real estate at Western Terminal) (see paragraphs [579] to [581] above) were quite
extraordinarily disadvantageous to Western Terminal.
1051. The most comprehensive description of its rationale and objectives was given by Mrs
Yatvetsky:
“One of the options being considered in 2009 by the Bank and
Renord-lnvest was to let the Western Terminal premises in the
short-term whilst a purchaser was sought. This would have
provided Renord-lnvest with an income stream to cover the
expenses of maintaining Western Terminal, such as utilities,
salaries and other sundry items. Renord-lnvest was otherwise
covering these expenses from its own account and making a loss.
The Bank’s approval would have been required for any lease that
Western Terminal gave of the pledged property, which was
anticipated might be a lengthy process. As a result, in order to
put Western Terminal in a position where it could enter into such
a short-term lease at short notice, it put in place a mechanism
effectively to get a general approval from the Bank in advance —
that mechanism was the granting of a long-term head-lease by
Western Terminal to Gunard (to which the Bank would give its
approval), with the intention being that Gunard could then sublet
on short notice and for short periods if any sub-lessee could
be found (without having to go back to the bank for further
approvals). If any purchaser was found for the assets, the Gunard
lease would have been immediately terminated by consent (as
Renord-lnvest was effectively the party on both sides of the
lease) and under Russian law this would also have automatically
led to the termination of the sub-lease, so the term of the lease
was not important.”
1052. And in her oral evidence, she suggested a further explanation:
“…we were looking for any sub tenants. One of the conditions
was that a sub tenant would be forced to terminate the agreement
the moment Gunard would tell them that. That was one of the
terms of the lease. We could only look for sub lessees on these
conditions because this lease agreement was a forced measure.
We needed to earn [enough] of [sic] cash to cover the expenses
of the Western Terminal. This was not a commercial purpose for
us to earn money using Western Terminal.”
1053. Mr Guz suggested two possible explanations:
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“Q. Well, but wouldn’t you be concerned that the value of the
pledge encumbered by such an agreement would be reduced
dramatically?
A. It depends upon what it was done for. There could be two
reasons: one of them, if Gunard, for example, was a potential
buyer, this lease agreement could be the part of the deal, but if
you say that the Gunard company was the company of the
Renord group, and in this case I think it could be done only in
order to protect the asset, that’s what exactly the repo transaction
was done for: to protect the asset.
Q. So that was for the further protection of the pledge —
A. Yes.
Q. — from any possible action taken by OMG or Mr
Arkhangelsky in Russian courts; is that what you are saying?
A. By them or by other creditors, because Bank of St Petersburg
was not the only one creditor of Mr Arkhangelsky.”
1054. Other witnesses on behalf of the Claimants offered varying explanations. Ms Volodina
gave evidence as follows:
“Q. Now, Mrs Volodina, weren’t you concerned at the time
that the terms were uncommercial?
A. Yes, the terms were uncommercial. I was concerned about
that prior to the BKK meeting. I called Mrs Malysheva and
discussed with her this very matter, and she explained to me that
this transaction is carried out in order to protect the asset, and
she also said that this agreement, due to the fact that Gunard is
an entity which is part of the Renord Group, this lease agreement
can be terminated at any time and, moreover, the encumbrance
is deemed legal only when the lease agreement is
registered…and this lease agreement was not registered, and
accordingly it did not come into force, i.e. there was no
encumbrance.
Q. Now, but obviously the plan was to create an encumbrance,
wasn’t it?
A. As Mrs Malysheva explained to me, yes.
Q. And wouldn’t you agree that this encumbrance would
dramatically reduce the market value of the pledge?
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A. I agree with you. Considering if the object is sold, if the object
were to be sold, it would reduce its market value, in the event if
the lease were to be registered.”
1055. Questioned further as to the arrangements, Ms Volodina made clear that she was
instructed by Mrs Malysheva that the agreement could be terminated at any time, and
said:
“It was enough for me that Mrs Malysheva told me. I trusted her.
I cannot not trust her.”
1056. Mr Sklyarevsky supported the explanation that the transactions were all intended to
“protect the assets” from a possible court decision which would set aside the repo
arrangements. He emphasised the growing intransigence of Dr Arkhangelsky and his
declared intention of waging ‘war’ as reasons for the need to take steps, even such
unusual steps, to seek to insulate the assets from Dr Arkhangelsky and even the court
(which initially seemed to support Dr Arkhangelsky, as earlier described). He told me
in cross-examination:
“Malysheva’s task was to freeze, to fix, with the pledges of the
Bank and the possibility of sale, because Arkhangelsky was on
the attack, not the Bank, not the SKIF, not Renord. So I suppose
that she, inside the Bank, was working on various scenarios of
how the events will unravel, because if she were confident that
the cases in court will be won, then we were not.”
1057. As to the Gunard Lease in particular, Mr Sklyarevsky sought to explain the rationale as
follows:
“Q. Will you agree that the terms of that contract are
uncommercial?
A. More so, more likely, but I wanted to stress that the logic of
Malysheva and the Bank presupposed no conditions at all. For
her, the conditions for the lease were not important in the
contract. The main task of Malysheva, as I said before, was the
control. To her, it was important to control this plot of land, and
at the start of June, we lost the first instance to Mr Arkhangelsky
in the courts in relation to the Julia Arkhangelskaya claim, and
the Bank was very sceptical about our chances of winning, you
see.
At the same time, the main problem which existed was that the
Western Terminal was not the direct borrower of the Bank; it
was the pledger only, and the position of Mrs Malysheva was
that since the courts would be lost and then Arkhangelsky will
change the directors, then the Bank must have additional
instrument or leverage in the form of the control over the land of
the Western Terminal, because the Western Terminal was not
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the borrower, and the bankruptcy of the shipping company in
which pledged the landlord was only started in this bankruptcy,
and there was going to elapse a lot time between the bankruptcy
of the company before claims to the Western Terminal.
Therefore, the lease agreement was discussed as an additional —
some form of an additional insurance mechanism in case we
were to lose in courts in interest.
Q. Thank you. And I understand that the rationale behind the
proposal to possibly transfer the assets to SKIF was the same,
wasn’t it?
A. Well, again, I didn’t discuss the terms. Malysheva asked me
whether I would mind if such a similar agreement would be made
to SKIF, and at the time I wasn’t against it because I was
absorbed in these court proceedings and I thought that I was
doing a very bad job, because we were losing.”
1058. Ms Mironova said the purpose was to protect the assets from a possible claim by
Morskoy Bank; but agreed that Mr Sklyarevsky’s explanation might be another reason.
1059. However, in my view, none of this can either excuse or disguise the extraordinarily
disadvantageous nature of the Gunard Lease from Western Terminal’s point of view,
nor its obvious adaptability and effect in terms of reducing the value of Western
Terminal’s real estate assets for anyone except a person able to control Gunard.
1060. As I have previously indicated (see paragraph [580] above), the Claimants sought to
dismiss the Counterclaimants’ concerns, and especially the depiction of the Gunard
Lease as a “dodgy contract”, as “rhetoric” and “hyperbole”. They denied any
substantive tension in the evidence of their witnesses.
1061. However, in my view, the basic facts about the Gunard Lease invite a dark
interpretation. The terms are quite extraordinary: they are not only quite obviously
uncommercial, but I agree with the Counterclaimants that they are so extreme as to be
likely entirely to destroy the value of the pledged asset to third parties for so long as
they were in place and enforceable. Only to those with the ability to discharge or
dissolve the terms of the lease or the lease itself would the pledged asset realistically
have any value.
1062. Indeed, ultimately, the Bank resorted to the defence that (a) the terms of the lease are
not relevant because any agreement was (i) between two Renord-Invest companies, and
(ii) the terms could be easily varied once a sub-tenant had been found, (and in this
respect, Renord-Invest would not need to go back to the Bank for approval); and (b) in
any case, since the lease was never registered with the relevant state body, it never
became legally effective. Renord-Invest could find no tenants and so the lease
agreement went no further. Gunard did not take possession of the property.
1063. The Counterclaimants invite a finding that its true intentions were one or more of the
following:
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(1) To defeat any potential judgment of the Russian courts setting aside the repo;
(2) To derive income from the operations of Western Terminal without having to reflect
it in the company accounts, or to give credit for it to OMG borrowers; and/or
(3) To reduce artificially the value of the underlying asset and pledge.
1064. I consider that it is clear that the Gunard Lease and the other aborted transactions above
cited demonstrate a pattern of setting up transactions that could be implemented or
cancelled or wound down at will, according to their developing requirements, and using
Renord-Invest Group companies (which Mrs Yatvetsky conceded were under central
control) to that end.
1065. Furthermore, there seems to be little doubt that Mrs Malysheva (subject to the direction
of Mr Savelyev and the Management Board which he controlled), in combination with
Mr Smirnov (and those subject to his direction and control in the Renord-Invest Group)
and Mr Sklyarevsky (and SKIF), were concerned and took all necessary steps to ensure
that the assets within Western Terminal and Scan, whether pledged or not, should be
insulated or put beyond the reach not only of Dr Arkhangelsky and OMGP but also of
any creditors (Morskoy Bank was one) which might seek to enforce against them.
1066. Whether the Gunard Lease was also intended to and did have the effect of making
Western Terminal an asset with an actual or potential encumbrance or flaw which very
greatly reduced or substantially eradicated its attractiveness from the point of view of
outside purchasers relates more directly to a later part of this judgment when I consider
whether the auctions were contrived: and see paragraphs [1316] to [1326] below.
Police raids and the deployment of state power
1067. I have described in paragraphs [569] to [574] above the events of Saturday 20 June
2009 and the seizure or take-over, at the instance of the Bank, of the premises at
Western Terminal, with the aid of riot police and two security companies.
1068. I have explained my unease in those paragraphs, especially about (a) the timing of the
operation during the pendency of proceedings that would determine whether
Sevzapalians should have control or any right to access (and indeed a couple of days
before the public announcement of Mrs Arkhangelskaya’s perhaps unexpected victory
in setting aside the sale side of the repo arrangements and the relevant share transfers);
and (b) the apparent ease with which the Bank and/or Renord-Invest and/or SKIF
seemed able to engage the assistance of law enforcement officers to enforce its will, in
circumstances still unclear and sub judice.
1069. I have also referred (in paragraphs [590] to [591] above) to the fact that, according to
Dr Arkhangelsky’s evidence (which was not contradicted on this point) this
discomforting episode was followed by a further police raid on the Group’s
headquarters (again with riot police) on 16 July 2009, in which all the Group’s
documents, computers and servers were removed; and the offices of OMG’s lawyer,
Mr Vasiliev, were also raided.
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1070. Dr Arkhangelsky’s unchallenged evidence was that this “July raid” followed the next
day after the Bank wrote to Gen. Piotrovsky (who now works for Kontur) encouraging
him to investigate Dr Arkhangelsky for fraud in connection with the Personal Loan, the
allegation being that he had misled the Bank into granting the loan with the intention
of embezzling the proceeds.
1071. I was shown a newspaper article recording the fact of the July raid and its result, and
quoting Mr Erokhin (the Arkhangelskys’ lawyer, see paragraphs [554]; and [1043] to
[1044] above) as saying (the English translation is rudimentary) that it was “an
unthinkable situation which has nothing general [sic] with the standards [of a] rule of
law state”. The same newspaper article reported that Lt. Col. Levitskaya was
conducting the operation and that in response to questioning she had said that the raid
was “the performance of the will of the governor of Saint Petersburg, Valentina
Matvienko”.
1072. They sought to justify the July raid, unlike the earlier one in June at Western Terminal,
by reference to proceedings relating to alleged VAT fraud: of course, by July 2009 the
Arbitrazh court had found in favour of Mrs Arkhangelskaya’s claim to set aside the sale
of shares to Sevzapalians, and the raid could not therefore be justified by reference to
the latter’s ownership or control.
1073. Dr Arkhangelsky recounted that Ms Lukina (then Director-General of Vyborg Port) had
told him that Lt. Col. Levitskaya had personally attended and claimed to be acting on
the direct instructions of Mrs Matvienko. Ms Lukina was not called as a witness by the
Counterclaimants, though she had given evidence at an interlocutory stage, and it is not
right to ascribe any substantial independent weight to that hearsay evidence
accordingly. However, the July raids were challenged successfully in the Kirovsky
District Court of St Petersburg. In that court’s judgment of 30 September 2009 it is
recorded that Lt. Col. Levitskaya did indeed direct the raid, purportedly on the basis of
investigations necessary in connection with alleged VAT fraud; and it was held that the
raid had been unlawfully undertaken without regard to due process. The decision was
upheld on appeal.
1074. In addition to these raids and the VAT fraud allegations, Lt. Col. Levitskaya was
responsible for a welter of further criminal proceedings or investigations against Dr
Arkhangelsky at “around this time” (to quote Dr Arkhangelsky’s witness statement, at
paragraph 193), culminating in September 2009 in the Morskoy Bank criminal
proceedings (see below). There is a dispute as to the dates of these various proceedings:
the Claimants seek to place them after Dr Arkhangelsky had fled Russia and thus no
part of the reason for his departure, but relied exclusively on the date of the Morskoy
Bank criminal claim itself. I see no reason not to accept Dr Arkhangelsky’s evidence
that a variety of proceedings did indeed follow in the weeks and months after June 2009,
even though the Morskoy Bank criminal claim came later.
Did the state cause Dr Arkhangelsky to leave Russia and harry him in exile to assist the
conspiracy?
1075. I have described the sequence and circumstances of Dr Arkhangelsky’s flight to France
in paragraphs [582] to [589] above. As indicated in paragraph [588], Dr Arkhangelsky
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depicts the events that led to his departure as being part of the same conspiracy, assisted
by the Russian state, to ‘raid’ his companies and deprive him of any practical means of
redress. That allegation, which is premised on Dr Arkhangelsky having been forced to
leave Russia in fear for his own and his family’s safety if he remained, faces some
factual difficulties.
1076. First, the Bank contended that Dr Arkhangelsky did not in fact flee Russia for fear of
the authorities and out of concern for his and his family’s safety: rather, the purpose for
which he left was a holiday to Bulgaria, where he and his wife had become accustomed
to going and which they knew well. The Bank contended that it was only after that
holiday, and in view of financial and business problems of his own making in Russia,
that they both decided to move to France because he wanted to start a new life in Europe
and avoid his business problems in Russia. The Bank drew attention to the following in
particular:
(1) From spring 2007, the Arkhangelskys acquired a number of properties in Bulgaria.
As early as 2007, they had made plans for a base in Europe if they decided to leave
Russia.
(2) In June/July 2008, they had bought a property in Nice.
(3) In June 2009, Dr Arkhangelsky’s holiday to Bulgaria had already been planned.
(4) It was in that context that in September 2009, after his summer holiday came to an
end, Dr Arkhangelsky moved from Bulgaria to the property in France.
1077. A second difficulty the Bank relied on is that Dr Arkhangelsky actually returned to
Russia in July 2009 quite voluntarily and openly. He met important and influential
individuals in Moscow as a result of which (according to Dr Arkhangelsky) OMG’s
projects were to be discussed with President Putin. The Bank’s point was that Dr
Arkhangelsky would never have returned to Russia, still less arranged such meetings,
if he was genuinely in fear of his safety.
1078. In more detail, on 21 July 2009, Dr Arkhangelsky went to Moscow to meet Mr Gref,
the Chairman of Sberbank, to “discuss re-financing the Group”. After the meeting, Dr
Arkhangelsky reported back to OMG staff in an email in the evening. His email records
that he first met V-Bank and Mr Novikov, and V-Bank later met VTB to discuss funding
of Vyborg Port. The question of state support for OMG was raised:
“The question of а discussion with state bodies was posed (bу
Litvina and I) about the possibility of working up OMG projects
with possible compensatory percentage stakes on credit (for the
infrastructure of the project).”
As to the meeting with Mr Gref:
“In the course of the meeting discussion of continuing financing
by Sberbank of the development and financing of the OMG
Group port project took place. Sberbank’s participation in the
financing of OMG was also discussed, as part of а program of
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state support, depending on а discussion with the President — Gref
promised to air this question with him personally.
It is important the tomorrow morning (Wednesday) Putin will be
at Sberbank. In this connection [it is notable] that Gref had all of
his other meetings cancelled, but met with me. Very upset was
the Governor of the Krasnoyarsk Territory, Tkachev — he was
forced to wait wait while Gref negotiated with me! Our project
will be discussed with Putin- as а large-scale infrastructural
regional project.”
1079. The Bank further suggested that if Mr Gref was going to discuss OMG’s projects with
President Putin, then it is the more difficult to see how Dr Arkhangelsky could also be
the victim of persecution by the Russian state – at any level. In his oral evidence, Dr
Arkhangelsky suggested that he had been misled by what Mr Gref had told him:
“Q. It looks, doesn’t it, as if your business projects were going to
be discussed with the President of Russia?
A. That’s what I’ve been told by Mr Gref.
Q. And —
A. I think that Mr Gref is very much dependent from Ilya Traber,
and for Gref enquiry to meet me and try to solve the question
was quite important. So that’s why he promised maybe too much,
which was not realistic, I think.
Q. And there was a discussion with state bodies?
A. Yes, we sent a lot of letters to different — all the possible
different state organisations to support the project — my projects.
Q. So do you agree that your claim that you were the victim of
Russian State persecution sits uneasily with the contents of this
e-mail, which suggest that your affairs were going to be
positively discussed by the President of the Russian Federation?
A. No, I don’t think it’s ever been discussed, so it’s probably my
naive dreams by that time.
Q. So you don’t believe that Mr Gref, who was head of Sberbank,
you don’t believe he was genuine when he said he would raise
your —
A. Yes, absolutely. He had —
Q. Sorry, what’s «absolutely»? Do you agree? Are you doubting
what Mr Gref had led you to believe he would raise with the
President?
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A. Yes. I think so, yes.
Q. You doubt Mr —
A. Yes.
Q. So you think he was misleading you, do you?
A. Absolutely, yes, because I think he also was unfair of Mr
Traber, a well known criminal, so I think he had to meet me just
to make a favour for Mr Traber, but he was not planning to do
anything for me.
Q. So you don’t see anything — you don’t see anything
inconsistent between —
A. No.
Q. — the contents of this e-mail and the reference to state bodies
and the President of the Soviet Union — sorry, the President of
Russia —
A. No.
Q. — looking into your affairs —
A. No.
Q. — and possibly helping you on the one hand —
A. No, no, no.
Q. — and your allegation that you are a victim —
A. Yes, I’m a victim, yes.
Q. — of Russian State —
A. Absolutely, yes.”
1080. Dr Arkhangelsky suggested that his meeting with Mr Gref had been organised by Mr
Traber, and that he had returned to Moscow in July 2009 because:
“I’d been told by Mr Traber that it’s a real opportunity; I have
been prepared to risk my life; I have not been properly warned
that I should not do this…”
1081. Dr Arkhangelsky told me that he was aware that his return to Moscow was “absolutely,
very risky”, but that he had felt he had to run it, since he believed that it “could change
all the situation”. He acknowledged that he still had protection and bodyguards at the
time.
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1082. Thirdly, the Bank noted that Dr Arkhangelsky maintained his connections with the
Russian state even when, on his account, it was on account of the Russian state that he
was in fear of his and his family’s life. Thus:
(1) From 18 to 20 November 2009, Dr Arkhangelsky participated in the official Russian
delegation at the ‘Russian National Exhibition’ in Chicago, at which OMG made a
presentation:
“…it was a Russian National Exhibition in Chicago, and I came
there and it was a kind of Russian national presentation. It was a
minister of industries of the Russian Federation, and it was a big
presentation of Russian businesses, yes.”
(2) The exhibition was organised by the Ministry of Industry and Trade of the Russian
Federation. Dr Arkhangelsky spoke on a panel which included a representative from
the Russian government. Dr Arkhangelsky said:
“I’ve been sitting next to [the panel moderator], I had a coffee
with him and even a glass of champagne, and discussed what’s
happened to me. And I’ve also been speaking to the first person,
Ivan Materov, I changed — I missed the name, the deputy
minister of industry, and I even exchanged letters with them. My
idea was to meet some, let’s say, decision-makers, and tell my
story that these feudal people in St Petersburg just taking over
very good and successful businesses. So my idea was I was
stupidly naive just to tell them that it was a mistake and I have
to — they have to rethink about that, so I done that.
And, as I said, I went to Singapore in April …”
(3) It was not only in Chicago that Dr Arkhangelsky took part in the official Russian
delegation. According to him:
“And I also made a similar presentation in Singapore on the visit
of Russian delegation in September, and I think in October I
went to Beijing while it was a Putin visit there and I wanted also
to make a presentation. So I made a presentation there also, yes.
So it was at least three big major international Russian events in
Chicago, Beijing and Singapore, where I came from Nice that
time.”
1083. Thus, Dr Arkhangelsky says that he was the target of Russian state-sponsored
persecution, and yet at the same time not only was he welcome at a trade exhibition
sponsored by the Russian Federation, but he even spoke on the same panel as a
representative of the Russian Federation. He even spoke to the Deputy Minister of
Industry and Trade of the Russian Federation, Mr Materov. The Bank submitted that
the idea that he would have done so at the same time as when he was the alleged victim
of a state-sponsored persecution is implausible.
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Bank St Petersburg v Arkhangelsky
1084. Fourthly, not only did Dr Arkhangelsky maintain his connections with the Russian
authorities after his alleged flight, but he also continued to maintain his control over
OMG businesses. Thus:
(1) In 2010, Dr Arkhangelsky was still trying to exploit business opportunities and do
so using his contacts within the St Petersburg government. In January 2010, OMG
made a presentation on the development of a wood and chipboard complex at
Shaglino in the Leningrad region. It referred to the local government approvals
which had been obtained and included a picture of Dr Arkhangelsky with Mr
Materov at the Chicago exhibition. Dr Arkhangelsky must have been confident that
he would be able to develop the project in early 2010 and he could do so with
official support.
(2) In particular, according to the Bank, it is also clear that Dr Arkhangelsky was able
to continue OMG business notwithstanding the fact that by this stage he was living
in Nice. Dr Arkhangelsky said:
“… what I should say that, while living in Nice, I was
still able to continue several construction projects which
were financed by V-Bank, like a project called
Solnechnoye, which is Novy Gorod project called
Rusiv, the construction of the business centre. So it was,
indeed, the final stages in respect to the paperwork and
so on. And for Shaglino, my target was just to secure,
let’s say, the funds been paid and the project created
would be, you know — would survive and maybe could
be used at some further stage…”
(3) Vyborg Port was, of course, financed by V-Bank, and Dr Arkhangelsky appears to
have tried to ‘sell’ Vyborg Port in 2013, notwithstanding that he was in Nice.
1085. Fifthly, the Bank pointed out that each time Dr Arkhangelsky was confronted in crossexamination
with a fact inconsistent with the idea that he was a victim of statesponsored
persecution, he sought to shift the date from when such alleged persecution
began. Thus:
(1) When questioned about his meetings in Moscow in July 2009, he said that the
Russian state had been involved only since August 2009.
(2) When asked about his attendance at the Russian National Exhibition in November
2009, he said “The major, major state-owned persecution, by the way, started by
the beginning or middle of December 2009”.
(3) At other points he suggested that his persecution started after he had written a
message on President Medvedev’s blog in June 2009, “something like last days of
June 2009 or first days of July”.
1086. These points on behalf of the Bank plainly carry force. Dr Arkhangelsky, confronted
with them under cross-examination, mounted an effort to address them by seeking to
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Bank St Petersburg v Arkhangelsky
draw a distinction between his perception of the authorities in St Petersburg and his
perception of the Russian federal government. For example:
(1) He described Russia as “a feudal state” governed on a city or regional basis by
individuals with great personal power: it was his avowed perception when he
returned (only then, he said, for a single day) that he would be safe in Moscow under
the protection of a “big name” that is, Mr Gref and Mr Traber, and that the “one big
name to another big name…can solve all my problems”. In retrospect, he ascribed
this perception to youth and naivety:
“… I was, you know, I was 34 years old, so I was stupid and
young and naive, and I had a strong belief that there are good
people in the Federal Government and just gangsters on the
level of St Petersburg, corrupted gangsters on the level of St
Petersburg. But now, what I see now and all the developments
during all these years, I see that I was absolutely naive.
Absolutely naive.”
(2) Whereas he perceived that the Bank and what he called “the St Petersburg mafia”
were after him from June 2009, he continued to think that “there were good people
in the Russian government who can help me…” and in his perception the “full State
machine” was not really engaged until later, at the end of 2009, when Lt. Col.
Levitskaya put him on “the federal search database” and thereafter he became
“completely under the full operation of the State machine.”
(3) As to his attendance in Chicago and other international Russian events, he dismissed
any suggestion that it was odd that he should be given a platform by his persecutors
on the same basis of the distinction he perceived at the time between the St
Petersburg ‘mafia’ and the Russian state, maintaining that although he now accepts
it was “stupidly naïve”, at the time his idea was:
“to meet some, let’s say, decision-makers, and tell my story that
these feudal people in St Petersburg just taking over very good
and successful business…

[and to meet] Russian decision-makers from the top of the
government to tell that it was an enormous raiders attack and
local mafia in St Petersburg who was violating national rules and
national legislation”.
(4) In that context, he hoped that court successes would give credence to his story:
“So I had a belief that there is a rule of law in Russia and so –
and if you remember, by that time I was winning in the courts,
before Matvienko made intervention in the third level of the
court…I thought that if I win the courts and prove to the
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Bank St Petersburg v Arkhangelsky
government representatives that it was a mafia attack, a raid, then
it can change the situation.”
1087. However, these efforts on Dr Arkhangelsky’s part have to be set against the following:
(1) No such distinction was relied on until his cross-examination, and it is difficult to
square with the Counterclaimants’ pleaded case.
(2) Dr Arkhangelsky’s allegation was that from early 2009 he had “faced systematic
harassment by the police and Interior Ministry officials”. He suggested that he had
been talking about St Petersburg, rather than the federal Interior Ministry, but then
said:
“Does it make any difference? I don’t think so.”
(3) The pleaded case is clear – the alleged persecution was state-sponsored and the
extradition request is from the Russian state. As the Counterclaimants plead:
“the link between the Claimants and the Russian state is to be
inferred from the close collaboration between the Claimants and
the Russian authorities in persecution of the Defendants and the
unlawful takeover of their businesses.”
(emphasis added)
(4) The crux of Dr Arkhangelsky’s case rests upon victimisation by Mrs Matvienko,
who is said to be one of most powerful individuals in Russia and as chair of the
Russian Federation Council to hold the “third highest constitutional position in
Russia”.
1088. Pressed in his cross-examination as to when he considered that the Russian state itself
had joined the St Petersburg authorities in his persecution, Dr Arkhangelsky was
inconsistent in his answers:
(1) When questioned about his meetings in Moscow in July 2009, he said that the
Russian state had been involved since August 2009.
(2) When asked about his attendance at the Russian National Exhibition in November
2009, he said “The major, major state-owned persecution, by the way, started by
the beginning or middle of December 2009”.
(3) At other points he suggested that his persecution started after he had written a
message on President Medvedev’s blog in June 2009, “something like last days of
June 2009 or first days of July”.
(4) When I questioned him at the conclusion of his cross-examination he settled on
December 2009, when he was included in the federal search lists.
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Bank St Petersburg v Arkhangelsky
1089. In my view, the likelihood is that when Dr Arkhangelsky first left Russia he did so in
the expectation that, one way or another, something would turn up and he would find
some sufficient solution to return and carry on his businesses, even if in altered scale
and form. But things did not work out that way; and his return became both dangerous
and (once his early victories in court were reversed and the Claimants secured their
control) practically futile. I do not find that he was forced to flee; but I would accept
that it became both senseless and dangerous to return to Russia.
1090. In answer to my questions at the end of his oral evidence, Dr Arkhangelsky told me
this, which seems to me to chime with my finding that his exile was not pre-determined
but became a fact of life:
“You know, whole summer, we were staying in Bulgaria and not
understanding what is going on, and we were thinking that, okay,
initially we thought ten days and then maybe one month, then
two months, three months, then we understood that kids should
go to the school, life is going on, and we have to make some
more important strategic decisions.”
False evidence and the object of the criminal proceedings in respect of Morskoy Bank loan
1091. I have described the dispute in relation to the corporate authority for and propriety of
the Morskoy Bank loan and the civil and criminal proceedings which they resulted in
paragraphs [502] to [516] above (as to the civil claims) and paragraphs [592] to [596]
above (as to the criminal complaint).
1092. The Morskoy Bank loan to which those proceedings related was relatively small (RUB
56.5 million). Its importance derives, not so much from its substance (which ultimately
concerned whether in taking out the Morskoy Bank loan Dr Arkhangelsky had been
fraudulent in representing that he had shareholder consent to do so, given that by then
the shares were in the hands of Sevzapalians which had not given, or even been asked
for, its approval), but in the way it was put forward, the orchestration of the evidence
in its purported support, and the inferences of fraudulent conspiracy which the
Counterclaimants maintain should be drawn from that.
1093. I need to consider in this context (1) whether the allegation that the Bank’s six witnesses
all gave false evidence in support of the criminal proceedings is well founded; (2)
whether there is evidence of collusion between them and, if so, by whom it was
coordinated; and (3) whether the inference of a conspiracy involving “at least” the
Bank, Renord-Invest and the six witnesses is, as the Counterclaimants insist it, “by far,
the most probable explanation”.
1094. More specifically, to make good and buttress the premise of the complaint, which was
that the transfer of the shares in Western Terminal was absolute, all the witnesses from
the Bank provided statements. They sang in unison the same song: but the song was
untrue. Their evidence was both orchestrated and fundamentally false.
1095. The evidence (not gathered it should be noted, until March to May 2010) consisted of
written statements, all recorded by Lt. Col. Levitskaya and taken subject to criminal
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Bank St Petersburg v Arkhangelsky
liability for the Russian offence analogous to perjury, from inter alios six witnesses,
namely:
(1) Mr Savelyev;
(2) Mrs Malysheva;
(3) Ms Stalevskaya;
(4) Mr Gavrilov, a Renord-Invest employee and the director-general of Sevzapalians;
(5) Mr Maslennikov, a Renord-Invest employee and the new Director-General of
Western Terminal (who had replaced Mr Vinarsky); and
(6) Mr Chernobrovkin, a Renord-Invest employee appointed as the new deputy
Director-General of Western Terminal.
1096. As noted in the Counterclaimants’ written opening, all six testimonies perfectly
corroborated each other and gave substantively the same version of events, being in
summary, as follows:
(1) In December 2008, Dr Arkhangelsky decided to sell Western Terminal and
approached the Bank asking for help in finding a buyer.
(2) Mrs Malysheva, as a favour to him, put him in touch with Mr Gavrilov.
(3) There followed a genuine and absolute sale from OMGP to Sevzapalians at the fair
market price of RUB 9,900.
(4) Other than that, the Bank had no involvement in the deal. It had no interest in the
sale other than helping its borrower.
1097. The ‘evidence’ thus provided was fundamental to the Morskoy complaint, for it was on
the basis of those statements that it was contended that there was evidential basis for an
allegation of dishonest and criminal conduct. The presentation of Sevzapalians as
having obtained its interest by absolute purchase and that its status as a shareholder was
permanent and absolute was plainly intended to contradict Dr Arkhangelsky’s position
that the repo sale was always subject to the repurchase rights and to good faith
commitments not to interfere in the underlying business in the meantime, and to support
the allegation that Dr Arkhangelsky cannot have thought that OMGP had any interest
such as he maintained.
1098. The falsity of the evidence in depicting the sale as being further to a wish on Dr
Arkhangelsky’s part to sell Western Terminal, and as being absolute, without mention
of the repo arrangements, and also in asserting that the Bank had no involvement in the
sale, is no longer disputed by the Claimants.
1099. When it came to this trial, both of those who had given witness statements addressing
the issue sought to correct these falsities, offering explanations which were similarly
uniform and were in summary as follows:
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Bank St Petersburg v Arkhangelsky
(1) Mr Savelyev acknowledged that he had signed the statement, but he said in his
witness statement that he “could not have read it very carefully at the time” and had
not given the interview “his full attention”. Under cross-examination he said this:
“I was not involved in the sale…I would like to confirm…that
simply that was criminal case to do with different legal entities
that were not related to the Bank, and I was asked to give
evidence, actually, they were of no interest to me, so I didn’t
focus on the evidence, I didn’t focus on the conversation with
the investigator, because it had nothing to do with the Bank of St
Petersburg or me personally…As you know, I did proffer my
apologies to the court for the confusion…”
(2) Ms Stalevskaya likewise said in her witness statement that she did “not know now
why I made reference in this interview to selling shares since this did not reflect the
complete nature of the transaction…” but surmised (like Mr Savelyev) that she had
not been “properly paying attention at the time and wanted to get through the
interview quickly…”. Under cross-examination she suggested that she did tell Lt.
Col. Levitskaya about the repo arrangements but in her rush “did not insist on
having everything that I had said properly recorded in the note of the interview”.
When asked why she had not sought, when the omission became clear to her later,
to do anything to inform Lt. Col. Levitskaya of that, she answered:
“No, because I have given the evidence and I tried to forget about
giving it because, for me, it wasn’t important.”
1100. In its written closing submissions, the Bank claimed that “the Claimant witnesses have
explained the position” and sought to dismiss the interviews and the shared errors in
them as being “of no relevance to the matters in issue.” I do not accept this. Whilst I do
agree that it is not for this Court to determine the viability of the Morskoy criminal
complaint, the interviews (and the surprising evidence recorded from them) seem to me
to bear on (1) the role and objectives of Mrs Malysheva and of Lt. Col. Levitskaya, (2)
the true relationship of the Bank, Sevzapalians and the Renord-Invest Group, (3) the
true purpose of the criminal complaint, (4) the Counterclaimants’ case that there was a
conspiracy against them, and (5) the reliability of key Bank witnesses, including in
particular, Mr Savelyev.
1101. To take up that last point first, Mr Savelyev’s evidence was entirely unconvincing. His
protestations that the statement was simply prepared for him and put in front of him for
signature, and he had signed, as it were, on the dotted line without focusing on its
content, struck me as hollow and unworthy. His suggestion that because the legal
entities concerned were “of no interest” he considered that he could be careless to the
point of giving a version of events in a sworn statement in support of a criminal
prosecution that either he did not believe to be true, or had no basis for thinking it was
true, is unacceptable, and the more so given that in fact he knew all about the entities
concerned. His apology for his “confusion” suggested to me that he had still not faced
up to the seriousness of giving false evidence on the basis of which another person
might be convicted of a crime.
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Bank St Petersburg v Arkhangelsky
1102. The only other witness for the Claimants on this point, Ms Stalevskaya, appeared to me
to be nervous throughout this period of her cross-examination, easily startled and
plainly upset. She denied having been instructed to lie by her superiors. Counsel for the
Bank were very quick to interrupt and depict Mr Stroilov’s questioning as an attempt
to bully her. When it was put to her that her evidence was concocted on the say-so of
her superiors, she cried. Although the experience was no doubt distressing for her, and
the later mockery of it (and her) by Dr Arkhangelsky in habitually and sarcastically
referring to Ms Stalevskaya as the “funny crying witness” was inappropriate and
regrettable, I formed the clear impression that Ms Stalevskaya knew that she had towed
a party line which she knew at the time to be false, and was remorseful.
1103. The concocted and false party line, it seems to me much more likely than not, was
crafted and dictated by Mrs Malysheva. Although Mrs Malysheva declined to be a
witness, the evidence included a record (again made by Lt. Col. Levitskaya) of her
evidence as the lead singer in the curious and concocted chorus. The gist of her evidence
is as I have described it; but it is difficult not to be taken aback by the brazenness of the
misrepresentations Mrs Malysheva knowingly made, including that (quoting from the
record of her interview):
(1) Dr Arkhangelsky had told her in December 2008 that “the group’s debts to the bank
exceeded the total value of [Western Terminal’s] assets” and that in the
circumstances “he envisaged the only solution consisting of looking for a possibility
of more efficient management of [Western Terminal’s] assets in order to fully
develop the business potential invested in this company when it had been founded”.
(2) Dr Arkhangelsky “thought that the most appropriate way to achieve the above goal
would be the sale of the company to specialists”.
(3) “He clearly realized that the market price of [Western Terminal], which was
encumbered with the pledge for the loan, was quite low.”
(4) “I proposed Sevzapalians…as a purchaser…I know Sevzapalians manager [Mr]
Gavrilov personally and I think that he matches the goals defined by Dr
Arkhangelsky, i.e. driving the [Western Terminal] out of the financial and
managerial crisis in order to safeguard the company’s assets to insure the
reimbursement of the [Bank’s] loan…”.
(5) “…I negotiated the transaction proposed by Dr Arkhangelsky with Mr Gavrilov
[who] did not refuse the purchase…but proposed to proceed to an independent
evaluation of the market value of 100% share in [Western Terminal]…in order to
determine a fair purchase price.”
(6) “I considered this proposal as reasonable and forwarded it to Dr Arkhangelsky. The
latter had no objections and provided necessary documents for the evaluation…”.
(7) “At the request of Mr Gavrilov, on the basis of the documents provided by Dr
Arkhangelsky an independent evaluation of 100% share in [Western Terminal’s]
share capital was performed. According to the expert evaluation, this value
amounted to about Twelve Thousand roubles.”
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Bank St Petersburg v Arkhangelsky
(8) “At the end of December 2008, Vasiliev Yaroslav transmitted a set of documents
for the sale and purchase of the share…”.
(9) “Later, I leant from Mr Gavrilov that Dr Arkhangelsky decided to sell 99% of
[Western Terminal’s] share capital for nine thousand nine hundred roubles. This
price suited Mr Gavrilov”.
(10)“I do not know why Dr Arkhangelsky decided to sell just 99% of [Western
Terminal’s] share capital.”
(11)“I know very little about the future fate of [Western Terminal] and it is difficult for
me to say anything substantial about this issue.”
1104. This was a pack of lies, as in effect Ms Stalevskaya, to whom Mr Stroilov put the
question, rather forlornly agreed under cross-examination. Of course, since Mrs
Malysheva herself chose not to give evidence, I cannot know what she would have said
to get round this: but in default of her own explanation, I can think of none: the lies are
fundamental and inexcusable, and raise the obvious question: why were they told?
1105. Lt. Col. Levitskaya was not called either: and I was unable to form an impression of
her personally. But the mendacious uniformity achieved in the statements she
assembled is very striking. Further, it seems almost impossible that she was not aware
from the outset of the repurchase side of the repo arrangements, which fundamentally
undermined the song sung in unison.
1106. Most arrestingly, Ms Stalevskaya told me that she recalls actually telling Lt. Col.
Levitskaya that there was a repo deal. The following exchange in the course of her
cross-examination is of interest:
“Q. But did you explain that this was a repo deal?
A. So far as I can recall, I did. I did explain to Col Levitskaya
that there was a repurchase transaction, a mirror transaction, for
the assets to go back.
Q. So is it your evidence that you made it clear that the purpose
of the deal was not to sell the company, but to provide the Bank
with additional security?
A. So far as I can recall, yes, that was the explanation that I gave
her.”
1107. The most interesting aspect of this evidence is that, if accepted, it would suggest, indeed
would establish, that Lt. Col. Levitskaya was expressly informed that the chorus of
evidence was false, in that its effect and purpose was to depict an absolute sale in which
the Bank had no interest. That would cast a harsh light on Lt. Col. Levitskaya’s conduct
and objectives: it would suggest that she was prepared to record and attribute to
witnesses a version of events inconsistent with facts of which those witnesses
themselves had made her aware, all in order to assist Mrs Malysheva, Mr Savelyev and
the Bank (and presumably at their direction).
Approved Judgment
Bank St Petersburg v Arkhangelsky
1108. If that evidence is not accepted, it is, I suppose, not impossible that Lt. Col. Levitskaya
accepted dictation from Mrs Malysheva and simply did not appreciate the
inconsistencies. But even then, much more likely, to my mind, is that after the holding
(see above) that the repurchase contracts were not admissible and the Counterclaimants
were not relying on them, she was content to go along with the fiction of an absolute
sale at fair market price in accordance with Dr Arkhangelsky’s wishes and in which the
Bank had no involvement other than to assist the sale and never had any interest.
Anyway, the suspicion would still linger that in addition she was able to exert or
transmit from others considerable pressure to achieve a pre-planned evidential record
such as to overbear individual sense of morality, even at the risk of perjury.
1109. That suspicion was increased by Mr Nazarov’s evidence (albeit hearsay) of the intrusive
and oppressive tactics apparently deployed by Lt. Col. Levitskaya when seeking
evidence from Ms Natalya Saltykova (“Ms Saltykova”, a former chief accountant of
various companies in the OMG). It chimed with the gist of Mr Nazarov’s further
evidence that the employees of Renord-Invest and the Bank she interviewed were
frightened of her, and that she adopted an aggressive and “heavy-handed” approach in
which she “made it clear to them that it was up to her to treat them as witnesses or
suspects”. However, that evidence was all hearsay, and quite general. Mr Nazarov was
not able to name who had thus been intimidated; he told me:
“Now, of course, I would not be able to name them. It’s rather
my evidence would be general. That was the general emotional
background around the situation. I mean, the impression from
my communication with these people, for example, with Ms
Saltykova.”
1110. In this uncertain but troubling state of things, the Counterclaimants invited me to draw
the following inferences:
(1) A perjury by six witnesses telling substantively the same lie can only result from a
collusion.
(2) The only purpose of that perjury was to conceal the so-called ‘repo’ arrangement.
(3) The reason for concealing it was because it was fraudulent.
(4) Three different employees of the Bank gave the same false evidence because the
Bank was responsible for that fraud.
(5) Three different employees of Renord-Invest gave the same false evidence because
Renord-Invest was also responsible for that fraud.
(6) A conspiracy involving, at least, the Bank, Renord-Invest, and the six individuals
is, by far, the most probable explanation.
1111. However, although the points were neatly and powerfully made, I cannot go as far as
that. Even though I accept, with real and abiding concern, that a contrived and coordinated
tale was concocted, and that this and its context cast considerable doubt on
the reliability and sense of propriety of the Claimants, I must remind myself (not for
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Bank St Petersburg v Arkhangelsky
the first or last time in this case) that the more serious the allegation the more assiduous
must be the exploration of alternative explanations, and the more cogent must be the
evidence of a malign rather than a more benign rationale.
1112. I must also bear in mind the fact, much stressed on behalf of the Claimants in the written
submissions on their behalf, that Mrs Arkhangelskaya and OMG’s lawyers themselves
appear repeatedly to have made submissions to the Russian courts asserting an
apparently absolute ‘sale’. That is relevant, not to fuel any forensic suggestion that
what is sauce for the goose is sauce for the gander, but because (a) it may go some way
to explain the origin of the concocted chorus, (b) it may tell against any earlier
conspiracy pre-dating Mrs Arkhangelskaya’s own depiction of the share sales, and (c)
more generally, the adoption, with their own fanciful and false embroidery by Mrs
Malysheva and Lt. Col. Levitskaya of a story first spun by Mrs Arkhangelskaya and the
Arkhangelsky’s lawyer, may smack more of opportunism than pre-planning and
conspiracy. Though I continue to harbour doubts as to these more benign origins, for
what on any view is an extraordinary fabrication, I cannot exclude them.
1113. Further, in those circumstances, it would not, in my judgment, be justified and fair to
infer that the Claimants considered or feared the repo arrangements to be fraudulent.
All that it may show is that Mrs Malysheva, and probably (given his subscription to the
same false record, and his position putting him beyond pressure from Mrs Malysheva
or Lt. Col. Levitskaya) Mr Savelyev, had determined that the presentation of the
arrangements as an absolute sale which Dr Arkhangelsky had himself put in place suited
her objective at the time of promoting and supporting the Morskoy Bank criminal
proceedings, and that they were in a position to and did, with the assistance of Lt. Col.
Levitskaya, procure not only Bank employees, but employees of Renord-Invest, also to
support the story, regardless of its accuracy or even truth.
1114. Adopting and elaborating Mrs Arkhangelskaya’s depiction of the arrangements as an
absolute transfer avoided any difficulties that might stand in the way of a successful
criminal prosecution if the true nature of the repo arrangements as intended to give
security and not absolute ownership, and the fact that the Bank had demanded them as
the price of any loan restructuring, came properly to be understood. Put another way
(and as the Counterclaimants indeed put it in their written Opening Submissions):
“the criminal case on fraud could only proceed so long as there
was evidential basis for an allegation of dishonesty; i.e. that he
knew Sevzapalians was a genuine shareholder but
misrepresented the position to Morskoy Bank. There is no such
basis save for the false evidence of the six witnesses.”
1115. But, as I see it and find, the purpose of the concocted chorus was to support and
substantiate the criminal proceedings, as part of the continuing ‘war’ against Dr
Arkhangelsky; and I do not infer from any of this any recognition or concern that the
repo arrangements were fraudulent; the evidence was concocted and coordinated to
assist the Morskoy Bank criminal complaint. That is reprehensible: but, in my
judgment, it does not demonstrate a conspiracy to conceal the repo arrangements
because the participants recognised them to be fraudulent.
Approved Judgment
Bank St Petersburg v Arkhangelsky
Morskoy Bank criminal proceedings and the harassment of the Arkhangelskys as part of the
alleged conspiracy
1116. What, then, was the objective of Mrs Malysheva and/or Mr Savelyev in thus providing
the foundation for and pursuing or assisting the maintenance of the Morskoy Bank
criminal proceedings in which the chorus of concocted evidence was given? The
Counterclaimants contend that this was all part of a “campaign of persecution” and
“systemic harassment” accompanying the takeover of OMG companies, typical and
demonstrative of a ‘raid’.
1117. By the time of the commencement of the proceedings, and at the time of the interviews
some 4 months or so later, the Arkhangelskys had fled Russia and had become resident
in France (although they did not seek asylum until June). The Counterclaimants contend
that, having harassed Dr Arkhangelsky into fleeing Russia in June 2009, the purpose of
the Morskoy Bank criminal proceedings was to establish a claim for their extradition:
for it was on the basis of those criminal proceedings that the Russian Federation issued
an Interpol International Arrest Warrant or ‘red notice’ against Dr Arkhangelsky and
applied for his extradition from France.
1118. The Counterclaimants contend further that the fact and development of the criminal
complaint is a further example and demonstration of close and inappropriate
collaboration between the Claimants and elements of the Russian state and its
apparatus, having all the tell-tale characteristics of a state-assisted ‘raid’.
State assistance in dishonest collaboration: the signs and characteristics of a classic ‘raid’?
1119. The Counterclaimants submit that the Morskoy Bank criminal complaint, and the way
it was falsely supported, fits into a pattern of systematic harassment and pressure,
exerted through arms of the state, orchestrated by the Bank and implemented with the
assistance of Gen. Piotrovsky and Lt. Col. Levitskaya (and see paragraph [573] above),
in a manner typical of a state-assisted ‘raid’.
1120. They contend that this inappropriate collaboration, together with the fact of the other
raids and criminal proceedings to which I have referred (which they protest never had
any substance at all), went beyond Lt. Col. Levitskaya, beyond even Gen. Piotrovsky,
and extended to Mrs Matvienko and the apparatus of regional government in St
Petersburg (and possibly beyond, to the federal government itself).
1121. In their own words, the Counterclaimants allege:
“165 The takeover of the Companies was accompanied by a
campaign of unlawful persecution of the Defendants by Russian
authorities. It is averred that the persecution was co-ordinated
between the Claimants and corrupt Russian officials, known and
unknown, who thus were a party to the conspiracy.
166. Since early 2009, the Defendants were subjected to
systematic harassment by the police and Interior Ministry
officials.
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Bank St Petersburg v Arkhangelsky
167. The harassment became particularly intense since June
2009 when the First Defendant publicly appealed to then
President of Russia, Dmitry Medvedev, about the unlawful
takeover of his businesses…

173. This campaign of persecution was organised as part of
the conspiracy.”
1122. Further:
(1) Paragraph 177(i) of the Re-Re-Amended Defence and Counterclaim identifies
“corrupt officials in Russian law enforcement agencies in St Petersburg”, including
Lt. Col. Levitskaya, the St Petersburg chief prosecutor and Gen. Piotrovsky, the
head of the St Petersburg police, who are said to have been “responsible for the
campaign of political persecution of [Dr Arkhangelsky] and the fabrication of
criminal cases against him, unlawfully and solely in the interests of the Bank, Mr
Savelyev, and the Scheme” (as defined, in the same terms as “the conspiracy”, in
paragraph [855] above).
(2) Paragraph 177(j) identifies Mrs Matvienko as a conspirator, and alleges as follows:
“Members of Mrs Matviyenko’s family are or were major
shareholders of the Bank. Her role was to use her influence to
facilitate unlawful assistance of corrupt law enforcement
officers, authorities, and courts, in furthering the conspiracy. Her
participation is to be inferred from (i) her close association with
the Bank and Mr Savelyev; (ii) the concerted unlawful actions of
the said authorities and courts, which could only be directed by
a single will and mind, high-positioned in the hierarchy of the
Russian regime; (iii) her propensity to, and past record of,
participating in unlawful ‘raiding operations’ of similar nature.”
(3) The ‘conspiracy’ case contends that Mrs Matvienko, Gen. Piotrovsky, and other
“corrupt officials” joined the conspiracy before June 2009 and/or before October
2009 “by agreeing with Mr Savelyev and/or the Bank acting by Mr Savelyev” to
carry out such roles as to “further the Scheme”.
(4) The Counterclaimants allege also that one of the objects of what they depict as a
state-assisted campaign of harassment and the bringing of (allegedly) false criminal
charges was to force the Arkhangelskys to flee Russia, which they allege is “a wellknown
procedural tactic to secure the raided property.”
1123. The Counterclaimants seek findings that this pattern of harassment, and repeated and
various forms of pressure and the way it was exerted, (a) are characteristic of a stateassisted
‘raid’; (b) exemplify and demonstrate the involvement of Mrs Matvienko and
others in positions of political power in assisting the alleged ‘raid’; and (c) give rise to
an inference that the Bank and those associated with it were determined to take control
of Western Terminal and Onega Terminal, whether or not entitled to do so by legal
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Bank St Petersburg v Arkhangelsky
right, without regard to the interests of the borrower, and with a view to their assets
(pledged and unpledged) being syphoned off to persons associated with the Bank or its
management and/or persons associated with them.
1124. The Counterclaimants submitted that the pattern was too clear to admit of a benign
interpretation and plainly smacked of coordination in accordance with a preconceived
plan. They submitted, more especially, that I should assume an intention to ‘raid’ from
the parallels with well-known practices of ‘raiding’ to which the Counterclaimants drew
attention and on the basis of which they submitted that:
“Far from being a series of sporadic reactions to the alleged
revelations about Mr. Arkhangelsky’s dishonesty and/or his
hostile actions, all the Bank’s actions fit precisely into one of the
classic schemes of raiding described by the researchers of that
phenomenon.”
1125. Dr Arkhangelsky’s evidence was that in transferring the shares in late December 2008:
“I was exposing myself to the risk of a raid. That was precisely
why I was so aggrieved at Mr Savelyev’s demand for the shares
to be transferred.”
1126. He added (in his witness statement for trial):
“… everything changed forever at the end of 2008, when the
Claimants, together with other connected parties, effectively
stole many of the Group’s most valuable assets. The Group and
its businesses were destroyed in the process. The theft of the
assets and the destruction of the Group have been accompanied
by an aggressive campaign of harassment and persecution
against me, no doubt in order to ensure that the assets can never
be recovered. The situation ultimately became so serious that I
was eventually forced to leave Russia for the sake of my and my
family’s safety.
While such conduct on the part of a bank may seem extreme, it
bears emphasising that, unfortunately, the actions of the
Claimants and their co-conspirators are not unusual in a Russian
context. Indeed, this kind of conduct has become so common that
the Russian language now has a specific term for it, namely
“reiderstvo” or “raiding”. The Court will be provided with other
evidence that explains the concept of reiderstvo in detail.
However, it typically refers to the hostile takeover of a business
or asset by unlawful or illegitimate means, often with the
assistance of corrupt officials or courts. This is an entirely apt
description of what happened to the Group and its assets in the
present case.”
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1127. The Counterclaimants referred in this regard to the 2011 report of a body styled the
‘National Anti-Corruption Committee’, which they appended to their written opening
and in which a summary is given of what is described as one of the four principal
‘schemes’ of raiding, said to be extrapolated from analysis of a series of case studies.
The summary is as follows:
“Scheme 4 (Manufacturing of rights under a REPO contract)
1. A large loan is given to a representative of a successfully
operating big or medium-size business
2. Securities are formalized:
— pledges of assets which constitute the business;
— personal guarantees of the business proprietors;
— guarantees of companies involved in the business and having
significant assets or trading turnover.
3. REPO contracts are made for the shares (at least the
controlling shareholding) of the companies controlling the
business, on the following terms:
— usually, at a nominal price;
— repurchase is subject to the condition of repayment of the entire
loan;
— always with a counterpart who is not formally affiliated with
the bank;
4. The lender bank declares that the debt is overdue. Like in
Scheme 2, the lender bank may deliberately create the conditions
for an overdue indebtedness to emerge.
5. A demand to repay the debt at a short notice in connection
with a breach of the contract;
6. The Bank declares there have been a breach of the loan
agreement (the clause on early repayment of the loan) and a
breach of REPO contract.
7. Since a company controlled by lender bank is the controlling
shareholder of the companies which control the borrower’s
business, that company is entitled to initiate a shareholders’
conference to replace the company’s director-general and to
approve any transactions with the company’s assets.
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8. A replacement of director-general, seizure of management in
the borrower’s company, failure to service the loan, dissipation
of assets.
9. An assignment of the principal loan obligation to a third
company, along with all the securities for the loan agreement
except REPO.
10. Recovery of the debt from the debtor and
guarantors/pledgers without giving credit for the assets removed
from the borrowers’ control using the REPO contracts.”
1128. The parallels between that description and the events in this case are clear, and on that
basis the Counterclaimants contend that “[t]he ‘repo’ arrangement and subsequent
events fit perfectly into the known patterns of fraudulent ‘raiding’ in Russia.” However,
the status of the report is much more debatable.
1129. Professor Guriev described the report as “public information, as media reports, but not
as something decided by the court of law”. Mr Turetsky cast doubt on the experience
and authority of the authors, though under cross-examination by Mr Stroilov he backed
away from his initial assertion that they are “low-key lawyers and anti-corruption
activists with no banking experience” and settled instead on saying that they “do not
appear authoritative enough for me” and that “the substance did not look scientific to
me”, concluding that “I did not find this report and the analysis scientific enough. That’s
what I would like to say.”
1130. In those circumstances, Counsel for the Claimants submitted that the report “is of no
evidential value at all” and that the attempt to depict the events here as redolent of
‘raiding’ because they share many, if not all, of the adumbrated features is
unsustainable.
1131. In my view, the report offers some confirmation of the prevalence of ‘raiding’ in the
Russian Federation, and its adumbration of the usual characteristics of the practice is
useful in that it elucidates the means whereby typically a raid may be effected.
However, each case must be assessed on its own facts, and the departures from the usual
‘check list’ may be as instructive as the similarities. In particular, it is the element of
premeditation, and the ability unilaterally to bring about the premeditated result, which
is the overall characteristic.
1132. I suspect that the most telling indication of a ‘raid’ is evidence of a premeditated
decision on the part of the Bank and/or a power reserved to it, to deliberately engineer
a default, thus enabling the Bank to be sure it can implement the raid, and at a time of
its own choosing.
1133. For reasons which will already be apparent, I do not consider that the evidence is
sufficient to demonstrate such premeditation in December 2008/January 2009 (that is,
when the repo arrangements were made). Given the gravity of what is alleged, and its
consequences, and the need for cogent proof, I do not consider that there is sufficient
evidence to show that the Bank was intending to engineer a default, or to demand
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Bank St Petersburg v Arkhangelsky
repayment not otherwise due: in that context, my finding that there was no agreed
general 6-month moratorium as alleged by Dr Arkhangelsky is, of course, crucial even
if not (for the reasons I have sought to explain) determinative.
1134. For the avoidance of doubt, I have borne in mind the Counterclaimants’ submission that
I should discern intention from the use later in fact made of the arrangements: but that
is not enough to get over the basic fact that on the findings I have made there is no
sufficient evidence to suggest that the Bank either intended or had the ability
deliberately to engineer a default, or that it had changed its focus from debt recovery to
a ‘raid’.
1135. As in many instances in this case, I would accept that the facts reveal a thoroughly
disturbing tendency on the part of the Claimants and their associates to put forward
sworn evidence which they consider advances their case and a propensity to require
their subordinates to subscribe to and support the version of events thus put forward
regardless of its truth. I would accept also that there are clear signs that the Claimants
enjoyed an unusual ability to call on state resources and assistance at the local level to
reinforce the exercise of their legal rights and to prevent Dr Arkhangelsky from putting
obstacles in their way (as he had made clear he intended to do).
1136. But, in my judgment, it does not irresistibly follow from this, so as to give rise to the
inference the Counterclaimants assert, that all this was done to advance a preconceived
plan to ‘raid’ Dr Arkhangelsky’s businesses without regard to legal right, and with state
assistance to syphon off those businesses (together with their assets both pledged and
unpledged) to co-conspirators in the plan.
1137. 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.
1138. Nor, however unsettling it is, do I consider that the evidence of a concocted chorus and
of state assistance is sufficient, whether of itself or in context, to implicate Mrs
Matvienko, Gen. Piotrovsky, and other “corrupt officials” in a conspiracy to raid or
assist the raid of Western Terminal and Onega Terminal. Again, I take into account that
the more serious the allegation and the more improbable the event sought to be
established:
“the stronger must be the evidence that it did occur before, on
the balance of probabilities, its occurrence will be established”
per Lord Nicholls in Re H (Minors) [1996] AC 563.
1139. I turn therefore to consider perhaps the most fundamental part of the Counterclaimants’
case, which is that all the evidence must be seen and tested in the context of a sustained
effort on the part of the Claimants to deny the reality, being (as they would have it) that
to the knowledge of the Claimants and their co-conspirators, all the sales of assets were
within a closed circle of controlled entities, and all the auctions were shams.
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1140. This requires an assessment as to whether the long train of events following default,
adumbrated in sub-paragraphs [(8)] to [(15)] of paragraph [901] above, reveals a pattern
of conduct as well as an ultimate result consistent only with a pre-conceived and coordinated
‘raid’. That also requires an analysis of the ownership and control of the
entities which participated in that train of events, to test the premise of the
Counterclaimants’ allegations that they were all associated and indeed ultimately
owned or controlled by the Claimants. I start with the latter before turning to address
each of the events thus adumbrated.

Control and/or ownership of the Renord-Invest Group, SKIF, the Original and Subsequent
Purchasers and the long train of transactions between them
1141. The Counterclaimants submit that “the history of these proceedings has largely been a
history of the Claimants’ disingenuous efforts to avoid the issue of Renord Group and
their own connections with it”, and that although “that finding is not strictly necessary
for the success of the counterclaim…it is where the evidence leads; and that increases
the likelihood of the conspiracy alleged…”.
1142. The fundamental importance attached to the issue by the Counterclaimants is indicated
by the fact that they spent some £35,000 of their resources (which they say are
extremely limited) on a draft report dated 24 June 2015 prepared by a third party called
FTI Consulting (“the FTI Report”).
1143. The FTI Report, the primary objective of which was to identify the beneficial owners
of Kontur and Baltic Fuel but which also sought to determine the structure and
ownership of the Renord Group, was never completed (apparently because of
inadequate funds). Further, its conclusions were subject to various caveats. But it
provided the springboard for an enquiry and cross-examination of the Claimants’
witnesses which accounted for a not inconsiderable part of the trial.
1144. The Counterclaimants contend that Renord-Invest and SKIF companies, acting under
the Claimants’ instructions, were used as the warehouses and vehicles for the
appropriation and transfer of Dr Arkhangelsky’s businesses to the Claimants’
controlled associates pursuant to a fraudulent scheme; the essential steps in that scheme
being first, to snatch control of those businesses, then, to sell their assets in a fragmented
way whereby to reduce their value, and lastly to bring the assets together and parcel
them up in such a way as to ensure that their ultimate pre-ordained recipients (Baltic
Fuel Company, in the case of Western Terminal and ROK No. 1 Prichaly, in the case
of the Onega Terminal) or their controllers or owners could extract maximum value
from them.
1145. The Counterclaimants have invited me to find that the machinations and opaqueness of
the Claimants in this regard were necessary in order to disguise the falsity of the various
auctions, and the fact that the ultimate purchaser of the Western Terminal assets and
businesses was a Renord company, Baltic Fuel Company, and thus, in economic reality,
Mr Savelyev “or the Bank” and their associates.
1146. They submit further that ROK No. 1 Prichaly, the ultimate purchaser of the assets at
Onega Terminal and its business, though not in the Renord-Invest Group, was also,
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Bank St Petersburg v Arkhangelsky
according to the Counterclaimants (and to quote the Counterclaim) “a company
connected to the Claimants and/or the Conspiracy”.
1147. From all this they draw or at least feed their punch-line: that the various auction sales
and subsequent transactions in the end led to the acquisition of the OMG businesses
and assets by none other than Mr Savelyev and/or the Bank and their “loyal friends”.
1148. For their part, the Claimants have never denied that Renord-Invest or SKIF worked with
the Bank to realise the sums owed to the Bank by OMG; but they have consistently
denied that either was ever actually ‘owned’ or ‘controlled’ by the Bank.
1149. Further, they were adamant that Baltic Fuel and ROK No. 1 Prichaly were and are
independent and substantial companies, which were never owned or controlled by them
and which acquired the Western Terminal and the Onega Terminal assets (respectively)
at arm’s length.
1150. I shall focus first on the ownership and control of the entities involved in the repo
arrangements, and the auction sales thereafter, that is to say, Renord-Invest and SKIF,
and in that context, of the Original and Subsequent Purchasers. I shall then address the
issue as to the ownership and control of the ultimate purchasers (Baltic Fuel and ROK
No. 1 Prichaly).
Ownership and control of Renord-Invest and SKIF
1151. The Claimants insisted that Renord-Invest was and is a successful investment business
and private equity firm established in October 2007, which has a good relationship with
a number of banks, including the Bank, but which is independent from the Bank and
owned by Mr Smirnov. They invited me to accept Mr Savelyev’s evidence as follows:
“I also understand from the Defendants’ Re-amended Defence
and Counterclaim (in particular from paragraph 100 onwards)
that, broadly speaking, Mr Arkhangelsky alleges that the Bank
achieved its ends through arranging for the assets of OMG to be
purchased by entities owned or controlled by the Renord Group
(the Renord Group) of companies, and he appears to allege
(though the allegation is not entirely clear) that the Renord
Group is ultimately owned or controlled by the Bank. This is not
true. The Renord Group is a client of the Bank and it is and
always has been independent of the Bank and not owned or
controlled by it and, as I have already stated above, there was no
such conspiracy. I also understand that the Defendants allege that
the companies defined in the Re-amended Defence and
Counterclaim (at paragraph 122) as the «Original Purchasers»
and also those defined (at paragraph 129) as the «Subsequent
Purchasers» were directed and controlled by the Bank and/or me
personally and that the directing mind and will of these
companies was the Bank and/or me personally. That is also not
true. I did not direct or control these companies and nor did the
Bank.”
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Bank St Petersburg v Arkhangelsky
1152. The Claimants likewise denied that SKIF and Renord-Invest were the “same business”
and/or owned by the Bank and/or Mr Savelyev. Mr Sklyarevsky’s evidence was as
follows:
“Q. Do you accept that SKIF’s business is entirely dependent on
Bank of St Petersburg?
A. This is absolutely something I don’t accept.
Q. And do you accept that SKIF and Renord are the same
business?
A. No, I do not accept that.
Q. And that is the same business as Bank of St Petersburg.
A. No, that is something I do not accept at all.”
1153. In their Closing Submissions, the Claimants submitted further that “it is also irrelevant
that Renord-Invest was, in many cases, the ultimate purchaser of OMG assets. As
explained…below, the relevant auctions were public and open to all bidders. They were
conducted in accordance with Russian law. That is the beginning and end of the matter
– there is no ground for Mr Arkhangelsky to complain”.
1154. I need to discuss four facets of the issue as to the control and ownership of RenordInvest
and SKIF: (a) the business and constitution of the Renord-Invest group and
SKIF; (b) the relationship between the Renord Group and SKIF and the Bank; (c) the
beneficial ownership of the Renord-Invest group and SKIF; and (d) the nature and scope
of Mr Savelyev’s association with the Bank.
Business and constitution of the Renord-Invest Group
1155. As to (a) in paragraph [1154] above, and the Renord-Invest Group’s business
operations, the Claimants contend that:
(1) Renord-Invest operates through a number of companies and SPVs. Mrs Yatvetsky,
who was the witness best placed to know, told me that:
“…I don’t know all of them, but roughly, indicatively, the
companies I know, perhaps there could be 50, perhaps 60”.
(2) The shareholdings or ownership of these companies were often, indeed typically,
held by Renord-Invest employees as nominees on behalf of Renord-Invest under
arrangements which Mrs Yatvetsky told me were usually oral, and relied “on trust
between the parties”.
(3) Also, there was a long-standing practice for various employees of the Bank to act
as nominal shareholders and/or directors in such companies. These included (most
relevantly to the present case):
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Bank St Petersburg v Arkhangelsky
(a) Mr Nikolay Lokai (“Mr Lokai”), who held shares in Solo on behalf of the
Bank and/or Mr Savelyev (or, as Mr Savelyev preferred to put it, “the
Bank’s managers”) until March 2009 and who the Counterclaimants
suggested was involved as a nominee in a variety of other relevant
companies on behalf of Mr Savelyev or the Bank, almost all with a
registered address at the Bank’s Olymp office at 15 Ispolkomskaya Ul. in St
Petersburg (the “Olymp Office”). Mr Lokai was until 2007 on the
Investment Directorate of the Bank and he continued to play a role in the
Bank (on its ‘Revision Committee’) until at least 2012. Mr Lokai, in my
view, exemplifies one of Mr Savelyev’s “loyal friends” and close associates,
who acted for him as nominee.
(b) Similarly, Mr Maleev, who in addition to being a nominee 100%
shareholder and Director-General of Barrister (see paragraph [470] above),
acted as a nominee and/or director general in numerous companies
beneficially owned by Mr Savelyev or members of his family, including
Verniye Druzya; Ordynka 40 LLC (“Ordynka 40”), which appears to be a
joint venture between Mr Savelyev or his daughter and Mr Serdyukov) and
which owns the premises of the Bank’s branch in Moscow; and Balststar
LLC the 99% shareholder in Malaya Okhta, which manages the Bank’s head
office at 64 Malookhtinsky Prospekt, St Petersburg.
(c) Mr Andrey Romashov (“Mr Romashov”, since June 2014 the corporate
secretary of the Bank’s supervisory board, and before then in the legal
department), who also (though Mr Savelyev disclaimed any knowledge of
any of this) was 100% nominal shareholder of one of the Original
Purchasers, Asset Management Agency, as well as a shareholder (with Mr
Lokai and Mr Belykh) in a company called Evolution-G which held a
significant shareholding in the Bank.
(d) Mr Zelyenov, who owned shares in Solo after Mr Lokai until their
acquisition by Renord-Invest, and whom Mrs Malysheva had known for
many years.
(4) All recorded transfers of shares in Renord-Invest in the material period were for
nominal consideration.
(5) There was no formal group structure. Mrs Yatvetsky explained this:
“…on the whole I can admit that there is no link in the register
between Renord and its subsidiaries. Once again, I repeat, the
choice of an owner depends on many factors. It is totally
unnecessary for Renord-Invest to be shown everywhere as the
parent company because, as a matter of principle, that does not
have any influence on anything.”
(6) Mrs Yatvetsky accepted that for the most part at least, any decisions would be taken
by Renord-Invest rather than the ‘subsidiary’ company.
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Bank St Petersburg v Arkhangelsky
(7) A number of individuals work at Renord-Invest who have previously worked at the
Bank; for example, Mr Smirnov came from the Bank and brought many of his
previous team with him. (Mrs Yatvetsky also worked for Renord-Invest, though she
was not an employee of the Bank.)
1156. Amongst the 50 or 60 or so companies which according to Mrs Yatvetsky were in the
Renord-Invest group, the following at least (in addition to Renord-Invest itself) were
involved in relation to the matters in issue in this case:
(1) Renord-Invest: although not (as explained above) the legal parent company in the
usual sense, the head company in the group at the material times was established in
2007 under the number 1077847617264, and it is that company which is referred to
in this judgment as Renord-Invest. As a matter of detail, I should perhaps note that
Mr Smirnov, in his witness statement, refers to that entity as “Renord 2007” in order
to distinguish it from another entity of the same name (CJSC IC Renord-Invest)
which Mr Smirnov established in 2014 under the number 1147847070953 after he
had sold his shares in what he calls “Renord 2007” to a Mr Mikhail Matveev whom
he describes as “a nominal representative of a major smelter”. What Mr Smirnov
calls “the successor company” (the second ‘CJSC IC Renord-Invest’) is, according
to his witness statement, 100% beneficially owned by him, but the legal title is held
by his brother Mr Andrea Smirnov. According to Mr Smirnov’s witness statement,
the original Renord-Invest was originally a “joint venture between [himself] and Mr
Malyshev”.
(2) The Original Purchasers: see paragraph [367(2)] above.
(3) The Subsequent Purchasers: see paragraph [476] above.
(4) Trak: which acquired a proportion of a 75% shareholding in Renord-Invest which
was until March 2008 held by Mr Malyshev (Mrs Malysheva’s husband): Mr
Smirnov’s witness statement states that Trak was and remains his “vehicle”, as was
and is Barrister.
(5) Barrister (with Trak, the 75% shareholder of record in Renord-Invest in 2008-2011)
is said by the Claimants also to be owned by Mr Smirnov. They say that this also
explains why in August 2013 Barrister transferred its shares to Mr Smirnov.
Conversely, it is said by the Counterclaimants that in fact Mr Savelyev is the real
or ultimate beneficial owner and that it is through Barrister that Mr Savelyev
controlled the Renord-Invest group.
(6) Solo was nominally owned by Mr Lokai from 2002 to 2009, then by Mr Zelyenov
(in 2009) and then by nominees of Renord-Invest, including an offshore Cyprus
entity called Datadot Technology Limited. No substantial consideration was paid
on any of the changes of registered holder, which appears to confirm that the
holdings were in (changing) nominee names.
In closing, Mr Stroilov described Solo as “obviously one of the crucial companies
in this case…crucial, among other things, to the understanding of what Renord
is…”.
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Bank St Petersburg v Arkhangelsky
There was a dispute as to Solo’s true ownership and activities. Mr
Savelyev’s evidence was confused and contradictory. But in the end I took Mr
Savelyev to accept, and in any event I find, that Solo was beneficially owned by the
Bank or as Mr Savelyev preferred to put it (as I have previously explained) “the
managers of the Bank”, which I take in practice to be himself and his “loyal
friends”.
It was common ground that Solo was a 12% shareholder in the Bank in 2005 and
2006, but it is not thought or submitted that it had any shares thereafter.
Solo purchased the Scan land at Onega Terminal in October 2009 (at auction at the
Russian Auction House), and later re-sold it to ROK No. 1 Prichaly. I address this
further later. Mercury was owned initially by Mr Sklyarevsky (see paragraph [485]
above), and he was its Director-General; but it is accepted that (to quote the
Claimants’ written closing) “he was prepared for Mercury to act on behalf of
Renord-Invest at this time in relation to the purchase of the Onega Terminal Assets”
and he sold it to Renord-Invest in late March 2011. Mercury was also on 29
November 2009 registered owner of Seleznyovo for Renord-Invest.
(7) Nefte-Oil was another Renord-Invest company, as acknowledged by the Claimants
in their written Closing Submissions.
As stated above (see paragraph [633(7)] above), Nefte-Oil acquired Western
Terminal assets both pledged (on 26 December 2011) and unpledged (on 23
December 2011) at two auctions held to satisfy the Morskoy Bank claim.
(8) Vektor-Invest was yet another Renord-Invest company. I have described its use and
involvement in the series of transactions leading up to the acquisition in April 2012
of Western Terminal by Kontur at in what the Counterclaimants contend was a
contrived and false auction process: see paragraph [634] above. According to the
Claimants, Renord-Invest used Vektor-Invest for tax reasons, as a company with
heavy losses on its balance sheet and with a view to using it to reduce tax payable
on the onward sale of Western Terminal assets.
Hence, according to the Claimants, its acquisition (see paragraph [633(9)]) above
of the Western Terminal assets from Nefte-Oil which Nefte-Oil had acquired
subject to the Bank’s pledge was in part driven by tax considerations, and
presumably to reduce any equivalent of capital gain. That, of course, suggests that
at least by 2012 a considerable profit or gain on onward sale was envisaged.
(9) Globus-Invest, another Renord-Invest company, was the losing bidder in the
auction of the Western Terminal assets in September 2012 (see paragraph [633(13)]
above).
(10)Kiperort made up the quorum in various of the auction sales, in each case the only
other participant being Solo (see paragraphs [614], [615(2)], and [627(4)] and [(5)]
above). It was always the under-study: it never bid.
1157. It seems to me to be clear that the Bank used the Renord companies, and in the context
those specifically identified above, as and when it required them for such undertakings,
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Bank St Petersburg v Arkhangelsky
business operations or investments as appeared to it expedient at the time. It does not
seem to me to be possible to characterise the business of the Renord Group more
exactly: its diversity is itself confirmatory of the Bank’s needs, and the facility with
which the companies were made available to it to service them.
1158. Thus, for example, Kiperort was not only an understudy in the various auctions, but
(according to Mrs Yatvetsky) it also:
“played a role of…a collection agent based on a contract with
the Bank, it purchased distressed assets and it worked for
money…it got a fee…It purchased bad debts and sold them
on…”
No documentation was made available to define their relationship in this context. That
would seem to me to be extraordinary, unless the Bank had other means of control, as
indeed I am persuaded that it did (see below).
1159. The fact that the Renord entities deployed by the Bank were not de jure subsidiaries no
doubt was of utility: it enabled their operations to be kept off the Bank’s balance sheet.
But de facto, as it appears to me, certainly those expressly identified above were used,
or made available for use, by the Bank in the context of these proceedings. In my
judgment, their involvement in the auctions and transactions referred to above was not
as independent third parties.
1160. The Counterclaimants relied also on the physical links between Renord-Invest, the
Bank and the companies associated with Mr Lokai. Thus:
(1) Renord-Invest and most of its constituent companies had offices, or at least a legal
address, at a building at 15 Ispolkomskaya Ul. in St Petersburg, known as the Olymp
Office (see paragraph [1155(3)(a)] above).
(2) The Olymp Office is or was also the legal address of five companies associated with
Mr Lokai (Olymp-Finance LLC, Evolution-G LLC, IFK BSPB LLC, Polus-Stroi
LLC, and ADK LLC).
1161. There was and remains a dispute as to whether the Bank also operated from the Olymp
Office. The Bank again demonstrated troubling inconsistency.
1162. Initially, the Claimants accepted that the Olymp office address is a large business centre
and that Renord-Invest had an office there, but denied that the Bank had anything more
than what Mr Smirnov in his witness statement described as a small “cash desk”
providing cash drawing and cheque facilities within a Mercedes-Benz car dealership on
a different floor: Mr Smirnov’s evidence was that this was no longer in operation and
in any event “had no connection at all with Renord-Invest”. The Claimants refused to
search for documents for disclosure.
1163. In response, Dr Arkhangelsky served his 17th witness statement, where he (a) exhibited
documents (including several copied print-outs from St Petersburg online business
directories) evidencing the existence of the Bank’s “additional office Olymp” at that
address, (b) recalled having meetings in the Olymp Office with Mr Belykh, who was
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Bank St Petersburg v Arkhangelsky
permanently based there, and (c) recalled meeting other Bank employees from the
Bank’s “International Financing Department”, which he recollected being housed there.
1164. The Claimants then admitted the existence of the “additional office Olymp” until 2010,
separate from the “cash desk”, but stated that all its documents had been “archived and
destroyed” – an assertion which later turned out to be incorrect.
1165. In the meantime, Dr Arkhangelsky made enquiries to confirm and expand on his
recollection of the “International Financing Department”; and contacted a former Bank
employee, Mr Konstantin Bobrov (“Mr Bobrov”). Mr Bobrov then informed the Bank
about those enquiries. The Claimants then admitted, by letter, that the Olymp Office
housed the Bank’s ‘Financial Markets Operations Directorate’ but that this department,
which dealt for example in currency exchange transactions, “did not deal directly with
the Bank’s clients such as OMG, but only with other parts of the Bank and with credit
organisations” and so “would not have held any other documents relating to
any…transactions or otherwise relating to any OMG company or Mr Arkhangelsky”.
It was also accepted in the same letter that the Bank had contacted Mr Bobrov, who did
recollect meeting Dr Arkhangelsky at the offices on “an exclusively personal basis” but
who believed “they were outside the FMOD’s offices given their personal nature”.
1166. As for Mr Belykh, he made a 2nd witness statement where he denied ever working at
the Olymp Office. In paragraph 6 of his 2nd statement, Mr Belykh purports to list all
four locations where he was based while working for the Bank, and exhibit
documentary evidence. However, the period between August 2008 and August 2011 is
not documented, though his evidence is that he continued to work in “Business Centre
Moscow” until late 2009, then moved to Nevsky 174, and then back to Business Centre
Moscow in 2010.
1167. That account contradicted the evidence given in paragraph 28 of Belykh 1st about the
documents which Dr Arkhangelsky gave to Mr Belykh at a meeting in October or
November 2008, said to be probably “lost in the course of one of the 5 office relocations
since that time”. The list in his second witness statement identifies only three office
relocations after October-November 2008.
1168. The morning before his cross-examination, Mr Belykh made corrections to reduce the
number of office relocations to which the loss of documents was attributed from 5 to 4,
and to explain that while his documentary exhibit shows a relocation to Business Centre
Moscow in August 2008, in fact it only took place in December 2008 or January 2009.
But there is one relocation still missing, and a slot of time remains undocumented and
unaccounted for. I consider that I should accept Mr Belykh’s earlier evidence that he
worked in 5 locations in preference to his later inconsistent versions. That supports Dr
Arkhangelsky’s consistent evidence that he did meet Mr Belykh there, which I accept.
1169. In the round, moreover, I consider that the balance of the evidence does compel the
conclusion that the Olymp Office was a substantial office of the Bank’s at the relevant
time, large enough to house a staff of at least nine, with facilities for the processing of
currency exchange transactions which are likely to be quite technology-heavy.
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1170. The Bank’s somewhat heavy-footed, and, I am afraid to say and find, false, efforts to
deny this chime with their efforts to seek to distance the Bank from Renord-Invest; and
both suggest unreliability and a consciousness of vulnerability in this regard. I accept
the Claimants’ point that it is not surprising that a bank based in St Petersburg rents
office space in a business centre in St Petersburg, and that the mere fact that RenordInvest
have offices in a business centre where there was also a (limited) Bank presence
is of no relevance, especially in circumstances where the OMG accounts were not
managed there. It is the inconsistency and unreliability of the Bank’s various iterations
of the factual position which are of the greater interest.
1171. They are of such interest because they seem to me to chime with the conclusion that the
ties between the Renord-Invest group and the Bank, or more accurately those with
conduct of the Bank’s affairs at the relevant time (Mr Savelyev’s evidence being that
“it’s all the same”), and especially Mr Savelyev and Mrs Malysheva, were close,
personal and pervasive, and extended well beyond the confines described by the
Claimants.
Relationship between Renord Group, SKIF and the Bank
1172. As to (b) in paragraph [1154] above, a number of companies were associated with SKIF
and/or Mr Sklyarevsky and Mr Smirnov, which in his evidence Mr Sklyarevsky
described as “not quite owned by the Bank…”; but that description itself demonstrates
the closeness of the links and association between Renord-Invest and Mr Smirnov,
SKIF and Mr Sklyarevsky, and the Bank and Mr Savelyev.
1173. According to Mr Sklyarevsky’s oral evidence, most of the companies concerned were
set up in about 2006, early in SKIF’s commercial life, working with the Bank and with
the:
“idea of developing businesses around the banking business, a
managing company, a leasing company and insurance company
and so on and so forth…”
1174. These companies included:
(1) Nevskaya Management Company, which appears subsequently to have been
transferred to a Mr Lestovkin and Mr Smirnov, but Linair and Backbone LLC also
appear to have held shares. Nevskaya Management Company had offices at the
Olymp Office address (Ispolkomskaya 15). Its management consisted of former top
managers of the AVK group.
(2) Khortitsa, one of the Subsequent Purchasers which was sold first to Nevskaya
Management Company and then to Renord-Invest, and of which Mrs Yatvetsky
became 100% record shareholder and Mr Lestovkin its Director-General. Khortitsa
shared offices and telephone numbers with Nevskaya Management Company.
(3) Leasing Company St Petersburg, which was apparently established to service
clients of the Bank who required leasing services; Mr Savelyev thought it had been
owned by the Bank initially but then sold to Renord-Invest as Mrs Yatvetsky
confirmed, though its registered address was and is at the Bank’s main offices.
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(4) Gaide Insurance, which was set up to provide insurance services for Bank customers
and the Bank itself, is now in the Renord-Invest group.
(5) Intermit, which seems to have owned a leisure centre or spa in which SKIF had a
controlling shareholding in 2007, which was subsequently transferred to
Sevzapalians in the Renord-Invest Group for a nominal RUB 10,000 or so. By way
of explanation of this, and more generally the relationship between SKIF and
Renord-Invest as he saw it, Mr Sklyarevsky told me:
“…SKIF was looking for projects in the market, trying to raise
finance. I think the idea with respect to that leisure centre or the
spa did not enjoy much support, we did not find any funding, and
I think we transferred it to Renord after it [Renord] had been
incorporated. Then in 2008, after it had been incorporated,
Renord needed companies, it needed to have some assets
available to them, which we sold or transferred to them if we no
longer had any use for those assets…”
1175. Mr Stroilov put to Mr Sklyarevsky that these companies were “floating, so to speak,
between SKIF and Renord”. Mr Sklyarevsky did not object to this summary
description, although it seemed from his evidence that most ultimately became RenordInvest
entities. Mr Sklyarevsky stated as follows:
“Q. Now, you also indicated…that it was not unusual, as
between you and Mr Smirnov, to use each other’s companies for
projects, to lend a company to one another, is that so?
A. The companies for projects, yes. We sometimes would lend
each other companies for projects, at least for 2007 to 2010, for
that time period.”
1176. This, and the pattern demonstrated above, seem to me to support the Counterclaimants’
submission that it was a usual practice between the Bank, Renord-Invest and SKIF to
‘borrow’ companies from each other for various purposes. I consider that the likeliest
explanation is that both Renord-Invest and its group (described by Mr Smirnov as
essentially a multitude of ostensibly independent companies controlled by employees
of Renord-Invest as nominees) and SKIF provided a store of SPVs at the Bank’s
disposal, often with offices at either Olymp (Ispolkomskaya 15) or 64A Malookhtinsky
Prospekt, which were then controlled and beneficially owned through nominees
according to the nature of the project and its participants.
1177. Further, the arrangements between the Bank, Renord-Invest and SKIF were almost
invariably undocumented, and could be fluid, with shared interests through one
company in particular projects and nominee shareholdings for “oversight” purposes.
Mrs Yatvetsky’s description of the position in relation to the 50% shareholding (held
until 2011) of Mr Kalinin (Renord-Invest’s financial director) in SKIF provides an
example. The following extract from her cross-examination illustrates this:
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Bank St Petersburg v Arkhangelsky
“Q. Now, isn’t it the case that for a number of years, until I
think 2011…Mr Kalinin, Renord’s financial director, was 50%
shareholder of SKIF?
A. Yes, for a certain time Mr Kalinin did own a 50% stake in
the SKIF company. That was in connection with one project,
Nevskaya 58.
Q. Now, it wasn’t in connection with one project. If you own
50% in a company, you own 50% in all its projects; isn’t that
right?
A. No, this is not correct. In that case Mr Kalinin owned a 50%
stake only in connection with this project, Nevskaya 58.
Q. And so for purposes of other projects, what happened? Did he
hold his 50% as a nominee for someone else or what?
A. Yes, as a nominal shareholder. As a kind of an oversight body.
At that time Renord was only interested in that project, Nevskaya
58. And it is quite possible that between Mr Smirnov and Mr
Sklyarevsky there were some agreements regarding that the
oversight will be ensured only with respect to this project. The
other projects, if there other projects under SKIF, Mr
Sklyarevsky managed himself.
Q. And Mr Kalinin held this 50% shareholding in SKIF on behalf
of Renord, didn’t he?
A. Yes on behalf of Renord.”
1178. Another exemplar of the close connection and cross-over between the Bank, SKIF and
the Renord-Invest Group is provided by Linair, a company owned, or at least ostensibly
owned, in equal shares by Mr Smirnov (also its Director-General from January 2008
onwards), Mrs Malysheva and Mrs Ivannikova (sometime deputy chair of the Bank)
(see paragraph [468] above). Linair was a shareholder of Nevskaya Management
Company. Mrs Yatvetsky insisted that through her work as a lawyer for Nevskaya
Management Company, she knew “for sure that they held these shares personally in
their own interests as individuals, this was their own separate business, which had
nothing to do with the Bank”; but this did not, in my view, carry conviction. Mrs
Yatvetsky’s evidence was that Linair was “simply a participant in Nevskaya
Management Company” and “most likely” had no business other than holding shares
in that company. Both that and the identity of its shareholders and Director-General
suggest to me strongly that Linair was another of the ‘floating’ companies, and probably
subject to the ultimate control of the Bank.
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Bank St Petersburg v Arkhangelsky
Beneficial ownership of the Renord-Invest Group and SKIF
1179. As to (c) in paragraph [1154] above, the Counterclaimants allege that the Renord Group
is “no more than a collective name for various companies which are beneficially owned
by the Bank and/or by the Bank’s top managers, through various nominees.”
1180. The Counterclaimants contended that the control structure of the Renord-Invest Group
and the almost invariable use of employees to hold shares as nominees without any
documentary record of the nominal nature of their position, is evidence of both its true
ownership and a desire to disguise it.
1181. It is their case that on detailed analysis of (i) the reliance of Renord-Invest on the Bank;
(ii) the identity and links between persons concerned in companies within the RenordInvest
Group; (iii) the links between those persons and Mr Savelyev and/or Mrs
Malysheva; (iv) the intricate web of companies through which Mr Savelyev partly owns
and controls the Bank itself; and (v) the resort to allegedly collusive auction processes
whereby to seek to justify transactions which were inexplicable except if Mr Savelyev
and/or the Bank and their “loyal friends” and associates had interests served by the
result, it is apparent that the true owner of the Renord-Invest Group is Mr Savelyev
and/or the Bank and those of its senior managers who were “loyal friends” or associates.
1182. The Claimants, on the other hand, were consistent in their denials of this. On their
behalf, Mr Savelyev and Mrs Yatvetsky, with more inconsistent support from Mr
Sklyarevsky, maintained that Renord-Invest and the Bank were not part of the same
business, and that “instead, Renord-Invest is an independent business owned by Mr
Smirnov”.
1183. Mr Savelyev insisted, “I’ve never controlled Renord”. His evidence was follows:
“Q. And Renord is part of your business, is it not?
A. No, not at all, my Lord. That is a separate standalone entity
that has no relation to the Bank. It operates independently in
the market. It receives loans from the Bank in the same way
that a common borrower would be. Mrs Malysheva and Mr
Smirnov have a good, friendly relationship going back to
their work together at AVK, as far as I recall, but that does
not mean that the Bank owns Renord.”
1184. Mr Smirnov’s written statement said:
“I understand that the Defendants have alleged that the RenordInvest
companies which were used in the repo transaction …
were somehow owned or controlled by the Claimants. This is
untrue. The Renord-Invest group has never been owned or
controlled by the Bank. It is an independent successful business
in its own rights, with its own governance and controls. RenordInvest
makes its own investment decisions, uninfluenced by the
Bank.”
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1185. The way in which the Renord Group companies and SKIF were deployed, and the
absence of any documentation detailing the relationship with the Claimants such as
would be expected in the case of parties truly at arm’s length, tell in favour of the
Counterclaimants’ contentions. In addition, however, there is also documentary
evidence of some materiality in this regard.
The spreadsheet
1186. Mr Stroilov also relied especially on one item of documentary evidence as providing
confirmation of, and further insight into, the beneficial ownership and control of various
companies in the Renord-Invest Group: this is a heavily redacted spreadsheet exhibited
by Ms Stalevskaya which is headed “Information on legal persons as of 02.07.2010”.
The corporate information table lists 132 companies, their shareholders, projects in
which they are involved, and the companies’ own shareholdings.
1187. Columns 5 and 6 are collectively headed “Founder” which (according to Mr Stroilov)
in Russian business language actually means the shareholders. It is not disputed that
column 5 identifies the nominal shareholder. Column 6 is titled “Belonging”, and lists
either the Bank, or “partner”, or both. Column 7 specifies each shareholder’s share in
charter capital, and column 8 specifies the amount of charter capital in roubles. Column
9 appears to list each company’s projects. The dispute is as to the real meaning of the
sixth column, and the significance of the descriptions “Founder” and “Belonging”.
1188. For the Claimants, Ms Stalevskaya told me that it was she who had created the
spreadsheet when she was with the corporate finance department; she put forward the
following explanation of the purpose behind it:
“It is a list of corporates, of companies that received loans in
order to be able to conduct investment projects, and they were
monitored by the client monitoring directorate, therefore we
compiled a list of borrowers and all the individuals and corporate
affiliated with them, or associated with them.”
She continued:
“This table was compiled with a view to monitoring the links
that might exist between corporates, the companies, and I did this
at the request of my boss and I then handed it up to the credit risk
department. So at some point in time, speaking from memory I
think it was at the end of 2010, the credit risk department took
over all the work with respect to all the borrowers, and then
started compiling spreadsheets of all the individuals, all the
corporates, all the persons that are associated with each other and
so on and so forth; ie the information that the Central Bank
would require to be provided.”
1189. In their written Closing Submissions, and based on Ms Stalevskaya’s evidence, the
Claimants explained the position more elaborately as follows:
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(1) The entry “Bank” in the sixth column did not mean that the relevant company
‘belonged’ to the Bank, but rather related to the Bank’s financing of the company’s
various projects (as listed in the ninth column). As to the reference to “partner”, if
the particular project was funded by a third-party partner as well as the Bank, then
‘partner’ would be included.
(2) The evidence shows that the sixth column did not, and could not, mean that the
Bank beneficially owned various companies when it was listed in the sixth column.
(a) For each company’s entry, the sixth column has a number of rows
corresponding to the number of the company’s projects. “Bank” sometimes
does, and sometimes does not, appear in each row. It sometimes appears in
two or more separate rows, and at other times appears in one row only but
not in other rows for the company entry. Where ‘Bank’ appears in a row,
then that indicates the Bank funds the particular project listed in the row.
Ms Stalevskaya explained the Bank wanted to monitor the projects which it
was funding. If the sixth column was concerned with ‘ownership’ of the
company by the Bank, then ‘Bank’ would not appear more than once for
each company entry. In short, the use of ‘Bank’ is related to the particular
project entry, not the company’s ownership.
(b) The Counterclaimants’ interpretation is inconsistent with, and would
undermine, nearly all of their case on the Bank ‘owning’ various purchasers
of shares or assets.
1190. The Counterclaimants rejected this explanation as tortuous and incredible: Mr Stroilov
suggested that it was all “a rather clumsy lie”.
1191. They submitted:
(1) There is no logical reason why what Ms Stalevskaya describes as identification of
a lender could be put into the column “Founder” which (according to Mr Stroilov,
and as Ms Stalevskaya accepted was the case “as a rule”) is the accepted Russian
euphemism for “shareholders”, the column “Belonging”, or against the names of
nominal shareholders in column 7.
(2) Column 8 clearly specifies the charter capital of each company and not, as Ms
Stalevskaya asserts, the amount of financing for projects. The figures correspond to
the public record of the amount of charter capital of each company.
(3) The data in column 6, “Belonging”, is logically linked with the data on shareholding
in columns 5, 7 and 8; not with investment projects named in column 9.
1192. The Counterclaimants’ case is that the spreadsheet clearly concerns ownership of the
listed companies, not lending to them. It clearly identifies the Bank as the beneficial
owner of Renord-Invest, SKIF, Khortitsa, Datadot Technology, Trak, Sevzapalians (via
Havana Trading) and Aqua Ladoga. As Ms Stalevskaya stressed, the “Belonging”
column is no longer filled starting from page 3. She said that was because all companies
were the Bank’s clients and therefore receive finance from the Bank. Mr Stroilov
submitted that the truth probably is that the purpose of the table was to record
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information on companies controlled by the Bank via nominees, and those which do
not belong to the Bank would not be there. Where the “Belonging” column is filled,
each company is either owned or co-owned by the Bank, signifying either the entity or,
in accordance with Mr Savelyev’s use of that term, Mr Savelyev and “top
management”.
1193. Obviously, the fact that Ms Stalevskaya was apparently its author lends additional
support to her explanation of the document. But I have to say that the explanation is
difficult to square with the language. Conversely, the Counterclaimants’ submissions
are consistent with the language; and it is not easy to see why the words “Founder” and
“Belonging” were used if not to mean what they say; and with respect to Ms
Stalevskaya, I do not think she offered any reason for selection of (on her case) such
inappropriate descriptions.
1194. On balance, therefore, I consider that the Spreadsheet does offer some further support
for my view as to the modus operandi of using a plethora of companies which were
under the ultimate control of the Bank and/or Mr Savelyev and top managers selected
by him, though I should perhaps make clear that I would have reached that view without
it.
Conclusion as to paragraph [1154] above and the ultimate control and ownership of these
various companies
1195. In my view, it is not necessary to decide whether Renord-Invest itself was owned or
controlled by the Bank, Mr Savelyev or their associates or “loyal friends”. But I do
accept the Counterclaimants’ description of the Renord Group as “a store of SPVs at
the Bank’s disposal”. The question now is more limited: that is, whether in relation to
the arrangements, their implementation, and the subsequent steps taken to obtain
control of Dr Arkhangelsky’s companies and sell their assets, the Bank and/or Mr
Savelyev called the shots.
1196. It is clear to me, and I hold, that the Bank was able to and did, commandeer companies
from the Renord Group for its own use, and in the case of those companies, during the
period of its use of them, the Bank did own and control their businesses, usually through
nominees as above described, and in particular, Mr Lokai, Mr Maleev, Mr Romashov
and Mr Zelyenov.
1197. In that latter context, I appreciate that the Claimants throughout denied that any of those
four acted as nominees, or had any relevant connection with the matters in issue; but I
cannot accept that. The multiplicity of their connections, without any other substantive
explanation, seems to me to demonstrate that they did, as the Counterclaimants
contended, serve as nominees for the Bank and/or Mr Savelyev and his close associates
and were accustomed to act subject to the instructions of the management of the Bank,
and ultimately of Mr Savelyev, when their interests were concerned and they or he
thought it appropriate to give them. That is not irrelevant, as the Claimants would have
it. On the contrary, it is of interest and relevance because it seems to me to chime with
the conclusion that the true relationships of importance in the context of the Bank,
Renord Group and SKIF were personal rather than structural.
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Bank St Petersburg v Arkhangelsky
1198. The ties between the Renord-Invest Group, SKIF and the Bank, or more accurately
those with conduct of the Bank’s affairs at the relevant time (Mr Savelyev’s evidence
being that “it’s all the same”), were close, personal and pervasive and extended well
beyond the confines described by the Claimants, and operated to render substantially
unimportant the appearance of individual corporate forms or structures.
SKIF and Mr Sklyarevsky
1199. SKIF, in my view, performed much the same function as the Renord Group, but more
usually was involved itself (rather than providing SPVs).
1200. Again, I do not think it is necessary to determine its beneficial ownership. But, as in the
case of the Renord Group companies ‘lent’ to the Bank, when it was engaged at the
request or direction of the Bank in the Bank’s business, the Bank controlled the relevant
involvement and was entitled to the benefit of the activities through SKIF or the
companies so lent (as the case might be). I consider that the suggestion that, in its
relevant involvement with the Bank in the context of OMG, SKIF was an independent
third party, is plainly incorrect.
1201. I also accept the Counterclaimants’ case that there is ample evidence that SKIF’s
business is not only similar to, but also closely connected with, the Renord Group. In
that regard, though (as I have said) it is not necessary to make a finding as to its
beneficial ownership, it seems to me to be plain that Renord-Invest has at least a
substantial interest in SKIF, and to my mind the probability is that so does the Bank,
either through Renord-Invest or directly. Mr Sklyarevsky’s evidence to the contrary
was not persuasive. In particular:
(1) Contrary to Mr Sklyarevsky’s original assertion that he “set up” SKIF together with
Mr Ved in 2006, in fact SKIF was originally known as Vekselnaya Kompaniya
(‘Securities Company’) St Petersburg, and then as BSPB-Finance. Its legal
shareholders in that period were the Bank, Solo, and two individuals. Mr
Sklyarevsky admitted in cross-examination:
“I do not deny that that company, that was the Bank’s company
that first was held by the Bank.”
(2) In 2006-2008, the shareholding of SKIF was divided 50/50 between Mr
Sklyarevsky and Mr Ved. While Mr Sklyarevsky claims that Mr Ved had nothing
to do with Renord-Invest, the public records show that in 2010, Mr Ved was the
director-general and 100% legal shareholder of Moskovsky Dvor LLC
(“Moskovsky Dvor”). Moskovsky Dvor is undoubtedly a Renord-Invest company:
at the time, it was a 50% shareholder of Sevzapalians. The 100% shareholder of
Moskovsky Dvor before Mr Ved was Razvitie Sankt-Peterburga LLC (a known
Renord-Invest company). The 100% shareholder and director general of
Moskovsky Dvor after Mr Ved was Ms Darya Filina, a Renord-Invest employee.
(3) Mr Sklyarevsky admitted that in 2008, Mr Ved’s 50% shareholding in SKIF passed
to Mr Kalinin, the financial director of Renord-Invest, who held the shares as a
nominee of Renord-Invest.
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Bank St Petersburg v Arkhangelsky
1202. I accept the Counterclaimants’ summary that:
“The likeliest explanation is that Mr. Ved, Mr. Kalinin and Mr.
Sklyarevsky owned the company as nominees for the same
beneficiary. It may be that SKIF has a degree of autonomy within
the system of the Bank’s affiliated businesses, but its description
as an independent business does not hold water.”
1203. In the round, I have concluded that (a) Renord-Invest and its group companies, and (b)
SKIF and companies associated with it as described above, were vehicles used by the
Bank and/or Mr Savelyev, with the top managers and “loyal friends” he gathered around
him, for the purposes of the repo transactions and the transactions which followed in
respect of the pledged assets.
1204. I do not think that the evidence clearly demonstrates one way or the other whether the
Bank and/or Mr Savelyev beneficially owned Renord-Invest and SKIF: and it may be
that even the SPVs or other vehicles they provided were also engaged (or from time to
time became so) in independent projects and businesses with which the Bank and/or Mr
Savelyev were not directly concerned. But I do consider it clear in all the circumstances
that the Bank and/or Mr Savelyev, themselves or through their “loyal friends”, were in
a position to control those vehicles in all matters relating to the repo arrangements and
the transactions for the realisation of the OMG assets and businesses which followed.
1205. In all the circumstances, I am satisfied, and find, that for those purposes and in that
context, the Renord-Invest and SKIF companies can be treated as all within a group
controlled by the Bank and/or Mr Savelyev.
1206. That obviously raises a question as to the validity (and propriety) of the auction sales
where the only participants were under common direction or control. I address this in
paragraphs [1283] to [1299] below.
Mr Savelyev’s interests (direct and indirect) in the Bank
1207. As to (d) in paragraph [1154] above, Mr Savelyev did not deny or much disguise, and
I find, that he had a controlling interest in the Bank, though he did not hold directly all
the shares conferring that control.
1208. These interests were held:
(1) In his own name and through his company called Strelets and another called
Strelets-2; and
(2) Via SPVs, and especially (a) Solo, (b) System Technologies LLC (‘Sistemnye
Teknologii’), (c) Malvenst Investments Ltd (“Malvenst”) and (d) Verniye Druzya
(which it will be recalled means ‘Loyal Friends’), which he ultimately controlled
through his relatives and other top managers at the Bank acting as his nominees.
1209. In the 2007 Prospectus for the Bank, Mr Savelyev’s personal holdings were stated to
be some 30% (although it was stated that his aggregate “beneficial holdings” exceeded
35%) dropping to 28.18% by the time of the 2008 Prospectus. According to the 2013
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Prospectus, and after investment by Western entities such as EBRD (5.4%) and JP
Morgan Group (2.8%), this had dropped by September 2013 to some 21%.
1210. The proportionate shareholdings in the Bank that these SPVs had varied over time.
However, it appeared from Mr Savelyev’s oral evidence that:
(1) Solo’s shareholding in 2005 to 2007 was about 13% (but it ceased to hold shares in
2009);
(2) System Technologies’ holdings varied between about 13.5% and 20%;
(3) Malvenst’s holdings fluctuated around 20%; and
(4) Ms Mironova told me that Verniye Druzya presently holds 29%.
1211. In addition, through a call option (governed by Russian law) with his sister-in-law, L.I
Stepanova, Mr Savelyev was (and I think still is) entitled at any time to call for her
100% interest in Systems Technology which in 2008 held some 11.75%. Further, Ms
Stepanova held 100% of the shares in Wellfame Pacific Limited (BVI) which in turn
held 100% of the shares of Malvenst. Mr Savelyev confirmed in the course of his crossexamination
that Ms Stepanova was his nominee.
1212. As to the other SPVs, it was Mr Savelyev’s case that the shares were held collectively
for himself but also other “top managers” of the Bank. Indeed, he regarded the shares
so held as being so “on behalf of the Bank, for the Bank’s interest”. Thus, for example,
when cross-examined as to Solo’s holdings (and, in particular, the nature of Mr Lokai’s
interests) he said this:
“Q. And when you say “the Bank”, do you mean – well do you
mean the managers of the Bank, or do you mean the Bank as a
corporation?
A. I mean the Bank’s managers.”
1213. In the 2008 Prospectus it was noted that:
“The senior management of BSPB headed by Mr Savelyev
controls in aggregate 55.76 [sic] of the voting share capital of
BSPB. Approximately 20.75 per cent. of the ordinary shares of
BSPB freely float on the MICEX and the RTS stock exchange.
There is no formal shareholders’ agreement between the key
shareholders of BSPB. However, they all work together as a
team (both through participation in the Bank’s management and
assisting it to meet its capital needs) towards BSPB’s growth…

BSPB’s management intends to purchase by the end of 2008 4.6
per cent. of the Bank’s ordinary shares from the company
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Bank St Petersburg v Arkhangelsky
controlled by BSPB’s shareholder Mr D. Korzhev [then a
member of the Supervisory Board]. As a result of this anticipated
transaction the stake controlled by BSPB’s management will
exceed 60% of BSPB’s ordinary shares…” [My interpolation]
1214. By 2013, it was noted in the 2013 Prospectus as regards ‘management shares’ that:
“As at the date of this Prospectus, members of BSPB’s
management hold 49.60 per cent. of BSPB’s ordinary shares.
There is no formal shareholders’ agreement between or among
any of the principal shareholders of BSPB, but the shareholders
who are the members of senior management of BSPB and other
major shareholders work closely together in pursuing BSPB
business objectives.”
1215. This lack of any “formal” agreement, as to how the shares thus said to be held
collectively by management could be allocated between them or otherwise dealt with
or voted is notable; and to my mind Mr Savelyev’s answer to questions as to the lack
of any such arrangements, to the effect that he could no longer remember, were not
compelling. In my view, the likelihood is that the shareholdings were spread about
various entities to avoid having to disclose holdings of more than 20%.
1216. Mr Savelyev’s control of what he plainly regarded as ‘his’ bank was central to his
outlook; and it must be remembered that throughout the period in question until August
2014 he was the Bank’s Chairman. I consider it clear on the balance of probabilities
that all these shareholdings were subject to his ultimate control, at least de facto. That
includes the shares held through Verniye Druzya, which is the largest block.
1217. Indeed, Verniye Druzya provides an insight into the arrangements that enabled
centralised control of the Bank, concentrated in the hands of Mr Savelyev. Both Mr
Savelyev and Ms Mironova (who was one of the ‘top managers’ with an interest in
Verniye Druzya) emphasised repeatedly that Verniye Druzya was and is a separate legal
entity, with its own board of directors and a group of managers whom Ms Mironova
depicted as “professionals in various aspects of economics” who could be expected “to
take well thought out decisions so as to vote at the Bank of St Petersburg’s AGM on
behalf of Verniye Druzya, which holds 29 per cent of Bank of St Petersburg”.
1218. The shares in Verniye Druzya were originally held as to 100% by Soviet Direktorov;
but they came to be divided between four Cyprus companies, whose beneficiaries
appear to be:
(1) Mr Filimonenok, a top manager of the Bank
(2) Mr Reutov, a top manager of the Bank
(3) Ms Mironova, and
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(4) (But according to Mr Savelyev, only from late 2015 onwards) Ms Oksana
Savelyeva, Mr Savelyev’s daughter. Mr Savelyev told me that he financed the
acquisition of that shareholding by his daughter, but denied that she was a nominee.
1219. I think it more likely than not that these shares were held to the ultimate direction of Mr
Savelyev. The suggestions that his daughter held the shares independently, and would
not have followed her father’s directions, struck me as formalistic and unlikely.
1220. Ms Mironova’s evidence as to the basis on which she acquired her shares reinforces the
supposition that all concerned became and remained as shareholders by favour of Mr
Savelyev and were beholden to him. Ms Mironova was only required to pay €2 million
for a 9.4% interest in the Bank in 2014 (implicitly valuing the entire Bank at between
€20 and 25 million). She was, moreover, permitted to pay by way of a promissory note
issued for a period of 15 years and thus given 15 years to pay, with a dividend
entitlement in the meantime likely to exceed the purchase price. Ms Mironova could
not suggest that these were commercial terms; she simply said “Nevertheless, those
were the payment terms”. All the signs are that all concerned were beholden to Mr
Savelyev and likely to act according to his directions if that was what he required.
1221. Furthermore, the Director-General of Verniye Druzya (as also of Sovet Direktorov) was
Mr Maleev, who the Counterclaimants submitted, and I accept, habitually managed
companies on Mr Savelyev’s behalf. Those described as “professionals” included both
Mr Serdyukov, whose role and experience Ms Mironova accepted she knew nothing
about, and Mr Savelyev’s daughter, (Oksna Savelyeva) who was and is a medical doctor
with no business experience, of whom Ms Mironova could say no more than that “it
will be an opportunity for her to draw on the experience of other participants”. The
same sort of analysis and conclusions is likely to be justified in the case of Soviet
Direktorov also.
1222. I accept that although Mr Stroilov did occasionally seek to introduce an air of mystery
suggestive of non-disclosure, Mr Savelyev’s personal shareholdings in the Bank and
any option arrangements he has had in respect of the shareholdings of other individuals
were recorded and in the public domain.
1223. But the extent of his personal indirect control was not so transparent, and obviously just
as important. The fact is (as I find it) that Mr Savelyev, with his “loyal friends”
operating at his direction, had built such a position and interests in the Bank that he was
in a position as a practical matter to control its activities; and he regarded his and the
Bank’s commercial interests as, in practical terms, substantially synonymous.
Ownership/Control of ultimate purchasers of (a) Western Terminal and (b) Onega Terminal
1224. I turn to address the issue as to the ownership and control of the ultimate purchasers of
the Western Terminal and Onega Terminal assets respectively.
1225. The entities in question are (a) Kontur and Baltic Fuel Company (the ultimate
purchaser(s) of Western Terminal), and (b) ROK No. 1 Prichaly (the ultimate purchaser
of Onega Terminal).
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Kontur and Baltic Fuel
1226. There is no dispute that Kontur and Baltic Fuel Company are both companies in the
Baltic Fuel Group. Kontur ‘purchased’ Western Terminal from Vektor-Invest for RUB
675,000,000 but (in a manner not disclosed) Baltic Fuel Company came to be treated
as owner of the Western Terminal and it uses and operates Western Terminal for its
bunkering business. The Baltic Fuel Company was established in 2008. The Baltic Fuel
group of companies comprise a substantial business which is involved in the transport
of oil products and bunkers.
1227. Kontur’s Director-General was Mr Korneev, who was (and may still be) the record
owner of some 23.5% of the shares in Kontur, and its other shareholders (as matter of
record at any rate) are Nefte-Oil (23.5%) and an entity called ‘Timus LLC’ (“Timus”)
(51%).
1228. When Mr Stroilov put to Mrs Yatvetsky that Mr Smirnov seemed to be the ultimate
beneficial owner of both Timus and Nefte-Oil, she thought that “quite possible”, and
she thought it quite possible also that Mr Korneev held his shares as nominee for Mr
Smirnov.
1229. However, in his witness statement, Mr Smirnov described Nefte-Oil as an “investment
vehicle” of Renord-Invest, and it seems more likely than not (and I find) that Timus
was also. Similarly, the likelihood appears to me to be that Mr Korneev was a nominee
of Renord-Invest also (as was his predecessor, Mr Chernobrovkin, who it will be
recalled became deputy Director General of Western Terminal when Mr Vinarsky was
removed (and see paragraphs [526] to [527] above)).
1230. I have concluded, therefore, and find, that Timus and Nefte-Oil, all being entities within
the Renord-Invest Group, and Mr Korneev being a nominee of Renord-Invest in this
context, held their shareholdings in Kontur for Renord-Invest, and that Kontur was and
is a Renord-Invest company accordingly.
1231. The position as regards Baltic Fuel is both more important and more difficult.
Important, because if it were established that Baltic Fuel is owned, directly or indirectly,
by the Bank and/or Mr Savelyev and/or their associates, that would be a powerful piece
of evidence of collusion. Further it might provide a basis for preventing enforcement of
the indebtedness secured over Western Terminal assets without giving credit for value
in Baltic Fuel. Difficult, because (as is also apparent from the inconclusive nature of
the draft FTI Report) the Counterclaimants rather rested their case on establishing that
Baltic Fuel was part of the Renord Group and the supposition that therefore it was
owned by the Claimants; but that supposition is not necessarily justified. As elaborated
below, the Counterclaimants though insistent, could provide so little by way of
evidence to contradict the Claimants’ contention that the Baltic Fuel Group is nothing
to do with them and is ultimately owned by Mr Smirnov and Mr Korneev, even though
Mr Smirnov’s witness statement acknowledged that in 2008, 51% of its shares were
held by Renord-Invest “both directly and indirectly” and “as of today, Renord-Invest
holds a 74.5% share in Baltic Fuel”.
1232. Mr Smirnov’s evidence in his witness statement was as follows:
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“63. Kontur is a company engaged in the supply and
shipping of petroleum products and is part of BTK (or ‘Baltic
Fuel’) Group which owns bunkering vessels. Baltic Fuel is a
company incorporated in Russia, which was established in 2008.
Before mid-2013, Renord-Invest held a 51% share in Baltic Fuel,
both directly and indirectly. As of today [28 August 2015 being
the date of the witness statement] Renord-Invest holds a 74.5%
share in Baltic Fuel….It is a substantial operation; it employs
over 800 people and generates in the region of EUR 130,000,000
per annum.
64. I recall that I mentioned to Mr Korneev at the time, that
the Western Terminal Assets were to be sold at auction. He may
have known about it anyway because the market for buying port
assets in St Petersburg is relatively small.
65. I understand that the Defendants have alleged that
Kontur is part of the Renord-Invest group and is a company
owned and controlled by persons connected with the Claimants.
They also allege that Baltic Fuel is ‘closely affiliated’ to the
Bank. Baltic Fuel and Kontur are not owned or controlled by the
Claimants. As I have explained, Baltic Fuel is a substantial
independent company in its own right. It is correct that I own
Baltic Fuel through its major shareholder, Renord-Invest and
Renord-Invest has a good relationship with the Bank, but Baltic
Fuel is not owned or controlled by the Claimants and is an
independent business in its own right.
66. I understand that the Defendants have made various
allegations about the shareholdings in Kontur. I recall that Mrs
Malysheva’s son only held shares for a month in 2011; he was
not otherwise involved in Baltic Fuel…”
1233. Mrs Yatvetsky’s evidence was as follows:
“Q. do you agree that Kontur LLC is one of the Baltic Fuel
Company entities, one of the entities in the Baltic Fuel Group?
A. Kontur LLC is part of the BTC companies, yes.
Q. And obviously that is controlled by Renord, isn’t it?
A. No. Baltic Fuel Company is a personal private investment
within Mr Smirnov’s personal investment portfolio.
Q. So you are saying that it has nothing to do with Renord as
such; it’s just another company of Mr Smirnov?
A. Correct. Mr Smirnov owns a shareholding in the fuel
company and the fuel company only reports to Mr Smirnov.
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Renord does not analyse this company, does not look at this
company…
Q. Right…
A. …or this company’s business.”
1234. Mr Savelyev’s evidence (in his second witness statement for trial) was that:
“Save for the fact that Baltic Fuel Company is a customer of the
Bank, I have no other links or interest in [it]”.
It is relevant to note that he was not challenged on that evidence in cross-examination.
1235. Noting that Mr Smirnov in his witness statement never claimed more than to “co-own
Baltic Fuel through its major shareholder Renord-Invest” I do not accept Mrs
Yatvetsky’s evidence if and insofar as it might be taken to suggest that Baltic Fuel was
not and is not a Renord-Invest company: I find that it was and is. But, as previously
indicated, that does not conclude the necessary enquiry.
1236. The fact that it is clear that Renord-Invest held a controlling shareholding in Baltic Fuel,
and I have previously determined that Renord-Invest and SKIF were vehicles used and
controlled by the Bank and/or Mr Savelyev, with his top managers, for all purposes in
connection with the repo and the transactions in respect of the OMG pledged assets and
businesses which followed (see paragraphs [1195] to [1205] above), does not
necessarily answer the difficult question, raised by the evidence, as to ultimate
beneficial ownership of Baltic Fuel.
1237. In other words, it does not follow from their control of Renord-Invest and SKIF in all
matters relating to the pledged assets that therefore Mr Savelyev and/or the Bank
beneficially owned and/or controlled Baltic Fuel (which had an independent business
as above described). As recited above, the available witness evidence is to the contrary.
1238. Of course, Mr Smirnov was not available for cross-examination and could not be
questioned as to his evidence that, though Renord-Invest was its controlling
shareholder, he was the person who ultimately owned and controlled Baltic Fuel. I have
to take into account, in that regard, that I have not accepted his evidence as to the
independence of the Renord-Invest Group and I should treat his untested written
evidence with circumspection. Further, Mr Stroilov sought to make much of the “rather
intriguing discrepancy between the evidence of Mr Smirnov and Mrs Yatvetsky” as
regards the ownership of Baltic Fuel, since she appeared to deny any link with RenordInvest.
But the differences were not, to my mind, significant in reality: her punch-line
was the same, that Baltic Fuel was Mr Smirnov’s company.
1239. I have taken into account indirect evidence relied on by the Counterclaimants such as
the appointment of Gen. Piotrovsky, plainly an ally of Mr Savelyev, as economic
security adviser to the Director-General of Baltic Fuel.
1240. I have also taken into account that there is evidence to support the Counterclaimants’
contention that it was from the outset of the time of default the intention of Mr Savelyev
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and/or the Bank was to use Western Terminal in the Baltic Fuel Company business:
there is logic in their case that this was the reason that a Baltic Fuel Manager, Mr
Chernobrovkin, was appointed as deputy director-general of Western Terminal when
the Bank obtained control pursuant to the repo arrangements (see paragraphs [526] to
[527] above).
1241. However, in my view, the hard evidence to demonstrate ultimate control and ownership
of Baltic Fuel (if not Renord-Invest) remains meagre. It is not such, in my judgment, as
to displace the possibility that, consistently with my view that Renord-Invest and SKIF
were corporate vehicles available for use for the control and fulfilment of various
potentially independent projects, Renord-Invest and/or Kontur were used by Mr
Smirnov (rather than the Bank and/or Mr Savelyev) as vehicles for the purposes of an
oil business which included Baltic Fuel, in much the same way as I have found the Bank
and/or Mr Savelyev used Renord-Invest in connection with the pledge realisations and
transactions. That would accord with Mr Smirnov’s evidence in his witness statement
to the effect that (with Mr Korneev) he co-owns Baltic Fuel through Renord-Invest, but
Baltic Fuel is not owned or controlled by the Claimants; and, indeed, with the evidence
of Mrs Yatvetsky and Mr Savelyev.
1242. In the end, therefore, though not without equivocation, I have concluded that such
circumstantial evidence as was provided by the Counterclaimants is insufficient to
warrant a finding, contrary to the evidence of Mr Savelyev (which, as I have previously
noted, was not challenged), of Mr Smirnov and of Mrs Yatvetsky, and notwithstanding
the equivocation of FTI, that the Bank and/or Mr Savelyev owned and/or controlled
Baltic Fuel.
ROK No. 1 Prichaly and Onega Terminal
1243. I turn to the Counterclaimants’ case that the ultimate purchaser of the Onega Terminal
assets and business, ROK No. 1 Prichaly, was also “connected to the Claimants and/or
to the Conspiracy” (as pleaded by the Counterclaimants in the final amendment to their
case) before next turning to discuss whether the complex series of “Onega Transfers”
were “cosy deals” orchestrated in accordance with a malign scheme or conspiracy.
1244. The questions are inter-related since the Counterclaimants rely on the cosiness of the
deals in support of what they contend is the irresistible inference that ROK No. 1
Prichaly was in the Claimants’ ownership or control, and then on that ownership and
control as explaining the motivation for that cosiness. The circularity is obvious.
1245. Against this, the Claimants insist that ROK No. 1 Prichaly was and is an independent
third party, and that there is no evidential basis whatever for the Counterclaimants’
contention that the sale to it of the Onega Terminal assets was fraudulent, ‘cosy’, or in
some way part of a conspiracy to which it was party.
1246. The actual evidence as to the ownership and control of ROK No. 1 Prichaly is (leaving
aside any inference from the allegedly ‘cosy’ deal) is very slim: indeed, I do not think
there is any of any substance. Further, (again leaving the ‘inference’ case aside) the
evidence of any substantial connection between the Claimants and ROK No. 1 Prichaly,
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let alone such a connection as might of itself suggest conspiracy, was also vanishingly
weak.
1247. This was put to Dr Arkhangelsky in cross-examination. Even by his own standards his
replies were blustering:
“Q. …I just suggest to you, Dr Arkhangelsky, that you have no
basis for saying that ROK Prichaly, a business associated with
Sea Fishing Port [SFP], that that is in any way involved with any
conspiracy here?
A. It’s involved, and so far as I understood from crossexamination
of Mrs Volodina she confirmed that to Mr Stroilov;
that she knows very well the director and they have a long-lasting
co-operation — or owner.
Q. I will check, but I don’t think, Dr Arkhangelsky, it was put to
the witness in those terms.
A. Mr Stroilov was referring to Mr Soshnik, who is the owner
and the shareholder and the director of all these companies
discussed, and she confirmed that they are having long-lasting
co-operation with him.”
1248. Mr Stroilov accepted in his closing submissions that all Ms Volodina had said was that
she had “good relations” with Mr Soshnik, who she identified as “general director of
fishing processing plant number 1 and he received loans” though she would “rather not”
describe him as a friend. Mr Stroilov could not take this further than to suggest that she
“seemed rather uncomfortable with that question.” That is no demonstration of
ownership or control, or of conspiracy.
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.
1250. Thus, the Counterclaimants’ allegation that ROK No. 1 Prichaly was and is somehow
connected to the Claimants and/or their Conspiracy must depend on the inference relied
on and/or proof of some arrangement between it and them, and not on coincidence of
ownership or control. To establish such an inference, the Counterclaimants must show,
not only the malign scheme that they assert, but also ROK No. 1 Prichaly’s knowing
connivance, if not active participation, in it.
1251. That leads me on to consider in greater detail the sequence of auction sales preceding
the ultimate acquisition by ROK No. 1 Prichaly of Onega Terminal and by
Kontur/Baltic Fuel of Western Terminal, which the Counterclaimants contend lacked
any real substance and constitute the most compelling evidence of the conspiracies they
allege.
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Long series of transactions
1252. I have outlined previously the sequence of auction sales and other transactions relating
to the Onega and Western Terminal assets, and how it was that those assets, both
pledged and unpledged, and when brought together comprising the entire respective
businesses of Onega and Western Terminal, finally ended up in the hands of ROK No.
1 Prichaly and Baltic Fuel Company respectively. My focus now is on the auctions
themselves, their advertisement, conduct, and results; and then on the subsequent sales.
1253. That a properly advertised and fairly-conducted auction is a commonly accepted, well
tried and prima facie satisfactory way of testing and achieving a fair (even if not the
highest potential) value is not contentious.
1254. However, the Counterclaimants refer to what occurred in this case as being “purported
public auctions”, which in truth were not conducted in accordance with Russian law but
rather as “fraudulent insider dealings, and/or fraudulently at a gross undervalue.”
1255. Thus, the Counterclaimants allege that the explanation for the fact that in not a single
one of the numerous auctions did any third party participate as a bidder, is that the
auctions were in name only (“purported”, rather than real). At the heart of the
Counterclaim are the allegations that:
(1) In each case the auction process was contrived, fundamentally flawed and
intentionally perverted, and each of the auctions was nothing more than a
mechanism for the laundering of assets, in auction sales of carefully selected
packages designed to reduce their attractiveness and value, between a seller and a
buyer under common control, with another controlled company literally making up
the numbers;
(2) Once laundered at auction, the assets were then re-packaged, and the assets
respectively comprising the businesses of Onega Terminal and Western Terminal
were then transferred on, with apparently clean title and in accordance with a preagreed
plan, to ultimate purchasers (ROK No. 1 Prichaly in the case of Onega and
Baltic Fuel Company in the case of Western Terminal).
1256. Thus, the Counterclaimants’ case is that there was a conspiracy, and that the long
sequence of auction sales was pre-determined: that the reality is that the only
participants were Renord-Invest companies, who were sole actors in false auctions
which were conduits for laundered assets; and those in control of the Renord-Invest
companies, or their “loyal friends” or associates, were then the ultimate recipients of,
or the value in, the business enterprises which the assets enabled and comprised.
1257. The Counterclaimants were constrained to accept that they could not establish an
express agreement to engage in and effect a conspiracy, nor when and how each of the
participants came to be and was involved: rather, they submitted, conspiracy was to be
inferred from the “overt acts” constituting a departure from a proper auction process,
the consistency of the actual results of the auctions, and the ultimate destination of the
assets and businesses concerned.
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1258. Put another way, the Counterclaimants’ case is that the “overt acts” constituting
departures from the norm demonstrate the method; the ends or results reveal the motive;
and that is sufficient proof of conspiracy.
1259. Mr Stroilov sought to rely in this regard on Kuwait Oil Tanker Company SAK v Al
Bader & Ors [unreported, Court of Appeal, 18 May 2000]. He cited especially the
following statement in the judgment of the Court of Appeal (at paras. 111 to 112):
“111.…it is not necessary to show that there is anything in the
nature of an express agreement, whether formal or informal. It is
sufficient if two or more persons combine with a common
intention, or, in other words, that they do deliberately combine,
albeit tacitly, to achieve a common end. Although civil and
criminal conspiracies have important differences, we agree with
the judge that the following passage from the judgment of the
Court of Appeal Criminal Division delivered by O’Connor LJ in
R v Siracusa (1990) 90 Cr. App. R. 340 at 349 is of assistance in
this context:
“Secondly, the origins of all conspiracies are concealed and it is
usually quite impossible to establish when or where the initial
agreement was made or when or where other conspirators were
recruited. The very existence of the agreement can only be
inferred from overt acts. Participation in a conspiracy is
infinitely variable: it can be active or passive. If the majority
shareholder and director of a company consents to the company
being used for drug smuggling carried out in the company’s
name by a fellow director and minority shareholder, he is guilty
of conspiracy. Consent, that is agreement or adherence to the
agreement, can be inferred if it is proved that he knew what was
going on and the intention to participate in the furtherance of the
criminal purpose is also established by his failure to stop the
unlawful activity”

112. In most cases it will be necessary to scrutinise the acts relied
upon in order to see what inferences can be drawn as to the
existence or otherwise of the alleged conspiracy or combination.
It will be the rare case in which there will be evidence of the
agreement itself…”
1260. The Claimants reject the allegations as fanciful. They contend that each auction was a
necessary way of completing the enforcement process, and in every case was conducted
by duly authorised and independent auction organisers in accordance with the
applicable Russian law.
1261. The Claimants deny any dishonest plan or collusion. They insist that the auctions were
honestly conceived, sequenced properly, advertised in accordance with the rules and
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conducted entirely properly. They deny any attempt to reduce the value of the assets to
be sold or to structure the auctions to any like effect.
1262. They ascribe the results of the auctions to the difficult economic circumstances and,
thanks to the diversion by Dr Arkhangelsky of the proceeds of the loans from the Bank,
the dismal state of the assets to be auctioned at the time that the auctions took place.
They submit that there is simply no evidence to the contrary; and there is no basis or
proper ground for an inference of collusion and dishonesty where the facts are
consistent with a plausible innocent explanation.
1263. The Claimants point out that no breach of the rules has been demonstrated and there is
no record or other evidence of any potential bidder ever having complained of any
infringement. They reject as entirely unsubstantiated the suggestion that the bailiffs
and/or auction organisers were co-conspirators. They also make the point that none of
the bailiffs and/or auction organisers was a party or a witness, and that in their absence
a case that they were dishonest or participated knowingly in a dishonest scheme could
not be and was not put.
The issues to be addressed to adjudicate between the competing positions
1264. The arresting characteristics of all the auctions certainly invite sceptical inquiry,
especially as to why it was that third-party bidders were never interested or how it was
that they were deterred. That in turn invites scrutiny of the way the auctions were
advertised and conducted, and who was responsible for that conduct.
1265. To determine whether the auctions were abnormally conducted with features and results
having no plausible innocent explanation such as to support an inference of conspiracy,
I turn to address the following sub-issues:
(1) The duties of a pledgee under the relevant (being Russian) law;
(2) The Russian law and practice governing auction sales, and remedies for breach;
(3) Whether the sales complied with that law and practice, and if not, why not;
(4) The choice of auction sale and the way in which the Western Terminal and Onega
Terminal assets were packaged for auction sale;
(5) Whether the steps whereby the Western Terminal and Scan assets, pledged and
unpledged, were parcelled out, or the way in which the auctions were advertised,
explains the absence of bidders other than Renord-Invest companies;
(6) The alleged links between Mr Savelyev and top management of the Bank, the
participants in the auction sales, and the ultimate recipients of the relevant
Terminals and assets; and the significance of the undated ‘Stage Plan’; and
(7) The alleged disparity between (a) the values achieved for the assets and applied in
diminution of the outstanding loans, and (b) the real value of the assets sold in the
hands of the ultimate recipients.
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Bank St Petersburg v Arkhangelsky
Russian law as to duties of pledgees and processes of realisation
1266. It was common ground that the law applicable is plainly Russian law.
1267. Under Russian law, a pledgee must realise its security in the manner specified in the
pledge agreement, subject to any mandatory terms of law. Articles 349 and 350 RCC
set out provisions concerning levying execution against and realisation of pledged
property.
1268. In broad terms, the experts were agreed that, under that law, a pledgee may enforce its
security in one of two ways:
(1) Enforcement through the court, in which case a court bailiff will arrange for the
auction of the pledged asset; or
(2) Enforcement out of court, pursuant to an agreement between pledgee and pledgor,
in which case a licensed independent auction house conducts the auction.
1269. Mr Turetsky explained that a distinction is drawn between the two procedures.
Although realisation of the security by way of ‘auction’ is a shorthand for both
procedures, it is perhaps more accurate to refer to (i) a ‘public sale’ conducted by the
state bailiff service when enforcement is through court proceedings, and (ii) an
‘auction’ conducted by a specialist commercial entity when enforcement is through an
out-of-court procedure.
1270. Enforcement through court proceedings is the default option; out of court enforcement
requires agreement between pledgor and pledgee after the grounds for enforcement
have arisen.
1271. Whereas Professor Guriev’s evidence had been that the parties would “try to agree to
sell the assets at a reputable auction house”, Dr Arkhangelsky was quite clear as to his
perception that it was never the practice for borrowers to consent to such a sale; rather,
he said, they would seek to obstruct it:
“Q. Dr Arkhangelsky, that timescale you are describing proceeds
on the basis that the borrower is not consenting to the Bank’s
realisation of the security, isn’t it?
A. I don’t know any borrower who would be consenting unless
they have good reasons, consenting to the reservation of the
assets.
Q. Why not?
A. Because. It’s a standard market practice. At least in Russia.
Q. Well, a standard market practice, what, when you haven’t paid
your debts, not to agree that the lender can enforce the security
you have agreed to provide for the debt; is that your evidence?
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Bank St Petersburg v Arkhangelsky
A. It’s a question for the court to decide, and the court has a
practice and the court has a formal procedure, and each
procedure takes time. So any argumentation could only be settled
in the court and agreed in the court…”
1272. The Claimants submitted, and I accept, that it is obvious that Dr Arkhangelsky himself
would never have consented to the Bank realising its security out of court; but, of
course, once the Bank had secured control of the relevant entities (as it did) that control
could secure consent: and, in the event, the sales of the Onega and Sestroretsk assets
were through sales through a private auction house, Russian Auction House (see further
below).
1273. In this case, the public auction sales of assets at Western Terminal were conducted by
the court bailiff; whereas the auction sales of Scan assets, including the Scan land at
Onega Terminal and the Scan land at Sestroretsk, were organised and conducted by
Russian Auction House in accordance with an agreement with the Bank (under an
‘Extrajudicial Foreclosure Agreement’).
1274. The experts (Professor Guriev and Mr Turetsky) were agreed that if the right of the
pledgee had lawfully arisen, a sale through public auction in compliance with the
relevant legal requirements would be valid and effective, whether more properly called
a public sale or an auction, and whether by the court bailiff service or through the
(licensed) auction house.
1275. 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. As Ms Kosova explained by reference
to the Bank’s asserted role in this case:
“The actual sale, certain entities are dealing with it, and the Bank
has the proceedings with regard to enforcement of debt, and the
court proceedings with regard to obtaining court judgment, then
the Bank gets the enforcement letters and produces them to the
court bailiff service, and the further actions and steps are carried
out by the court bailiffs service, and neither myself nor my
employees organised the auction and this sale.”
1276. 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:
“…that control, the overseeing function, can be done by us in
our capacity of lawyers based on the information we receive
from the federal bailiffs service, and the Bank cannot impact the
actions of the federal bailiffs in any way, but they act within the
law in any way, and they act within the procedures that they
have.”
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Bank St Petersburg v Arkhangelsky
Auctions: legal framework and practice in Russia
1277. The relevant rules governing auctions under the relevant Russian law are found in
Articles 89 to 93 of the Law on Enforcement Proceedings (Federal Law No. 229-FZ),
as supplemented in the case of real property by Articles 56 to 58 of the Law of
Mortgages (Federal Law No. 102-FZ).
1278. The additional requirements of the latter, which reflect the approach of Russian law in
requiring more exacting requirements in relation to real property, deal with such matters
as the place of the auction (which must be the populated area in or closest to which such
property is located) and its advertisement.
1279. Articles 89 to 93 of the Law on Enforcement Procedure provide (as explained by
Professor Maggs):
“…that the property to be auctioned must be appraised as a basis
for setting the starting price, with the appraisal by court order in
the case of a judicial auction or by a licensed appraiser in case of
non-judicial auction. This appraisal sets the starting prices for
the auction. The rules provide that an auction will fail if there are
not at least two registered bidders and not at least one bid at or
above the starting price.”
1280. There must be a notice period of 30 days before the sale, and any bidder must provide
a deposit of 5% of the initial selling price, which is returned to unsuccessful bidders.
1281. Dr Gladyshev agreed that as a matter of Russian law the specified notice period is 30
days, but that, in his opinion, this is the minimum and is subject to a general requirement
of not abusing rights set out in Article 10 of the Civil Code, so that in the case of a
complex industrial asset longer would be required for due diligence and the like.
Professor Maggs considered that 30 days is sufficient and there is no case holding that
the period should be longer.
1282. I do not think it necessary to decide between the two views: it was not suggested that
short notice was given, nor that the failure to give more than the prescribed minimum
period would, of itself, ground a claim. Something more would have to be established:
for example, that it was perceived and intended that a longer period was required for
the advertisement to have any real utility, and a decision taken for that reason not to
give more notice. The inadequacy of the minimum period would have specifically to
be established by reference to the particular factual circumstances: a general
supposition that the more notice, the more prospect of encouraging interest (and vice
versa) would not, as it seems to me, suffice. (I return in paragraph [1315] et seq below
to the claim that in this case, there was indeed a dishonest conspiracy to ensure no third
parties attended.)
1283. As to the essential qualities of a valid auction, it is not disputed that to qualify and
establish a quorum for a legal auction there must be at least two registered participants.
However, there is an issue between the experts concerning the extent to which, where
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Bank St Petersburg v Arkhangelsky
there are only two registered participants, they must be “genuine bidders” and
independent of each other.
1284. Dr Gladyshev’s evidence was that:
“There has to be more than one genuine bidder at the auction. If
there is only one bidder, the auction is considered as not having
taken place – Article 447(5).
If compliance with the rules is a mere pretence of form, and a
competing bidder is a mere puppet, with no genuine interest of
its own in bidding for the asset, it would be an abuse of right.”
1285. Professor Maggs, however, opined that there is no requirement that individuals or legal
entities bidding in an auction are independent of one another or of a third party, but
instead “auction bidders are free to act in their own best interests and are not required
to be independent”. In particular, Professor Maggs noted that whereas in some areas of
Russian law there are formal rules restricting ‘affiliated persons’ (in the context of antimonopoly
laws), there is no such rule affecting auction bidders. He referred to a
decision of the High Arbitrazh court in NIK-TRAST in which it was held that
participants in an auction may be affiliated, and that the law on protection of
competition:
“….do[es] not contain a prohibition upon participation in an
open auction of affiliated persons, and that in and of itself, the
participation in an open auction of such persons may not be
considered an action of the organizers of the auction that leads
or might lead to prevention, limitation, or elimination of
competition.”
1286. 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’s 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.
1287. In my view, the words ‘in and of itself’ in the extract from the case Professor Maggs
cited are indicative that the question is whether, on the one hand, the bid process is real
and competitive (which the participation of an associated person would not prevent,
especially where there are other bidders) or, on the other hand, fictional and collusive
(as where all bidders are associated and there is no genuine competition). An idle or
rehearsed chorus is not, in reality, an auction.
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Bank St Petersburg v Arkhangelsky
1288. I also note in this context that in the Claimants’ Closing Submissions it is accepted that
“the key issue is not the relationship between the bidders, but whether the auction
process is somehow limited, or restricts genuine attempts to bid.” Professor Maggs’s
formalistic view would confound this approach.
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; 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.
1290. Neither expert specifically addressed the question of whether the auction organisers’
certificate as to the validity of the auction would be vitiated and invalidated if the only
bidders were in collusion in fact, but the auction organisers were not aware or on notice
of that, or what the other consequences might be in such circumstances. But if, as I take
it (see below), the auction would cease to be capable of being invalidated by action if
brought more than one year after the auction (see paragraph [1293] below), the matter
may in any event be academic in this case.
1291. The court bailiff and auctioneer have a duty to comply strictly with the relevant rules;
and recourse is against the bailiff and auctioneer if there is any default. As Professor
Maggs explained (and Dr Gladyshev substantially agreed):
“The duty of organizers of an auction is to comply strictly with
the requirements of all laws governing auctions. In the case of
auction of security, these laws are designed to provide a balance
between the interests of creditors in speedy liquidation of
property for payment of debts and the interests of debtors in
obtaining maximum prices. The auction organizations are not
allowed to deviate from the rules to favor [sic] either creditors
or debtors. Further, liability would be that not of the pledgee of
the security, but of the auction organization.”
1292. The experts agreed also that only if the relevant auction rules have been broken is there
a potential remedy for the pledgor, and in those circumstances, if there has been a
violation of the auction rules, liability would fall upon the court bailiffs or auction house
which conducted the auction rather than upon the pledgee.
1293. The normal remedy for the pledgor would be a declaration that the auction was invalid,
pursuant to Article 449. An inquorate or collusive auction is not invalid until declared
so by the court further to action brought within the stipulated period. There is, however,
a limitation period for such a remedy of one year from the date of the transaction,
pursuant to Article 187(2) of the RCC. That time bar does not appear to me to be
unreasonable, having regard to the need to promote security of bargain. That period has
elapsed long since. I questioned Dr Gladyshev as to whether, after the expiry of the
year, it was any longer possible to set aside the auction and the sales which resulted; he
confirmed that it was not.
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Bank St Petersburg v Arkhangelsky
1294. There was and remains a disagreement between the experts as to the availability or not
of other remedies (apart from under Article 449) in the event of one party being
dissatisfied with, and able on the evidence to demonstrate, some flaw in the auction
process and the price achieved for the assets sold.
1295. Professor Maggs’s evidence is that this specific provision (in Article 449) excludes or
trumps reliance on the more general tort remedy in Article 1064, the reasoning being
that the more general provision would otherwise undermine the specific provision and,
particularly, the limitation period stipulated (since the three year period stipulated in
respect of Article 1064 would conflict with the one-year period stipulated by Article
181).
1296. Dr Gladyshev’s view is that “security must be realized in good faith” and that if an
auction organiser and pledgee are “complicit in abuse of right and/or other wrongdoing,
they are liable jointly and severally under Article 1080”. He referred to various cases
on “pretence of corporate form”, including what he called the Keystone case, where a
construction company, Keystone, defaulted on a loan to Sberbank and in order to avoid
recovery, transferred its assets to a creature called K-Stone owned by the same
shareholders. He noted that the court had refused to respect the corporate form as being
an “abuse of right” and set aside the transfer. That seems to me to be analogous to
English law theories of ‘piercing the corporate veil’: the court will look through
corporate form in limited circumstances.
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. Dr Gladyshev
did not identify any case where a claim for ‘abuse of right’ had succeeded in such a
context. The logical consequence of disregarding the corporate form is that no
independent legal existence is attributed to the creature entity; but that does not
necessarily mean that thereby some separate wrong is committed.
1298. Thus, although I would not accept Professor Maggs’s broad proposition that Article
449 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.
1299. As to what will suffice, I accept the point that the rules that the auction organisers are
exclusively responsible for the conduct of the auction, and that the price is fixed by the
court or by a licensed appraiser, narrow the scope for a claim against the pledgee, and
dictate that 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.
1300. 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 crossexamination
that it would not suffice to show only that the price achieved was an
undervalue:
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Bank St Petersburg v Arkhangelsky
“…undervalue itself is not a factor. Undervalue in conjunction
with intent to harm me and enrich you, this is the actionable
offence.”
(I assume by “harm me” Dr Gladyshev meant, applying that to this case, “harm the
Counterclaimants” (whether intentionally or by reckless indifference to the inevitably
damaging effect upon them) and by “enrich you” I assume he meant “enrich the Bank
or those who dishonestly contrived the undervaluation”.)
1301. 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. However,
as discussed later (see paragraphs [1380] to [1386] below), 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.
1302. In summary, therefore, 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 organiser,
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.
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 in the dishonest attempt to harm the
Counterclaimants and enrich the pledgee or its associated parties.
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.
Choice and real purpose of auction sale
1305. The Counterclaimants contend that the Claimants never had any interest in selling the
pledged assets by private contract: they wanted the protection and formality of public
auctions, to ensure that the price achieved, being at or above an apparently
independently established reserve price, could not be challenged, and to enable in due
course the assets to be passed to associated entities free of any adverse claim,
notwithstanding both the association and the low prices achieved.
1306. There is certainly very little evidence, and none of it is documentary, of efforts to sell
the assets or businesses by way of private arrangement or contract.
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Bank St Petersburg v Arkhangelsky
1307. The only witnesses for the Claimants to suggest that there were efforts to find a thirdparty
buyer by private treaty were Ms Mironova (who had not mentioned any such
efforts in her witness statement) and Mrs Yatvetsky.
1308. Ms Mironova, in cross-examination, referred rather airily to the Bank having “held
negotiations with a lot of prospective buyers”, including the state-owned North
Shipbuilding Company (‘Severnaya Verf Northern Shipyards’), but without success.
Mrs Yatvetsky’s oral evidence was:
“…[Mr Smirnov] did a lot to try and find third party buyers and
sell the stuff to them, and I understand that at the end of the day
Mr Korneev and himself decided for themselves that they were
going to become bidders because they were not able at the end
of the day to identify any willing buyers.
Q. Now, Ms Yatvetsky, there is absolutely no documentary
evidence of these alleged efforts to find third party buyers, is
there?
A. On a number of occasions I drafted confidentiality
agreements for Mr Smirnov because he was conducting some
negotiations, and with respect to Western Terminal I know he
was negotiating [with] Severnaya Verf Northern Shipyards, it’s
a state owned company, and Western Terminal used to be located
on their territory, and I think they were thinking about building
a dry dock there, but at the end of the day they abandoned the
idea. He was also negotiating with Modul LLC which owned
some of the assets in the Port of St Petersburg. They carried on
the business of container shipments and logistics, and I think
they were also thinking about buying Western Terminal. I know
that Mr Smirnov was also engaging other companies in his
negotiating effort.
Q. Now this is not mentioned in his witness statement, is it?
A. Maybe he is simply not going into all these details. He did
mention that he kept on trying, but at the end of the day the
negotiations, or rather the confidentiality agreements, the NDAs
that I had drafted for him, he never returned them to me, so I
thought that the whole thing just stopped at the very initial stage,
and the parties never went beyond the very initial stage and never
moved on to actually execute any transactions.
Q. And indeed there were no negotiations with third parties at
all? That…
A. This is not true. Negotiations did take place.
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Bank St Petersburg v Arkhangelsky
Q. I put it to you that this is a lie which you guys have invented
very recently in a desperate attempt to wriggle out of the
evidence of your fraud?
A. I can only reiterate that negotiations were being conducted.”
1309. I formed the clear impression that both Ms Mironova and Mrs Yatvetsky were so vague
because neither had direct knowledge of any concrete negotiations or even preliminary
negotiations. I do not reject their evidence entirely: it is plausible, and seems to me to
be likely, that at least some approach would have been made to North Shipbuilding
Company, which owned the site adjacent to Western Terminal and for whom the site is
likely to have had some synergistic value. But both the vagueness of the oral evidence
and the lack of documentary support (in circumstances where the Bank might be
expected to be careful to keep a record) leads me to conclude that any approaches to
third party purchasers were at most preliminary, designed to test the waters, and never
pursued with any sustained effort directed towards a private sale or encouraging a bid.
1310. That is of course consistent with the Counterclaimants’ case that the Bank and/or
Renord-Invest never intended any sale outside their own associated entities, and
resorted to auction sale to ensure that there would be no challenge to the intra-group
sales.

Were steps taken to deter potential buyers of the assets?
1311. It could also be consistent with the Counterclaimants’ suggestion that far from seeking
sales by private treaty, the Claimants’ true objective in contacting persons with a
potential interest was to encourage them to step back and allow the auction sales to
proceed free of competition, on the understanding that they could acquire the ‘cleansed’
asset(s) from the successful auction bidder at a subsequent stage.
1312. If the Claimants’ objectives were as suggested by the Counterclaimants, the Bank
and/or Renord-Invest needed not to attract third party interest, but to depress it. A vital
component of such a scheme as is alleged would be control of the auction process and,
in particular, the bidding constituency. Active participation by independent third parties
with proper information would ruin any such scheme, since proper competition between
independent and genuine bidders would destroy any prospect of a reduced price.
1313. The crux of the Counterclaimants’ case is that this was the means by which the
Claimants’ objectives (in particular to ensure that all the assets “ended up in the hands
of Renord-Invest, or other companies connected with Renord and/or the Bank” for their
own or some indirect benefit to them) was achieved; and that this is proof of the falsity
of the auction and sale processes in each and every case.
1314. A, possibly the, crucial question, therefore, is how the auction process was so confined
to associated companies, who was responsible for that, and whether the means of doing
so were lawful.
1315. The Counterclaimants suggest that third party interest was dampened and/or deterred
in three ways: (i) by subjecting the assets to encumbrances so as artificially to reduce
their value; (ii) by splitting assets into unattractive parcels for sale, whilst ensuring the
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Bank St Petersburg v Arkhangelsky
ability and power to re-unify them for further onward sale to the intended ultimate
purchasers; and (iii) by avoiding any serious efforts to market the assets.
Artificial encumbrances
1316. An obvious technique for artificially reducing the value of an asset in the perception of
third parties and to reduce any interest in it is to subject it to an encumbrance or ‘flaw’,
such as a lease on severely uncommercial terms.
1317. The Counterclaimants focused on the Gunard Lease as the most striking example of
such a contrivance; but (as also mentioned above) a similar lease arrangement was also
proposed to be made with SKIF (also in respect of the Western Terminal).
1318. I have summarised the terms of the Gunard Lease in paragraphs [579] to [581] and their
obviously uncommercial effect in paragraphs [1050] to [1066] above. In previously
considering the Gunard Lease, I concluded that two principal objectives were to afford
the Claimants control over Western Terminal assets even if the repo arrangements were
struck down, and to insulate those assets from the effective reach of other creditors: see
especially paragraphs [1065] above. In paragraph [1066] above I left for consideration
until this section of this judgment whether a further objective and effect was to reduce
the utility and attractiveness of the Western Terminal assets to anyone outside the
Renord Group so as to dampen or even destroy any third-party interest at the auctions
for their sale (which of course the Claimants deny).
1319. Some further support for the submission that at least part of the rationale was a
reversible (and to that extent artificial) reduction in the value of the pledged asset to
such an extent that “no one except Renord would ever bid” may be offered by a report
to the BKK (entitled “Information Memorandum”) dated 20 November 2009 (signed
by, amongst others, Ms Yashkina and Ms Mironova). This, at its foot in a note which
is handwritten, expressly draws attention to the need to take into account “the
risks…that are associated with reducing the auction sale price due to the encumbrance
in the form of long-term lease”. The Counterclaimants submitted that this handwritten
note does not simply recognise an associated risk: it betrays or confirms an intention to
introduce it and benefit from it.
1320. In my view, the note expresses the undeniable and somewhat jejune reality that an
encumbrance on an asset, especially one with such uncommercial terms, depresses the
attractiveness and value of that asset, and demonstrates that the Claimants were aware
of that and were prepared to accept it. But I do not consider that it is therefore to be
inferred that this was their primary or even substantive objective.
1321. The fact is that in the end neither the Gunard Lease nor any similar arrangement was in
fact deployed as part of the marketing of the pledged assets. Nor is there any evidence
that it was known to the market so as to depress third-party demand or interest. The
arrangements do not seem to have been deployed or even hinted at in any marketing
exercise; and by the time of the auction (much later, in September 2012) it was (as Mr
Birt put it in his oral reply) “long lost in time”.
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Bank St Petersburg v Arkhangelsky
1322. Further, even if the evidence was stronger, the fact would remain that in the event, the
Gunard Lease had no impact on the auction sale process: it is difficult to infer an
intention to deter third party interest when there is no evidence that it was ever deployed
or resulted in deterrence. Of course, I cannot exclude the possibility that it was put in
place and held in abeyance in case it was needed to depress demand and reduce the
market value of the assets, and simply never was so: but I do not think the evidence or
inference is sufficient to warrant such a finding.
1323. Another way of testing this is to pose the question whether the fact of the Gunard Lease
explains the lack of third party bidders at the 2012 auction and thereby affected the
auction price: and there is no evidence that it did. In my view this chronology offers the
key to assessing the intention that lay behind the Gunard Lease arrangements.
1324. I have concluded that when the Gunard Lease was put in place its object was protection
of the assets of Western Terminal, rather than their extraction for the benefit of the Bank
and its associates, and that Ms Mironova’s evidence to that effect, and to that extent, is
correct. According to her (as appears from my summary of her evidence above), and
though it is now confusingly denied by the Claimants, the purpose was indeed to subject
the Western Terminal assets to an encumbrance calculated to prevent Dr Arkhangelsky
re-establishing control if he should succeed in the Russian courts in setting aside the
repo arrangements, and to impede and deter third party creditors from looking to
Western Terminal assets for enforcement in competition with the Bank and/or RenordInvest.

1325. The lack of any evidence of its deployment to dampen any third-party interest in the
(almost) three years which followed before the auction sale in 2012 seems to me to
preclude a finding that it was or became its purpose to deter third party bidders at such
auction.
1326. I see no reason for any different conclusion as regards the other proposed lease to SKIF.
The purpose of both, as it seems to me, is more likely than not to retain control over the
relevant property in the event of losing the levers of control provided by the repo
arrangements.
Sales of assets in unattractive parcels, lowering demand and auction values
1327. The Counterclaimants contend that a second method deployed by the Claimants and/or
Renord-Invest of depressing third party interest in the assets at auction was to divide
the assets to be sold into packages for sale which were designed to undermine their
usability or utility, thereby depress or remove demand for them, and compromise their
immediately realisable value.
1328. Thus, for example, the Counterclaimants cite the complex manoeuvres which they
contend were only or primarily adopted to ensure the separate realisation of different
components of Western Terminal with the objective of securing the ultimate vesting of
the whole in the hands of a Renord-Invest company for use in the course of its oil
business (in the event, Kontur). This complex sequence of steps is described in
paragraph [632] et seq above.
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1329. The Counterclaimants contend that this sequence of steps was designed and predetermined
to minimise the attractiveness and value of the Western Terminal assets at
the auction sales and then, after re-unifying the assets, to maximise their value on
onward sale. This was done by ensuring that:
(1) Renord-Invest remained in control of all assets, and therefore of their synergistic
value (because it could exercise its control to bring together assets for onward sale);
but
(2) By separating the pledged assets from the unpledged ones, the value on sale was
reduced: any bona fide purchaser would be concerned about the risk of being held
to ransom by the owner of the unpledged assets;
(3) Any risk that Renord-Invest would face any genuine competitor bidders at the
‘public auction’ would be reduced.
1330. The Counterclaimants relied also on the Onega Terminal asset sales as demonstrating
the same tactic, and as, in addition, illustrating and confirming that the Bank and/or
Renord-Invest identified from the commencement the ultimate purchasers, never
intended to open up the sale process to an independent third party, and always intended
to deliver up to pre-determined ultimate acquirers synergistically packaged assets after
fragmented but cleansing auction sales.
1331. In that regard, and to illustrate both the policy of fragmented sales and the objective of
onward transactions of reunited assets, the Counterclaimants rely especially on the
Stage Plan and inferences to which they contend it gives rise. They contend that the
Stage Plan (which was followed) provided a complex series of transactions (described
in some detail in paragraph [627] et seq above) which provided for the intermediate
realisation of fractured interests, which would be of little or no interest to third parties
and would yield comparatively little for application in reduction of indebtedness, but
with a settled intent subsequently to reunify those interests for an ultimate sale of the
unified holding comprising all the OMG land at Onega Terminal to ROK No. 1
Prichaly, realising the synergy value which had been held back by the Bank.
1332. Thus, according to the Counterclaimants, the steps provided for and put into effect in
accordance with the ‘Stage Plan’ for the ultimate sale of the Onega Terminal assets
were contrived to reduce the amounts realised for payment down of indebtedness whilst
maximising the benefit for the Bank and/or Renord-Invest. Sales of fractured interests
dampened (and may have destroyed) third party interest, minimising in turn recoveries
applicable in diminution of the loans; then unifying and retaining the assets within the
group reserved to them the true value of the assets for their own benefit.
1333. I elaborate this by reference to the Western Terminal assets and then the Onega
Terminal assets in turn.
1334. As to the way the Western Terminal assets were dealt with:
(1) The separate auction sales to Nefte-Oil (on 23 December and 26 December 2011)
of the non-pledged and pledged assets which were, respectively, adjacent to and
within Western Terminal, realised only a nominal sum for the former and a low sum
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for the latter; and that provides a basis for suggesting that the division of assets for
the purposes of sale lowered the saleability and value of both.
(2) That appears to be confirmed by the fact that, when Nefte-Oil transferred the united
assets to Vektor-Invest (still subject to the pledges in favour of the Bank), the
consideration (RUB 2.3 million), even though alleged by the Counterclaimants still
to be substantially deficient, exceeded by some margin the aggregate consideration
earlier paid by Nefte-Oil for the divided interests.
(3) That appears to be further confirmed by Ms Mironova’s oral evidence that a
principal rationale of the sales (as well as to remove the unpledged assets from the
clutches of Morskoy Bank) was to bring together, to enhance their value, the
pledged and unpledged assets.
1335. Against that, however:
(1) It is not clear that the Bank had either any obligation to sell the unpledged assets at
Western Terminal together with the pledged assets; and it may not have been able
to do so until the two were unified in the hands of Nefte-Oil, given (a) Mrs
Arkhangelskaya’s one per cent shareholding and her objections (a point prayed in
aid by Ms Mironova), and (b) Morskoy Bank’s claims.
(2) When the assets were unified, there is no evidence of any more interest from third
parties emerging than had emerged previously: and there is no evidence to
contradict the oral evidence on behalf of the Claimants that various and substantial
efforts had been made to attract interest at a high level, even though undocumented.
(3) The commencement of enforcement proceedings and their compromise by courtapproved
settlement as the means of realising the property was consistent with
standard practice (as Professor Guriev agreed), and was required in order to ensure
ultimate sale on clear of adverse claims if (as was the case) Dr Arkhangelsky was
determined to oppose realisation and otherwise make trouble in any way he could.
(4) The settlement agreement valuation of RUB 670 million was not vastly at variance
with the value put on the Western Terminal report from GVA Sawyer dated 12 April
2012, which valued the Western Terminal assets at RUB 709.8 million (and which
the Counterclaimants did not question), and a July 2012 report from ADK which
valued the assets at RUB 837.4 million: and the reduction might be justified as a
means of attracting interest in a very difficult market.
(5) In any event, the practice of the Russian court, apparently, is to set the starting value
for auction purposes at 80% of market value as assessed by an independent valuer.
The fact is that the Russian court, on the basis of an apparently independent
valuation, did place its imprimatur on the settlement agreement and the approved
price: and the evidence is not such as to warrant dismissing that fact.
(6) The intermediate transfer from Nefte-Oil to Vektor-Invest may look contrived; but
the rationale given for it (the tax planning considerations to which I referred above,
and Nefte-Oil’s wish to focus on its own investment projects, and not to be party to
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enforcement proceedings) are not so implausible that they can, on the evidence, be
rejected.
(7) Although in a form giving rise to some suspicion, I am not persuaded that either the
subsequent arrangements between Vektor-Invest and the Bank, or the sale on
thereafter at auction to Kontur, necessarily connote or give rise to the inference of
an attempt to acquire the assets on the cheap and/or a conspiracy in any of the
variations pleaded.
(8) To elaborate a little (since the suspicion is understandable) I accept that, especially
in the context of the dearth (already noted earlier) of any documentary evidence to
show efforts to find a private buyer, the Claimants’ attempt to present as armslength
the proceedings brought against Vektor-Invest on 1 August 2012 “to enforce
its pledge” and the settlement agreement they subsequently concluded less than
three weeks later, on 20 August 2012 (see paragraph [633(9)] to [(12)] above) was
unconvincing; and the time given under the settlement agreement to Vektor-Invest
to pay (seven days) was so short as to lend support, in my view, to the notion that
the arrangement was contrived in order to “generate a fictitious auction with a stamp
of approval of judicial proceedings, whereas in fact the proceedings are collusive,
the Bank and Renord working together” (as Mr Stroilov put it to Ms Mironova).
However, I do not consider it necessarily wrong of the Bank to seek to engineer sale
at an auction at a price approved by the court, so long as the starting price is not
itself artificially reduced: and I do not think the evidence demonstrates that it was.
I accept Mrs Yatvetsky’s answers in the following exchange when cross-examined
by Mr Stroilov:
“Q. So the real purpose of this agreement was simply to reduce
the starting price at the auction, was it not?
A. No, that is not correct. The true purpose was to judicially
establish by the courts the market value of these assets.
Q. So what you mean is that, rather than simply agreeing the
terms, Renord and the Bank wanted the sale to take place at a
public auction so that it would be more difficult to challenge it
for any third party; is that a fair summary of what you meant to
do?
A. Well, public auction definitely eliminates all types of risk for
the purchaser.”
In light of the ‘war’ I do not think these steps, albeit self-interested, connote
conspiracy.
(9) The fact that the assets ended up, in effect, with the Bank or Renord-Invest, and
were then passed on to Baltic Fuel, is not necessarily of itself objectionable either,
if (as is the case) there is no evidence to demonstrate an improper explanation why
no third-party bidders ever emerged, nor any demonstration of impropriety in the
sale price of RUB670 million approved by the court or the auction process.
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(10) 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.
1336. Turning to the separate sales of assets at Onega Terminal, there are features of the
packaging of the assets, the sequencing of their sale, and the resort to public auction,
similar to those in the context of Western Terminal, which prima facie encourage
suspicion and seem supportive of the Counterclaimants’ case.
1337. In particular:
(1) The Claimants accept that the Stage Plan “set out the steps by which ROK No. 1
Prichaly would purchase the Scan land from Solo, and then acquire the shares in
Mercury which owned the LPK Scan land.” The fact of such a plan invites the
question why such complexity was necessary, and to what end.
(2) Had the Claimants really wanted to maximise the amounts realised on enforcement
to be applied in reduction of the loans, it seems strange that they did not make
greater efforts to arrange a direct sale to ROK No. I Prichaly in a single transaction:
it is true that although the land at Onega Terminal was partly owned by Scan, and
partly by another OMG company, LPK Scandinavia, both parts of Onega Terminal,
as well as some (but not all) of the other real estate owned by Scan, were pledged
to the Bank, and both those companies were subject to its control.
(3) The complexity of the sales processes was not inherently likely to result in the
realisation of the highest amount for application in diminution of indebtedness. On
the contrary, Mrs Yatvetsky herself stated that “selling Onega 3 and 4 without
Onega 1 and 2 was an exercise in futility…there would be no willing buyer”; the
fracturing of interests in effect stripped out synergistic values until the final
transaction of sale to ROK No. I Prichaly (from which no amounts were raised
whereby to diminish indebtedness).
(4) A measure of proof of the adverse effect of fragmented sales is offered by the fact
that the aggregate amount realised from sale of the pledges and apparently applied
in diminution of the indebtedness was many factors less than the ultimate sale price
of the pledged assets as eventually unified and sold to ROK No. 1 Prichaly.
(5) The amount realized on auction sale of the Scan land at Onega Terminal (to Solo)
in October 2009 and applied in diminution of the indebtedness was about RUB 207
million (including VAT) and that for the LPK Scan land there (of some 3.4 Ha) sold
to Mercury in January 2011, only some RUB 99,000 (the land remaining subject to
the obligation to the Bank secured by the pledge); and the assignment in June 2011
of the benefit of the Bank’s loans secured by the pledge over the LPK land at Onega,
releasing the pledge, was for a sum of about RUB 27 million (representing a 97%
discount on the face value of the pledge); that total was far less than the amount
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paid by ROK No. 1 Prichaly for the combined holding (of Scan and LPK land) at
Onega Terminal of at least RUB 500 million (though, as I return to later, there is no
evidence of the exact price: it is undocumented and may have been more).
1338. However, as in the case of the Western Terminal assets, there are contrary factors also:
(1) There is no evidence to contradict the assertion that ROK No. 1 Prichaly only
developed concrete interest in acquiring the assets in early 2011, and even then its
interest was contingent upon the assets being available free of the Bank’s pledge
and free of adverse claims.
(2) In light of the ‘war’ with Dr Arkhangelsky, it is understandable that both the Bank
and the ultimate intended recipients felt it necessary to ensure that they needed the
blessing of the court and the cleansing effect and protection of open auction sales
of the constituent elements of the package of Onega Terminal assets.
(3) It was not suggested to me that the Bank was obliged in law to bring together assets
pledged under separate agreements in respect of separate assets owned by separate
companies, even if it had the economic ability to do so, and even if it was aware
that thereby it could achieve greater reduction of indebtedness for the benefit of the
Counterclaimants.
(4) The fact that neither the Bank nor Mercury has ever sought to enforce the loans in
question (see paragraph [1416] below) also tells against malign motive, even though
there is little or no evidence as to when any decision on their part, in effect to release
the balance of indebtedness, was made.
Inadequate marketing
1339. Another obvious technique for depressing demand is inadequate marketing and/or
advertisement. The Counterclaimants relied on the alleged adoption of this technique
as further evidence of a concerted plan to minimise values at the auction sales (reducing
the amounts to be applied in diminution of indebtedness) and maximise benefits on
onward sales.
1340. The evidence as to the advertisement of the auctions and the marketing of the assets put
up for bid in this case is slim. That is relied on by the Counterclaimants as signifying
that little was done.
1341. As indicated previously, the Claimants focused primarily on demonstrating compliance
with the basic minima prescribed by the relevant Russian law. For the
Counterclaimants, Mr Stroilov in his oral closing submissions did not contend that there
was any non-compliance with those standards. He submitted, however, that no more
was done than was “just enough to comply with formal provisions for auctions” and
that “there was no genuine marketing effort”.
1342. To counter this, the Claimants relied on:
(1) Mrs Yatvetsky’s oral evidence under cross-examination as follows:
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“Q. …what I’m trying to understand is that by the time
when…Renord decided to bid for those assets at a public auction,
by that time at least, the position was that Renord-Invest was
interested in the assets for its own purposes: would you agree
with that?
A. Well, we were always living in hope that a final buyer will
actually participate in various auctions for these assets, but we
undertook market analysis, we talked to potential purchasers,
and we realised that most likely nobody would participate in
these public auction and we had to use our companies and then
we analysed whether we would be able to use those assets in our
further business.”
(2) Ms Mironova’s oral evidence in cross-examination with specific reference to the
Western Terminal assets that:
“the Bank took all possible steps and measures in order to
advertise this facility as widely as possible on the media.
If there was an opportunity to sell this facility at the price of RUB
2 billion, RUB 3 billion or RUB 4 billion to somebody else…it
would have been in the direct interest of the Bank, because by
doing so would have repaid the loans…That would have been
wonderful. If only we had such a prospective buyer…”
(3) Ms Mironova’s oral evidence in cross-examination with specific reference to the
Scan Onega land auction, as follows:
“Q. So at any point between the alleged default in March 2009
and the purported auction in October 2009, are you aware of any
attempts by the Bank or Renord to sell these assets at the price
which they had been pledged? Say, at a higher price? Any
attempt to market them and obtain a higher value?
A. My Lord. Obviously some steps were taken, including by the
auctioneer, i.e. Russian Auction House. The announcement was
published over 30 days prior to the auction. This is also part of
the statute book. It is a legal requirement. The announcement
was announced in various media outlets, promotional
publications, in order to raise awareness of this sale…”
1343. The lack of any evidence of any marketing efforts beyond the minimum prescribed
speaks for itself. I do not accept Ms Mironova’s extravagant claim that those concerned
took all possible steps and measures in order to advertise this facility as widely as
possible on the media. There is no sign of that; there is no documentary evidence to
support it (though it might be expected to be readily available if it existed); and even
Mrs Yatvetsky made no such claim.
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1344. The overall impression I formed from the oral evidence, consistently with the lack of
documentary evidence to the contrary, was that no more was done to advertise and
market the relevant assets than the basic minimum required, and the Claimants did not
press for more.
1345. However, it must be remembered that, whereas the packaging of the assets for auction
was a matter for the vendors/pledgees and their associates, the advertisement of the
auctions was a matter for the auction organisers.
Summary as to the effect of whether what was done intentionally dampened third-party
interest
1346. All these factors — separate sales of assets flawed by fragmentation after inadequate
marketing and advertisement — are obviously likely to have had some effect; and the
fact is that, in the event, no third parties emerged sufficiently interested even to attend
at the various auctions.
1347. I also think it possible, and indeed more likely than not, that by this time the Claimants
and/or their associates had determined to retain the assets within their circle, with a
view (by 2012) to realising their potential by substantial investment of which they had
been starved: they were not interested so much in maximising recoveries in diminution
of the loans, but in maximising benefit for themselves and their associates, subject only
to formal compliance with the Russian law and practice. On that basis, the lack of third
party interest undoubtedly suited the Claimants and may well have been vital for the
accomplishment of what had become their preferred outcome.
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.
1349. 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.
Is there any evidence of complicity on the part of the auction organisers?
1350. Since under the relevant Russian law, as explained above, the auction process itself is
the responsibility of the bailiffs or other auction organisers, and not the pledgee, the
focus of any complaint regarding the conduct of the auctions themselves must be on
whether the way those bailiffs or auction organisers, being apparently independent third
parties, discharged their obligations was objectionable and unlawful (or not, as the case
may be).
1351. The Counterclaimants contend that although ‘purportedly’ under their control in
accordance with the Russian law, in truth and in effect the bailiffs and others abdicated
their responsibilities and surrendered control to the Claimants, facilitating a “collusive
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‘public’ auction…to cover up the fraudulent nature of the transaction”. The
Counterclaimants would have to show that they carried out, or stood back and enabled
others to carry out, the auctions unlawfully.
1352. The process of packaging and marketing the assets, which was the responsibility and
strategic decision of the Claimants, preceded the auctions: and I have discussed that
already. Similarly, I have already addressed the issue as to advertisement, which was
the responsibility of the relevant auction organisers, and concluded that neither
demonstrates any breach of the relevant law or rules.
1353. The questions now in issue seem to me to be (a) whether in the conduct of the auctions
the bailiffs or Russian Auction House did abdicate or allow themselves to be dictated
to by the Claimants, (b) whether any would-be bidders were improperly excluded from
any of the auctions, (c) whether the auction organisers were aware that the only bidders
were associated, and (d) whether the Counterclaimants have demonstrated that the
auctions (or one or more of them) were affected by ‘bid-rigging’ (in the sense of an
anti-competitive agreement between bidders), as they allege.
1354. As to (a) in paragraph [1353] above and whether any of the auction organisers
abandoned their responsibilities and/or allowed themselves to be dictated to by the
Claimants, the Counterclaimants’ case is necessarily based on suggested inference,
rather than direct evidence, whether oral or documentary. That this should be the only
means of proof is unsurprising: in the absence of any of the auction organisers, and
without disclosure of their documents, it is inevitable.
1355. The gist of the Counterclaimants’ case was that, in permitting the auctions to proceed
as they did without apparently raising any objections, the relevant auction organisers
can only have either abdicated or accepted dictation. The Counterclaimants relied on
inferences to be drawn, so they submitted, from the antecedents to the auction (for
example, in the case of the Western Terminal assets, the ‘sham’ and collusive
proceedings and settlement agreement) resulting in (amongst other consequences) low
initial and reserve prices in comparison to the stated pledge valuations; from the
absence of third parties and competitive bidding and the low values achieved; and
(perhaps most importantly) from the absence of any evidence that any of the auction
organisers ever queried or tested any of these oddities or curiosities.
1356. I do not consider that the fact (assuming for present purposes it to be so) that none of
the auction organisers queried the initial or reserve prices is, of itself at least, either
remarkable or suggestive of impropriety. The prices were established by or by reference
to apparently reputable valuers; and in the case, for example, of the Western Terminal
assets, which are the prime focus in this context, it has been seen above that they were
blessed by the Russian court. It was not for the auction organisers to gainsay the values
thus established: their role was to run an auction on the basis of the valuations, not
query whether they were correct.
1357. Furthermore, unless bidders were excluded (or effectively discouraged and dissuaded
from attendance at all) any issue as to the reserve value is something of a non-starter.
Plainly, if the assets were worth anywhere like the values suggested by Lair, then
someone would have made a bid above the winning bids. No one did; and (as Ms
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Mironova put it) “if there are no willing buyers, they just do not turn up at the auction
and they do not buy the stuff.”
1358. As to (b) in paragraph [1353] above and the formal validity of the auction, it is a notable
omission from the evidence assembled by the Claimants, with all the considerable
resources available to them, that there is no documentation recording whether any other
bidder than Nefte-Oil attended the auction of Western Terminal assets on 26 December
2011.
1359. Mrs Yatvetsky, for once, was less than clear and definite in her recollection. When
pressed to accept that the only bidder was Nefte-Oil she did seem to acknowledge the
possibility that her memory might be failing her, and could not quite remember; but she
dismissed the possibility that there was only one participant as:
“rather unlikely…because Renord had to offer at least two
bidders for the auction to be ruled valid.”
1360. When Mr Stroilov raised the lack of evidence in his oral closing, observing that no other
bidder had ever been named, and the formal written Protocols ordinarily supplied (and
supplied in the case of every other auction of relevance) to record participants were not
in evidence, I asked for the matter to be specifically addressed in reply: but it was not.
All this has concerned me.
1361. Nevertheless, the fact is that the bailiffs gave their certificate as to the result of the
auction on the basis that it had been properly constituted. I do not consider there to be
any sufficient basis for disregarding that evidence.
1362. Moreover, looking at the matter more generally, it does seem to me very unlikely that
Renord-Invest would have neglected to rope in one of its group companies in this case,
given the ease of that and its care to do so in all the others.
1363. Except for the above, and subject to whether there were arrangements with ROK No. 1
Prichaly which kept it on the side-lines away from the competition (see below), there
does not appear to be any evidence to contradict the assertion of fact on the part of the
Claimants that all the auctions were open to any bidder. The assumption must be that
any person interested could have participated and made a bid, and the fact that, save for
Renord-Invest companies, none chose to do so signifies only that there was no one else
interested and not that they were improperly barred.
1364. More difficult, theoretically at least, is whether the auction organisers were aware of
the fact that all the bidders and the Bank were associated (through Renord-Invest) and
probably acting in unison, and if so, whether they should have required the attendance
of at least one unassociated bidder as a condition of proceeding with an auction at which
otherwise it was at least likely that the bidding would not be competitive, and the
process a charade or collusive – what I have referred to as a rehearsed chorus (see
paragraph [1287] above).
1365. Dr Arkhangelsky sought to focus particularly on the Russian Auction House, which
was responsible for the auctions in October 2009 concerning the Scan land at Onega
Terminal and Sestroretsk. He maintained in particular that the Russian Auction House
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was run and part-owned by Mr Andrei Stepanenko, “an official in Mrs Matvienko’s
administration”, and asserted that “he was under the influence of Matvienko and
Savelyev for sure”. It is correct that Mr Stepanenko was a member of Mrs Matvienko’s
administration at the time. There is at least a possibility that Mr Savelyev was rather
gilding the lily in his evidence to me that:
“…I think that this would have been impossible. Mrs Matvienko
never deals with the commercial projects, she is a serious
politician, someone who never fiddles with commercial matters,
she simply is not interested in that…”
But even allowing for that, and taking into account signs of her involvement in other
contexts, Dr Arkhangelsky’s assumption of such a connection and influence over the
Russian Auction House through Mr Stepanenko is a wholly inadequate foundation for
such a serious claim.
1366. The attitude of the auction organisers (judicial and non-judicial), especially after
auction followed auction at which there was barely a quorum and no participation at all
by third-parties, is arresting. I confess to have wondered at their apparent willingness
to pursue, time and again, the same, apparently unsuccessful path. But once again,
unanswered questions and surprising indifference is not proof of impropriety if there
are any benign explanations which are not implausible.
1367. It may be that the auction organisers were comforted in the minimalist approach they
seem to have adopted by a perception that the Claimants and/or Renord-Invest were not
pressing, and had no wish, for anything more to be done. It may even be that the
impression was gained, in an already apathetic market, that the Bank and/or RenordInvest
wished to discourage any such interest, and that this in effect snuffed out any,
already weak, third-party interest. However, I do not think that there is any evidence
that the auction organisers were themselves prevented or deterred by the Claimants or
Renord-Invest from further effort as regards presentation and marketing: and
accordingly, I do not consider there to be any sufficient basis for inferring from the way
the assets were packaged, presented and marketed that the auction organisers’
marketing processes were designedly deficient in terms of the Russian law
requirements.
Is there evidence to support the claim that the starting prices were grossly deficient?
1368. However, the Counterclaimants contend in addition that the Claimants also contrived
and conspired with the auction organisers to establish valuations which appeared to
have court approval, but which were in fact established in collusive proceedings
between associated companies, and in truth represented very substantial undervaluations
which the courts were (in effect) misled into accepting.
1369. The Counterclaimants relied, for example, on the tortuous process whereby a reserve
price was established for the Western Terminal assets and then approved or franked by
the court. I have described the process in outline in paragraph [633] above, but it is
worth recalling and elaborating on certain facets of the steps there described.
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1370. To recap: (a) under the original pledge to the Bank of assets at Western Terminal it was
stipulated and agreed that the “initial selling price” on sale at public auction of the assets
on realisation by the Bank of its security would be RUB 1,209,784,295.86; (b) the Bank
did not enforce its security immediately; (c) first in a sequence of steps was that the
pledged assets were acquired at auction by Nefte-Oil (a Renord-Invest company) and
then on-sold by Nefte-Oil to Vektor-Invest (another Renord company), in each case
subject to the Bank’s continuing pledge; (d) after the Bank had sued Vektor-Invest to
enforce its continuing security a settlement agreement was reached between the Bank
and Vektor-Invest which the court blessed under the umbrella of the court proceedings;
(e) under the settlement agreement, Vektor-Invest agreed to pay the Bank the full price
of RUB 1,209,784,295.86 within 7 days, failing which the assets would be offered at
auction at a reserve price (free of the Bank’s pledge) of RUB 670 million, barely half
the previously agreed “initial selling price”; (f) Vektor-Invest failed to pay within the
stipulated period; (g) the pledged assets were sold at auction together with other assets
which the Bank had obtained at Western Terminal, to Kontur; and (h) arrangements
were made thereafter (but were never disclosed) for Baltic Fuel to acquire the assets
from Kontur.
1371. Thus, the overall effect was that (a) the requirement in the mortgage/pledge agreement
between the Bank and the original pledgor for the auction price for the pledged assets
on public sale free of the pledge to start at RUB 1,209,784, was side-stepped with the
blessing of the Russian court; (b) a new reserve price of barely half that (RUB 670
million) was also blessed by the Russian court; and (c) the entirety of the assets, pledged
and unpledged, were brought together and sold to an associated company.
1372. I think it is difficult to regard this careful sequence of steps as anything other than
contrived. The bringing of proceedings; the settlement agreement with its unrealistic
deadline for payment; the inevitability of Vektor-Invest failing to pay; and the preordained
result: none of it bears scrutiny as other than a preconceived plan, with the
object which it achieved of obtaining court blessing for auction sale, at a greatly reduced
valuation, but nevertheless clearing off adverse claims. Thus:
(1) There was little or no realistic prospect of Vektor-Invest being in funds: and the
inference must be, and I find, that it was not seriously envisaged or intended that it
would be. When I asked Ms Mironova whether she accepted that this was simply
part of a sequence of pre-ordained steps (designed not to result in payment but
default under the Settlement Agreement) she answered in a way which simply
confirmed that it was, saying as follows:
“My Lord, theoretically Vektor-Invest could have found a buyer
over that week and it could have paid the Bank 1.2 billion…
could have obtained assets – unencumbered asset