Filatona Trading Ltd v Navigator Equities Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Simon,Lord Justice Males,Lord Justice Lewison |
| Judgment Date | 06 February 2020 |
| Neutral Citation | [2020] EWCA Civ 109 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A4/2019/0523 and 0530 |
| Date | 06 February 2020 |
[2020] EWCA Civ 109
Lord Justice Lewison
Lord Justice Simon
and
Lord Justice Males
Case No: A4/2019/0523 and 0530
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
TEARE J: [2018] EWHC 173 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL
Justin Fenwick QC, Lucy Colter and Nehali Shah (instructed by Reynolds Porter Chamberlain LLP) for the appellants in the first appeal
Graham Chapman QC (instructed by Byrne and Partners LLP) for the appellant in the second appeal
David Railton QC, James Weale and Fraser Campbell (instructed by Clifford Chance LLP) for the respondents on the first appeal and the first and second respondents on the second appeal.
Iain Pester (instructed by PCB Litigation LLP) for the third respondent on the second appeal
Hearing dates: 3 and 4 December 2019
Approved Judgment
Introduction
The main question raised on this appeal is, in what circumstances does the wording of a contract preclude the intervention and reliance on that contract by a disclosed and identified principal?
In a judgment dated 7 February 2019, Teare J (‘the Judge’) found that one of the respondents to these appeals, Mr Vladimir Chernukhin, was the disclosed and identified principal although he was not named as a party to the contract and that, as such, he was entitled to rely on its terms.
The Judge identified a disclosed principal by reference to article 2(1) in Bowstead and Reynolds on Agency (21st ed, 2018) at §1–039: as ‘a principal, whether identified or unidentified, whose interest in the transaction as principal is known to the third party at the time of the transaction in question’; and proceeded on the basis that the person claiming to be a disclosed principal had the burden (legal, if the claimant, and evidential if the defendant) of showing that, notwithstanding that he was not named as the party to the contract, he was in fact the principal of one of the named parties (Ms Lolita Danilina) and that the other party (Mr Oleg Deripaska) knew this, see judgment at [63]. However, as the Judge also recognised, the fact that a party was a disclosed principal of a named party and the other party to the contract knew this, did not entitle the disclosed principal to enforce the contract if its terms, expressly or impliedly, confined the contractual rights to the named parties, see judgment at [64]. Having considered this issue, the Judge concluded that neither the terms of the contract nor its surrounding circumstances showed that Mr Deripaska was only prepared to accept Ms Danilina as the counterparty; and that the terms of the contact did not ‘unequivocally and exhaustively’ define the parties to it, see judgment at [317].
In the light of the Judge's finding of fact that Mr Chernukhin was the principal party to the contract, that Ms Danilina was his nominee and that Mr Deripaska knew this, the argument on the appeal focussed on the second aspect of the Judge's finding: namely, whether the terms and surrounding circumstances of the contract, either expressly or by necessary implication, excluded Mr Chernukhin from exercising contractual rights (including the right to arbitrate).
The contract in question was a Shareholder Agreement (the ‘SHA’) dated 31 May 2005. Two sets of parties were named in the SHA: on the one hand, the appellants in the first appeal (Mr Deripaska and Filatona Trading Limited), and on the other, the appellant in the second appeal (Ms Danilina) and one of the respondents in each appeal (‘Navigator’). The SHA was expressed in the Russian language; but subject to the substantive law of England and Wales (clause 12.5) and arbitration at the London Court of International Arbitration in accordance with its rules (clause 12.1).
Although it will be necessary later in this judgment to consider some of the particular provisions of the SHA, the relevant terms are set out for convenience in an appendix to this judgment.
The Judge's findings that Mr Chernukhin was the disclosed but unnamed principal party and that Ms Danilina was his nominee cannot be challenged on this appeal in view of the limited basis on which permission to appeal was granted.
There was a minor dispute as to whether it was necessary to consider the terms of the SHA before considering the background or the other way around. However, since it is common ground that the SHA contains no reference to Mr Chernukhin, it will be sensible to start by considering why this was so. Ultimately, the order in which a court approaches such issues may not matter, providing it considers both aspects of construction. Lord Hodge (with whom the other members of the Supreme Court agreed) expressed an analogous point in Wood v. Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173 at [12]:
To my mind once one has read the language in dispute and the relevant parts of the contract that provide the context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.
The facts found by the Judge
Ms Danilina and Mr Chernukhin met in 1989 and began to live together in 1991. Both were financially sophisticated. Ms Danilina had been involved in a textile business; and in 1996 Mr Chernukhin had joined a Russian Financial institution, Vneshekonombank (‘VEB’), rising to the position of Vice-Chairman by 1999. In 2000, he was appointed Deputy Minister of Finance in the Russian Federation and, in 2002, Chairman of VEB. The Judge found (at [72]) that Mr Chernukhin had prospered financially following the collapse of the USSR; but that he would have had to have been discreet if he engaged in entrepreneurial activities while employed as a state official. By 2003, he was very wealthy and was regarded by Mr Deripaska as ‘an extremely useful person to know and do business with.’
Mr Deripaska accepted in evidence that Ms Danilina did not have sufficient money to make a substantial investment (see judgment at [80]); and that the source of the wealth on the other side of any transaction was Mr Chernukhin.
In 2001, Mr Chernukhin had learnt of the possibility of acquiring a controlling interest in a textile company, OJSC Trekhgornaya Manufaktura (‘TGM’) at a price in the region of US$10m, see judgment at [84]. The attraction of the acquisition was the development potential of its large site in central Moscow. Mr Chernukhin approached Mr Deripaska as a potential partner in the venture because he wanted a prominent businessman to be the public face of the project; and it was agreed between Mr Chernukhin and Mr Deripaska that each would contribute equally towards the purchase. The parties’ intention was to develop the site and move TGM's business outside Moscow, with Ms Danilina being involved in running it.
Shares in TGM were purchased over a period of time by companies owned by Mr Deripaska; and by July 2004, 75.4% of the shares had been acquired. In a later document, the Settlement Agreement Act, both parties to the SHA agreed that each of Party 1 and Party 2 had contributed approximately equal sums towards the acquisition of 75.4% of the shares in TGM. The contribution of Party 2 was made by Mr Chernukhin by an offshore payment.
The joint venture agreement to acquire the controlling interest in TGM was not recorded in any document at the time, see judgment at [96]; and although the interest began to be acquired in 2002, the parties to the joint venture did not record their agreement in a binding document until the SHA in May 2005. Mr Chernukhin's explanation for this, which the Judge accepted, was that he needed to be discreet in relation to an investment of this sort at a time when he was Deputy Minister of Finance and Chairman of VEB. It was in these circumstances that he relied on Mr Deripaska's ‘word of honour’ in relation to his investment in TGM. The Judge accepted that there was contact between Mr Deripaska and Mr Chernukhin between 2002 and 2004 in relation to their investment in TGM, see judgment at [110].
On 27 May 2004, Mr Chernukhin was summarily dismissed from his government post and as Chairman of VEB, and left Russia shortly afterwards, never to return.
At this point, although the legal title to the shares rested with Mr Deripaska's companies, ‘Party 2’ seems to have provided the new management; and from June to September 2004, various draft terms sheets were produced, followed by the exchange of various drafts of what was to become the SHA.
Mr Kargin (the third respondent in the second appeal) was involved in the negotiations leading up to the signing of SHA (in 2004–5), the incorporation of Navigator and events in relation to the Compass Trust, which held the shares in Navigator (in 2004). The trustee of the Compass Trust was Compass View Ltd. Ms Danilina claimed that she was intended to be the beneficiary of the Compass Trust, but if not, then Mr Kargin held the interest on trust for her. The Judge concluded, see judgment at [171], that Mr Chernukhin was ‘the true beneficiary’ of the Compass Trust.
The SHA described the agreement as:
Between:
Filatona Trading Limited, a company registered in accordance with the laws of the Republic of Cyprus … hereinafter referred to as ‘ Shareholder 1’, and also the Beneficial Owner of Shareholder 1, Oleg Vladimirovich Deripaska …...
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