Avonwick Holdings Ltd v Webinvest Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Sales |
| Judgment Date | 06 November 2014 |
| Neutral Citation | [2014] EWHC 3661 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC 2014-000200 |
| Date | 06 November 2014 |
[2014] EWHC 3661 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Sales
Case No: HC 2014-000200
Steven Berry QC & Tom Smith QC (instructed by Dechert LLP) for the Claimant
Philip Marshall QC & Matthew Morrison (instructed by Fladgate LLP) for the Defendant
Hearing dates: 20/10/14–29/10/14
Introduction
This is the trial of a claim for repayment of monies said to be due under the terms of a loan agreement between the Claimant ("Avonwick", a company incorporated in the British Virgin Islands) and the First Defendant ("Webinvest", a company incorporated in St Vincent and the Grenadines) dated 23 April 2010 (executed by Webinvest on 26 April 2010 — "the Loan Agreement") and also under the terms of an associated Deed of Guarantee also dated 23 April 2010 ("the Guarantee") between the Second Defendant ("Mr Shlosberg"), who is the beneficial owner of Webinvest, and Avonwick. The claims relate to a loan of US$100 million made by Avonwick to Webinvest.
Webinvest used that money, combined with another US$100 million from its own resources, to make a loan of US$200 million to a company called Globoid Finance Establishment ("Globoid"), which is owned by Vitaliy Machitski ("Mr Machitski"), a Russian businessman. At the time, Mr Machitski was a close and longstanding friend of Mr Shlosberg.
The loan from Avonwick to Webinvest was negotiated between Mr Shlosberg and Mr Vitaliy Gayduk ("Mr Gayduk") and their respective staff. Mr Gayduk is a wealthy Ukrainian businessman, who, at the time, was also a close friend of Mr Shlosberg and his family and had been for some years. Avonwick is owned by Mrs Gayduk.
The loan of US$200 million from Webinvest to Globoid ("the Globoid loan") was due to be repaid in May 2012. The loan of US$100 million from Avonwick to Webinvest ("the Avonwick loan") was due to be repaid a few days later.
In the event, Globoid did not repay the Globoid loan. In turn, Webinvest failed to repay the Avonwick loan. Avonwick allowed Webinvest and Mr Shlosberg a period of grace before demanding repayment, principally by reason of a personal tragedy which affected Mr Shlosberg from 2011, when his step-son was found to be suffering from cancer. Mr Shlosberg's attention was focused on trying to find a cure, but without success. His step-son died on 13 June 2013. Eventually, in April 2014, Avonwick made formal demands for the repayment of the Avonwick loan by Webinvest and by Mr Shlosberg under the Guarantee.
The principal issue at the heart of this case is whether there was a collateral oral agreement made between Mr Shlosberg and Mr Gayduk to the effect that the Avonwick loan and interest thereon would only fall to be repaid by Webinvest, in amounts in relevant proportion to the sources of the loan to Globoid, if and when Globoid paid interest or repaid the principal of the Globoid loan to Webinvest. I refer to this alleged agreement as the 'pay if paid' agreement. The 'pay if paid' agreement was inconsistent with the terms of the Loan Agreement and the Guarantee, which on their face set out straightforward and unconditional obligations for payment of interest and full repayment of the principal sum of US$100 million at the maturity date of the Avonwick loan, on 17 May 2012.
Mr Shlosberg gave evidence that he made the oral 'pay if paid' agreement with Mr Gayduk at the time the Avonwick loan was being negotiated. The principal member of Mr Shlosberg's staff involved in that transaction and in the Globoid loan, Ms Julia Mutieva ("Ms Mutieva"), gave evidence to corroborate his version of events in various respects, although she was not herself a party to the discussions which took place between Mr Shlosberg and Mr Gayduk privately.
Mr Gayduk vehemently denied that he made an oral 'pay if paid' agreement with Mr Shlosberg. He said that the Loan Agreement and the Guarantee truly and properly reflected what had been discussed and negotiated with Mr Shlosberg. His evidence was corroborated in various ways by evidence given by members of his staff who dealt with the transaction: his principal assistants, Mr Volodymyr Kravets ("Mr Kravets") and Mr Oleksiy Petrov ("Mr Petrov"), and in-house counsel for the group of companies controlled by the Gayduk family, Mr Volodymyr Kupchyshyn ("Mr Kupchyshyn").
On the central issue whether an oral collateral 'pay if paid' agreement was made, this is a case which turns on the credibility of these sets of witnesses.
Having heard the witnesses in person and upon review of the documentation in the case, I was left in no doubt that Mr Gayduk, Mr Kravets, Mr Petrov and Mr Kupchyshyn were credible witnesses who were telling the truth. I was also left in no doubt that Mr Shlosberg and Ms Mutieva were thoroughly dishonest witnesses who gave deceitful evidence about a 'pay if paid' agreement which never existed, in an attempt to avoid judgment being given to enforce the Loan Agreement and the Guarantee.
The contemporaneous documentation provides overwhelming corroboration for the evidence of the witnesses for Avonwick. Similarly, the practical dealings between the parties, both in the way the Loan Agreement and Guarantee were negotiated and drawn up and in the way in which they were implemented by both Avonwick and Webinvest and Mr Shlosberg, provide overwhelming corroboration for the evidence of the witnesses for Avonwick. Moreover, the alleged 'pay if paid' agreement would have been wildly at odds with commercial common sense in the context of this case.
In fact, Mr Shlosberg only made the suggestion that there had been an oral 'pay if paid' agreement between Mr Shlosberg and Mr Gayduk at the eleventh hour, in a witness statement dated 29 May 2014. Ms Mutieva supported him in this suggestion in a witness statement dated 10 July 2014. Mr Shlosberg and Ms Mutieva did this in order to obtain an injunction to prevent Avonwick presenting a petition to wind up Webinvest on grounds of insolvency evidenced by its failure to repay the Avonwick loan and a petition to make Mr Shlosberg bankrupt on similar grounds. This injunction was sought after Avonwick had made formal demands by letters dated 3 April 2014 addressed to Webinvest and Mr Shlosberg for full repayment of the Avonwick loan plus outstanding interest (a total sum as at that date of US$180,891,155.88), followed by statutory demands dated 8 April 2014, and after an attempt by Mr Shlosberg and Webinvest to reschedule the Avonwick loan (on terms which acknowledged that it was payable) had failed.
Although Mr Marshall QC, for Mr Shlosberg and Webinvest, made submissions about a range of possible defences to Avonwick's claims, based on collateral contract, estoppel by convention, a claim for rectification of the Loan Agreement and Guarantee and mistake, I find that in substance they all turn on the outcome of the case on the issue of whether there ever was a 'pay if paid' agreement. Accordingly, they fall to be rejected along with the Defendants' case about that. I also find that they fail for other reasons as well.
The witnesses
Mr Gayduk, Mr Kravets, Mr Petrov and Mr Kupchyshyn all gave evidence in person for Avonwick. As already stated, I found them all to be truthful witnesses. They gave their evidence in a straightforward way and it was entirely credible.
Two points deserve mention here in relation to their evidence. First, in his submissions, Mr Marshall sought to make much of the fact that the Loan Agreement, which was drawn up by Allen & Overy ("A&O"), did not include an entire agreement clause. He sought to suggest that this indicated that it was intended to allow scope for operation of the alleged collateral 'pay if paid' agreement he said had been made by Mr Shlosberg and Mr Gayduk. On the evidence, however, this point was unsustainable.
Mr Kupchyshyn was responsible for instructing A&O in relation to the preparation of the Loan Agreement and the Guarantee. Avonwick waived privilege in relation to the instructions given. Mr Kupchyshyn had been given instructions by Mr Petrov and Mr Kravets that he should instruct an English law firm to draft the Loan Agreement, contrary to their usual practice of relying on Mr Kupchyshyn to draft agreements of this kind, because they wanted the Loan Agreement to be "bullet proof" (meaning, clearly capable of enforcement according to its terms). None of them knew anything about any supposed oral collateral agreement between Mr Gayduk and Mr Shlosberg. On the issue of the absence of an entire agreement clause in the Loan Agreement, Mr Kupchyshyn's unchallenged evidence, which I accept, was that he was relying on A&O to suggest the standard clauses to be included in the Loan Agreement and Guarantee, and it did not occur to him to add an entire agreement clause to their drafts; they were working under significant time pressure to draw up the Loan Agreement and Guarantee (commencing with instructions from Mr Petrov and Mr Kravets on 20 April 2010, culminating in final agreed form of the documents on 23 April 2010) and he was "confident that this was simply an oversight"; and "At no point was the possibility of including such a clause discussed during the drafting process, either internally or with A&O". Therefore, the absence of an entire agreement clause did not reflect any instruction originating from Mr Gayduk reflecting the making of some form of oral collateral agreement between him and Mr Shlosberg.
Secondly, the evidence of Mr Petrov was that he did not know in detail the purpose of the Avonwick loan which he was tasked by Mr Gayduk with sorting out. Mr Marshall sought to exploit this feature of the evidence to suggest that Mr Gayduk and...
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