Jeremy Mark Willmont and Michael Finch (as Joint Liquidators of Webinvest Ltd) and Another v Mikhail Shlosberg
| Jurisdiction | England & Wales |
| Judge | Mr Justice Arnold |
| Judgment Date | 09 October 2017 |
| Neutral Citation | [2017] EWHC 2446 (Ch) |
| Date | 09 October 2017 |
| Court | Chancery Division |
| Docket Number | Case Nos: HC-2014-001398, CR-2014-007636, BR-2014-002127 |
[2017] EWHC 2446 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN THE MATTER OF WEBINVEST LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF MIKHAIL SHLOSBERG (A BANKRUPT)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Arnold
Case Nos: HC-2014-001398, CR-2014-007636, BR-2014-002127
Antony Zacaroli QC and Riz Mokal (instructed by Dechert LLP) for the Trustees and (instructed by Eversheds Sutherland (International) LLP) for the Liquidators
Philip Marshall QC and James Mather (instructed by Enyo Law LLP) for the Respondent
Hearing date: 3 October 2017
Contents
Topic Paras
| Introduction | 1–2 |
| Factual background | 3–45 |
| The principal parties | 3 |
| The Avonwick Loan | 4–8 |
| The Globoid Arbitration | 9–10 |
| The Original Avonwick Proceedings | 11–18 |
| The Freezing Order | 19–20 |
| Bankruptcy of Mr Shlosberg and winding up of Webinvest | 21–23 |
| The Conspiracy Claim | 24–34 |
| Discharge from bankruptcy | 35 |
| The Privilege Application | 36–40 |
| The Possession Proceedings | 41–43 |
| The Edelweiss Claim | 44–45 |
| The starting point: common officer holders | 46–50 |
| Compulsion Material | 51–83 |
| Beneficial pursuit of the insolvency proceedings in which the material is obtained | 57–75 |
| Unearthing of dishonesty or other malpractice | 76–81 |
| A note of caution | 82–83 |
| Disclosure Material | 84–89 |
| Privileged Material | 90–96 |
Introduction
These are applications by Jeremy Mark Willmont and Michael Finch, the joint liquidators ("the Liquidators") of Webinvest Ltd ("Webinvest"), a company incorporated in St Vincent and the Grenadines ("SVG") and by Jeremy Mark Willmont and Emma Sayers, the joint trustees in bankruptcy ("the Trustees") of the Respondent ("Mr Shlosberg") for directions concerning the proper use of three categories of documents and information relating to Webinvest's and Mr Shlosberg's insolvency estates, namely (i) documents and information obtained under compulsion, (ii) disclosure documents and (iii) privileged documents. I shall refer to the Liquidators and the Trustees collectively as "the Applicants". Mr Shlosberg opposes the applications.
I circulated a draft of this judgment to the parties on 4 October 2017. Shortly afterwards the same day, I received a letter from Mr Shlosberg's solicitors purporting to correct an error in the analysis of Webinvest's financial position relied upon by counsel for Mr Shlosberg at the hearing. On 6 October 2017 I received a note dated 5 October 2017 from counsel for Mr Shlosberg submitting that the draft judgment showed that I had misunderstood his submissions with respect to the Compulsion Material (as defined below) in two respects and requesting reconsideration of those aspects of the matter both in the light of the clarification of those submissions and in the light of the corrected financial analysis. I also received a note in response from counsel for the Applicants. I have reconsidered the points in question and reached essentially the same conclusions, although my reasoning is slightly different.
Factual background
The principal parties
Mr Shlosberg is a Russian businessman who is domiciled in England. He was the beneficial owner of Webinvest, which the Applicants contend was used by Mr Shlosberg as the principal vehicle for his business dealings. Mr Shlosberg's family are among the beneficiaries of the Castle Family Foundation ("CFF"), a Liechtenstein private family foundation, which ultimately owns Castle Investment Fund Ltd ("Castle") a company incorporated in the British Virgin Islands ("BVI"). Avonwick Holdings Ltd ("Avonwick") is also a company incorporated in BVI. It is beneficially owned by Eleana Gayduk. Mrs Gayduk is the wife of Vitaliy Gayduk, a Ukrainian businessman.
The Avonwick Loan
In early 2010 Mr Shlosberg approached Mr Gayduk with an investment proposal relating to Vimetco NV ("Vimetco"), a Dutch company which operated aluminium plants. Vimetco was owned by Vi Holding NV ("Vi Holding"), which was owned or controlled by Vitaliy Machitski. Mr Machitski was, and Avonwick believes remains, a close friend of Mr Shlosberg. Mr Shlosberg informed Mr Gayduk that Mr Machitski was proposing to de-list shares in Vimetco in London and to re-list them in Hong Kong, where it was considered that the shares would be more highly valued. In order to achieve this, Mr Machitski needed to recover control of Vimetco from Vi Holding's banks by repaying Vi Holding's borrowings to secure release of the shares in Vimetco which had been charged as security.
According to Mr Shlosberg, US$200 million was required for this purpose. Mr Shlosberg was willing to lend US$100 million to Mr Machitski, but needed a further US$100 million. Mr Gayduk agreed to lend Mr Shlosberg US$100 million so that Mr Shlosberg could invest the whole US$200 million in the project.
Avonwick was selected to act as the lender in respect of the loan and Webinvest was selected to act as the borrower. A loan agreement was signed on 23 April 2010 and US$100 million advanced on 27 April 2010 ("the Avonwick Loan"). Mr Shlosberg personally guaranteed Webinvest's obligations under the Avonwick Loan pursuant to a deed of guarantee dated 23 April 2010 ("the Guarantee").
Webinvest used the proceeds of the Avonwick Loan, together with another US$100 million lent by Castle ("the Castle Loan"), to finance the Vimetco project proposed by Mr Machitski by making a loan of US$200 million ("the Globoid Loan") to Mr Machitski's company Globoid Finance Establishment ("Globoid"), which was incorporated in Liechtenstein.
Globoid and Webinvest default
The Globoid Loan was due to be repaid on 14 May 2012. The Avonwick Loan was due to be repaid a few days later on 17 May 2012. In the event, Globoid did not repay the Globoid Loan. In turn, Webinvest failed to repay the Avonwick Loan.
The Globoid Arbitration
On 15 May 2013 Webinvest commenced an arbitration against Globoid under the ICC rules for the recovery of the Globoid Loan, claiming more than US$300 million including interest ("the Globoid Arbitration").
The Globoid Arbitration was subsequently settled through a series of agreements, and in particular agreements dated 23 and 24 June 2014 ("the Settlement Agreements"). On 16 January 2015 Globoid was placed in liquidation.
The Original Avonwick Proceedings
On 9 April 2014 Avonwick served statutory demands on Webinvest and Mr Shlosberg for US$180,891,155.88 representing the principal of US$100 million plus accrued interest.
On 30 May 2014 Webinvest applied for an injunction to restrain presentation of a winding up petition and Mr Shlosberg applied to set aside the statutory demand served on him. The asserted basis of these applications was that there had been a collateral oral agreement between Mr Gayduk and Mr Shlosberg on behalf of Avonwick and Webinvest respectively to the effect that payments of principal and interest by Webinvest in respect of the Avonwick Loan would only fall due when Webinvest itself had received corresponding payments from Globoid in respect of the Globoid Loan (referred to as the "pay if paid" agreement).
Webinvest's application came before Peter Smith J on 14 and 15 July 2014. Peter Smith J ordered an expedited trial of Avonwick's claim for repayment of the outstanding sums due under the Avonwick Loan and Guarantee ("the Original Avonwick Proceedings").
Avonwick was represented in the Original Avonwick Proceedings by Dechert LLP. Webinvest and Mr Shlosberg were represented by Fladgate LLP until 16 December 2014.
Webinvest and Mr Shlosberg refused to disclose any documents relating to the Globoid Arbitration or the Settlement Agreements in the Original Avonwick Proceedings. Accordingly, Avonwick sought specific disclosure of those documents. On 10 October 2014 HHJ Walden-Smith ordered the disclosure of the arbitration and settlement documents. Webinvest and Mr Shlosberg applied for permission to appeal to the Court of Appeal, but that application was refused, following which Webinvest and Mr Shlosberg finally disclosed documents relating to the Globoid Arbitration. Some (but, as it subsequently transpired, not all) of the documents relating to the Settlement Agreements were provided to Avonwick at around 8pm on 17 October 2014, the Friday before the trial commenced the following Monday.
The trial of the Original Avonwick Proceedings was heard by Sales J, as he then was, from 20 to 29 October 2014. Judgment was handed down on 6 November 2014 ( [2014] EWHC 3661 (Ch)).
In his judgment Sales J found that the allegation of a collateral oral agreement was a dishonest defence advanced to stave off the enforcement by Avonwick of its rights under the Avonwick Loan Agreement and under the Guarantee. His assessment was that both the witnesses who had given evidence on behalf of Webinvest in support of such agreement, namely Mr Shlosberg and his associate Julia Mutieva, were dishonest witnesses.
By an order dated 6 November 2014 Sales J gave judgment for Avonwick against Webinvest and Mr Shlosberg in the amount of US$195,159,649.03 and interest at a daily rate of US$42,774.72. He also awarded Avonwick its costs of the action on the indemnity basis. There has been no appeal against that order.
The Freezing Order
On the same day as handing down judgment, Sales J granted Avonwick a worldwide freezing order against Webinvest, Mr Shlosberg and Castle ("the Freezing Order"), holding that there was a good arguable case that Castle was beneficially owned and controlled by Mr Shlosberg.
In addition, having reviewed...
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