Kirill Ace Stein v Patokh Chodiev and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Burton |
| Judgment Date | 16 April 2014 |
| Neutral Citation | [2014] EWHC 1201 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2012 FOLIO 357 |
| Date | 16 April 2014 |
[2014] EWHC 1201 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Burton
Case No: 2012 FOLIO 357
Daniel Oudkerk QC and Robert Weekes (instructed by Eversheds LLP) for the Claimant
Vernon Flynn QC and Peter Webster (instructed by KWM SJ Berwin LLP) for the Defendants
Hearing dates: 25, 26, 27 February and 3, 4, 5, 6, 10, 11, 12 and 13 March 2014
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 has been the hearing of the claim by Kirill Ace Stein ("the Claimant") against originally six, now four, Defendants, Mr Patokh Chodiev ("the First Defendant"), Mr Alexander Machkevitch ("the Second Defendant"), Mr Alijan Ibragimov ("the Third Defendant") and Ms Mounissa Chodiev, the daughter of the First Defendant, ("the Fourth Defendant"). The First, Second and Third Defendants, colloquially called "the Trio", have held business interests together for over 20 years, and together run various successful businesses, primarily based in Kazakhstan, operating in mining, and in the processing and marketing of the products of those mines. Together they founded a business which became ENRC Plc, a natural resources company which was listed on the London Stock Exchange on 12 December 2007, but which has very recently been re-privatised. The Claimant is a US qualified lawyer, banker and corporate financier, who claims against the Trio and the Fourth Defendant sums due pursuant to an oral agreement allegedly concluded in January or early February 2006 ("the January Agreement"). Apart from substantial sums admittedly due and paid to him by various business entities of the Defendants between 2006 and 2011, a sum of US$4 million was paid by one of the Trio's companies, CIM Global Investment N.V. (SA) ("CIM Global") to a consultancy company which employs the Claimant, Aurdeley Enterprises Limited ("Aurdeley") in April 2007; but the Claimant claims a substantial balance, which he asserts to be due pursuant to the January Agreement, relating to the balance of his entitlement to a success fee of 0.5% of monies raised by him for the Defendants and their Group (i) resulting from a syndicated pre-export finance facility, which produced between February and April 2007 US$1.48 billion, mostly used in order to fund the payment of dividends to the shareholders of the Group (substantially the Trio), who had themselves previously funded, through their companies, the construction, commenced in 2003, of a smelter in Kazakhstan ("the Trade Finance") and (ii) from an Initial Public Offering ("IPO") of the shares in ENRC Plc to obtain the listing to which I have referred, which raised for the shareholders, in respect of approximately 20% of the shares, the sum of US$3.1 billion.
The case requires my resolution of a number of disputed issues of fact, but I shall first endeavour to set out the relevant history by reference to common ground between the parties, to contemporaneous documents and to third party evidence.
The history
In about Autumn 2004, the Claimant was introduced to the Fourth Defendant and her boyfriend Mr Radjabov by or in the company of a mutual friend, Mr Barinstein, a director at Deutsche Bank AG, who was the relationship banker of the Defendants' business. It seems that in the following months the Claimant and the Fourth Defendant got together socially on a regular basis, and the Fourth Defendant began to seek advice and help from the Claimant. Mr Barinstein says that he understood from both the Claimant and the Fourth Defendant that they had been engaged in a number of discussions regarding the possibility of the Claimant managing an IPO which the Defendants were considering. At any rate he recommended to the Fourth Defendant that the Claimant would be a good candidate to be engaged by them, and the Fourth Defendant arranged for the Claimant to meet her father, the First Defendant, at his home in St. Jean Cap Ferrat in France, a meeting which took place on 28 July 2005. The Claimant and the First and Fourth Defendants discussed the appointment of the Claimant as a consultant, on terms of remuneration on the basis of a retainer and a success fee. It was agreed that the Claimant would seek further information about the Defendants' business, and on 26 October 2005 the Claimant travelled to London from New York to meet with the Fourth Defendant, and Dr Sittard and Pieter Hammelink, senior figures in the ENRC organisation and to Kazakhstan, where on 30 October 2005 he had a further meeting with the First Defendant, who introduced him to the Group's Financial Comptroller in Astana. Meanwhile Deutsche Bank presented on 27 September 2005 in Geneva a strategic roadmap for ENRC, including a draft equity IPO timetable for discussion, and according to the First Defendant the Government of Kazakhstan in late 2005 gave the Trio its consent for an IPO.
There were further discussions in December 2005 and early January 2006 between the Claimant and the Fourth Defendant, when she invited him to put a written proposal for his engagement to them in writing. According to the Claimant, by then (but on the Defendants' case earlier) the Fourth Defendant had also mentioned to him the Defendants' desire to raise finance in respect of the construction of the smelter, which was nearing completion, but had to be completed and operational by the end of 2007. The Proposal, dated 16 January 2006, based on those many discussions, was submitted by the Claimant to the Fourth Defendant ("the January Term Sheet"), prior to a meeting which was arranged between him and the First and Fourth Defendants at the Peninsula Hotel in New York to discuss it. The Fourth Defendant agrees that she had received and considered it before the Peninsula meeting, and although the First Defendant had not himself read it, she had summarised and explained it to him so that he knew its contents. As the document is of some importance in this case, I set out in full both the covering letter and the Term Sheet which formed part of it:
" As we discussed on the telephone a few days ago, below I attach some thoughts on compensation structure. For ease of reference I have used the format of a Term Sheet where I have also set out those items which I believe have already been discussed and agreed.
The main concept I try to reflect is the differentiation between "regular transactions" (such as financings and small scale-M&A transactions) and "liquidity events".
I would define a liquidity event as the sale of equity to the public through an IPO or any other transaction which causes an effective change of control of the main company or its major subsidiaries/affiliates (whether through: (i) an outright sale of a controlling block of equity; (ii) the grant to a third party of certain corporate governance rights commensurate with effective control; and/or (iii) a transaction or a series of transactions whereby the current shareholders no longer own at least 50%+ 1 share). I would also include transactions whereby the potential for a change of control is present. For example, a sale of a minority stake combined with a grant of a call option to the buyer to subsequently increase its stake to a controlling one. In this last instance, I would envision that any compensation already paid for the sale of the minority stake would be adjusted in the event that the call option is exercised in the future. Such adjustment should occur even if the employer terminates the contract during the interim period.
My reasons for this differentiation are several. First, the successful completion of any liquidity event puts me at a significant risk of losing further employment or working for new and potentially unacceptable controlling shareholders. Second, I view the successful completion of a liquidity event as the primary objective of the shareholders and believe that my interest should parallel that of the shareholders in this regard. Third, a successful future liquidity event will require significant preparatory work and therefore any compensation upon completion should be more appropriately viewed as having been earned over the entire period of employment.
Accordingly, I have proposed the structure set forth below. In the interest of simplicity, I tried to be as brief as possible. Any definitive agreement would clearly contain significant more detail. As we both have only begun to set pen to paper, I suggest that we use the Term Sheet as an outline and add meat to the skeleton as we progress further.
Please review it, as you deem appropriate and revert to me with comments/questions you may have.
Last, but not least, I would like you to consider allowing me to sit on the board, as I believe that my participation in discussion of strategy will be crucial to efficient achievement of shareholders' objectives.
With best regards,
Kirill
Term Sheet
| Base Salary | USD $500,000 per annum |
| Guaranteed Minimum Bonus | USD $500,000 per annum to be paid in addition to the Base Salary. Such bonus to be offset against any earned bonus for the year at issue. |
| Earned Bonus | Regular transactions– (expressed as a percentage of the transaction value 1). (i) up to USD $500 mln. – 1% (ii) greater then USD $500 mln., but less than USD 1 bln = 0.75% (iii) greater then USD 1 bln. – 0.65% Liquidity Event– (expressed as a percentage of the transaction value). The greater of USD 10 mln or 0.5%. |
| Other Benefits | (i) Use of a corporate... |
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