Elena Baturina v Alexander Chistyakov
| Jurisdiction | England & Wales |
| Judge | The Honourable Mrs Justice Carr DBE,Mrs Justice Carr |
| Judgment Date | 10 May 2017 |
| Neutral Citation | [2017] EWHC 1049 (Comm) |
| Docket Number | Case No: CL-2013-000803 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 10 May 2017 |
[2017] EWHC 1049 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mrs Justice Carr DBE
Case No: CL-2013-000803
Case No: CL-2014-000331
Mr Andrew Green QC, Mr Adam BaradonandMr George Molyneaux (instructed by Paul Hastings (Europe) LLP) for the Claimant
Mr Stuart Isaacs QC, Mr Nicholas CherrymanandMs Elizabeth Houghton (of or instructed by King & Spalding LLP) for the Defendant
Hearing dates: 1 st, 2 nd, 3 rd, 6 th, 7 th, 8 th, 9 th, 10 th, 15 th and 16 th March 2017
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.
This judgment is divided into the following sections:
A. Introduction
| Section A | Introduction |
| Section B | The parties |
| Section C | Other witnesses of fact |
| Section D | Expert witnesses |
| Section E | Factual overview |
| Section F | The agreement in February 2008 |
| Section G | Ms Baturina's overarching case of dishonesty against Mr Chistyakov |
| Section H | The claim in deceit |
| Section I | The claim for breach of fiduciary duty |
| Section J | The claim for breach of contract |
| Section K | The alleged oral conversion and supplemental agreements |
| Section L | Causation and quantum |
| Section M | Conclusion |
This is a bitter commercial dispute between two wealthy Russian business entrepreneurs who engaged together in a venture relating to property development projects in Morocco ("the Projects"). The Claimant ("Ms Baturina") claims recovery by reference to some €74million which she caused to be paid into the control of the Defendant ("Mr Chistyakov"). She alleges that Mr Chistyakov misused the funds so paid over to him, making payments to various offshore companies, including €5million to a company incorporated in the British Virgin Islands ("BVI") and beneficially owned by him, namely Ridgegrove Investments Ltd ("Ridgegrove"). Ms Baturina alleges that she was deceived and has been cynically exploited by Mr Chistyakov and made the victim of a very substantial fraud. She brings her claim by reference to three causes of action: deceit, breach of contract and breach of fiduciary duty.
Mr Chistyakov denies the claims in their entirety, describing them as " opportunistic and wholly without merit". He has done nothing wrong and is under no liability to Ms Baturina. Even if he is liable, she has suffered no loss. The claim is factually and legally misconceived. Both Ms Baturina and Mr Chistyakov were co-investors in what was a highly speculative venture. Despite the efforts of all concerned, as a result of varied factors, including the severe and rapid global economic downturn, the impossibility of securing bank financing to underpin the costs of construction and the Moroccan government failing to take key steps in order for the Projects to move forward, the venture failed. Mr Chistyakov too has lost the money that he invested. He points to the ever-shifting nature of Ms Baturina's case. Serious allegations of fraud have been abandoned, as recently as February 2017. Ms Baturina and her lawyers are willing to make unfounded allegations of dishonesty only to withdraw them at the last minute. This is a misguided attempt to fix Mr Chistyakov with a liability which he does not owe for a loss which Ms Baturina has not suffered or which otherwise is irrecoverable.
There are two sets of proceedings. The main proceedings were issued in January 2013 (claim no 2013–000803) ("the main proceedings"). What have been described as "protective" proceedings were issued in February 2014 (claim no 2014–000331) ("the protective proceedings") at a time when the main proceedings were stayed on the ground of forum non conveniens. That stay was overturned on appeal ( [2014] EWCA Civ 1134), on the basis that the claim for loss and damage as then formulated was unsustainable and accordingly did not justify a stay in favour of the Russian courts. Ms Baturina then successfully sought permission to amend her claims so as to reformulate her alleged losses. Causation and quantum issues remain very live, however, not least because of Ms Baturina's complex personal financial arrangements.
B. The parties
Ms Baturina is a sophisticated and extremely wealthy business person, with investments in the hospitality, renewable energy, manufacturing, construction and real estate sectors. She is also engaged in a range of philanthropic projects, focussing on education, culture, design and the arts. She lived in Russia until 2010 when she came to live in London upon the forced resignation of her husband as Mayor of Moscow. She owns property here and abroad, including in Austria and Spain. She gave her evidence in Russian.
Ms Baturina started her own business in 1989, as time went on operating through various different legal entities. She is experienced amongst other things in property construction projects, particularly by reason of her involvement in Inteco CJSC ("Inteco"), a Russian closed joint stock company.
Ms Baturina's case is that she (directly or indirectly) owned and controlled Inteco until 7th December 2011. Between 2007 and 2010 her interest was held through Kontinental Fund, a closed-end unit investment fund established on 26th October 2006. Kontinental Fund was managed by CJSC Kontinental Managing Company, another Russian closed joint stock company. As of 31st December 2007 and 30th June 2008 all of the investment units in Kontinental Fund were held by Inteco itself as to 58.21% and Ms Baturina as to 41.79%. As a matter of Russian law, as set out in the expert evidence of Mr Alan Kartashkin ("Mr Kartashkin"), Ms Baturina retained ownership title to the transferred shares in Inteco, including all of the property and corporate rights attaching to such shares under Russian law. As a result of the transfer she became a settlor of fiduciary management over the Inteco shares, granting the managing company the power to exercise shareholder rights for her benefit. All of the economic risks and benefits associated with the ownership of the Inteco shares were retained by and remained with Ms Baturina (at least in proportion to her share in Kontinental Fund). Kontinental Fund was dissolved in June 2010. As set out further below, Ms Baturina asserts that on 7th December 2011 she sold all the shares and assets in Inteco (for approximately US$1billion).
Mr Chistyakov contended in closing that Ms Baturina had not proved that she owned Inteco at all material times as she alleges. No positive denial of ownership has ever been pleaded on behalf of Mr Chistyakov, though Ms Baturina was put to proof of ownership. Ms Baturina's evidence as to ownership was not challenged directly in cross-examination. She was in fact cross-examined on the basis that she did own Inteco. Nor was her solicitor, Ms Duncan, challenged on her evidence as to Ms Baturina's interest in Inteco (as set out in Ms Duncan's fifth witness statement). There is also at least one sale agreement dated 12th October 2011 which records Ms Baturina as being the 100% owner of the shares in Inteco. There is also a letter dated 8th October 2014 from the Registrar of Kontinental Fund, confirming that Kontinental Fund was owned in part by Inteco and in part by Ms Baturina from 31st December 2007 to 30th June 2008. Whilst I fully accept the defence submission that the documentation available is very sparse, and the precise lines of ownership are, as it was put, " opaque", a matter to which I will return in the context of quantum, I am satisfied in broad terms that Ms Baturina owned Inteco (directly or indirectly) until 7th December 2011 as she alleges.
Inteco's business developed into a number of different fields, ranging from software to plastics. It also had a very substantial and successful construction business, including construction and property development, from the mid 1990s onwards. It entered the construction market to a more significant extent in the early 2000s. Between 2001 and 2010 Inteco's work for the City of Moscow Government represented around 2% of the residential construction contracts awarded by the municipality. Ms Baturina also used Inteco as the vehicle through which to invest and conduct her various business activities, in addition to that business. She treated Inteco's interests in effect as her own; individuals employed by Inteco for all practical purposes worked for her benefit and would carry out such tasks as she told them to. She thought of them as "[her] employees".
Between 2007 and 2010 Inteco employed some 15,000 personnel directly and through subsidiary companies. Ms Baturina was President, and below her were three to four Vice Presidents. Heads of department and directors would report to them, with the exception of the Finance Director who reported directly to Ms Baturina. In the early 2000s a Mr Konstantin Edel ("Mr Edel") and a Mr Oleg Soloschansky ("Mr Soloschansky") joined Inteco to work on its construction and property development projects. Mr Soloschansky became the second and then first Vice-President in seniority, with responsibility for construction projects. Mr Edel also became a Vice-President, with responsibility for finance and strategy.
Mr Chistyakov is also a successful business person with a background in Russian real estate and energy companies, including the Federal Grid Company of Unified Energy System ("FGC"). He resides in Russia and is currently the Executive Chairman of Ruspetro. Outside Russia he owns a home in Marbella, Spain but no other property. He gave his evidence in English.
Mr Chistyakov studied Economics,...
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