Ludsin Overseas Ltd v (1) ECO3 Capital Ltd (2) Alexander Shadrin and Others
|England & Wales
|Ms Vivien Rose,AS
|19 July 2012
| EWHC 1980 (Ch)
|Case No: HC10C00284
|19 July 2012
 EWHC 1980 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Ms Vivien Rose
(sitting as a Deputy Judge of the Chancery Division)
Case No: HC10C00284
Mark Cunningham QC and Gregory Banner (instructed by Wallace LLP) for the Claimant
Malcolm Bishop QC and Sarah O'Kane (instructed directly) for the First and Second Defendants
Mark Warwick (instructed by Jeffrey Green Russell) for the Third, Fourth and Fifth Defendants
Hearing dates: 19, 20, 21, 22, 25, 26, 27, 28, 29 June 2012
I. THE BACKGROUND
In August 2005 Mr Pavel Lisitsin invested £2 million via the Claimant company ("Ludsin") in an investment vehicle set up to purchase a plot of land near Reading. The intention was to increase the value of the land by obtaining additional planning permissions from the local council and then to sell the land on to developers. Mr Lisitsin thought that this was a low risk, high return investment which would enable him to get back his money with a handsome profit within about 6 months. In fact, his money was tied up in the scheme for several years and in the end his shares in the investment vehicle became worthless. Mr Lisitsin now brings these claims against the Defendants, all of whom were involved in some way in the promotion or operation of the project. His primary claim against all of them is that they fraudulently misrepresented to him certain aspects of the project. There are subsidiary claims for a breach of fiduciary duty and breach of contract pursued against the First and Second Defendants only.
(a) Ludsin's introduction to the Sandford Farm investment opportunity
Mr Lisitsin was born and educated in Russia and came to live in London in 1994. He became a British citizen in 2001. His business background was in oil trading but he had retired in 2001, having acquired sufficient assets to enable him and his family to live without him having to work. At a certain point in 2004 or 2005, however, he realised that a life of retirement did not suit him and he was ready to relaunch himself into the world of business. He set up Ludsin in April 2005 as his vehicle company, ready to participate in a business venture if one came along. Ludsin was operated by Mr Lisitsin via a fiduciary company in Switzerland called Comatrans. Mr Lisitsin's main contact at Comatrans was Mr Bernard Enry.
Mr Lisitsin was introduced to the proposed property investment by the First Defendant (Dr Shadrin). Dr Shadrin was the director of the Second Defendant (Eco3) which he has described as an independent venture capital investment firm focusing on investments in the energy sector. He and Eco3 are authorised by the Financial Services Authority to provide investment advice but their authorisation does not extend to holding client money.
Mr Lisitsin and Dr Shadrin met in around 2003 when they were both extensively involved in the governance of the Russian Orthodox Church known as the Cathedral of the Dormition of the Most Holy Mother of God and Holy Royal Martyrs in Chiswick ("the Church"). Prior to this investment opportunity, Mr Lisitsin and Dr Shadrin had not been involved in business ventures together. Both were experienced business men but neither had had dealings in property development. Both men gave their evidence in reasonably fluent English although naturally the discussions which took place between them in the summer of 2005 and subsequently were conducted in Russian.
The land which was to be the subject of this investment was a site, known as Sandford Farm, comprising about 114 acres (46 hectares) situated to the east of the Woodley interchange of the A329M ('the Site'). The Site lies within the jurisdiction of Wokingham District Council for planning purposes. The planning permission granted to the Site as at June 2005 when events giving rise to this claim started was consent for 200,000 square foot of buildings in use class C2 (institutional, training and education), a hotel and leisure centre. The Site was owned by Hicks Persimmon Limited ('Hicks Persimmon').
The Site at that time had various problems associated with it. Most relevant to this case is that a family called the Coffs held a ransom strip and there were various other restrictions on the title. The Site had originally been used as a gravel pit and when the excavation of the gravel was finished, it had been used as a landfill site. It therefore suffered from some contamination. Hicks Persimmon had made an unsuccessful planning application and had then lost their appeal against that refusal.
The scheme to buy the Site from Hicks Persimmon, improve the planning permission of part of the Site and then sell it on to developers was being put together in June and July 2005 by the third, fourth and fifth defendants whom I shall refer to respectively as WLI, Mr Maggs and Mr Balfour. Mr Maggs has been a director of WLI since its incorporation in March 2003. As well as being a director, Mr Maggs owned 50 per cent of the shares in WLI. The other 50 per cent was owned by the former Cabinet Minister, David Mellor. To all intents and purposes in this litigation WLI has been treated as one of the vehicles through which Mr Maggs does business.
Mr Balfour was not a director or a shareholder of WLI at the start of these events though he was appointed to be a director in April 2006. In August 2005 Mr Balfour worked for Fleming Family and Partners, the well known investment bank, as International Director. He met Dr Shadrin in 2004 and he worked intensively on behalf of Flemings with Dr Shadrin and Eco3 on a large and complex venture capital project concerning licences to exploit oil fields in Siberia and involving a company called Continental Petroleum Limited.
Mr Maggs and Mr Balfour had not worked together before this deal. In around 2005, David Mellor and Mr Maggs approached Mr Balfour with a view to raising capital to invest in the Sandford Farm project. Mr Mellor was a long-standing, family friend of Mr Balfour and introduced Mr Maggs and Mr Balfour to each other.
Mr Balfour then introduced Dr Shadrin to Mr Maggs and WLI for the purpose of raising money for the Sandford Farm project. Dr Shadrin attended a meeting on 18 July 2005 at the offices of the Mayfair solicitors Forsters LLP. Dr Shadrin described the "pitch" that Mr Maggs made to him about the investment opportunity. He said in evidence that he was told that the Site was on the outskirts of Reading, in a very nice location but that no one could develop it "because of the restrictions that existed and charges and the conflicts and the disputes between the various parties involved". He was told that other potential developers had considered the opportunity but had given up. He said that:
"the approach, and the pitch to me which was made by Mr Maggs, was that he can resolve these matters, he can resolve the kind of disputes with the Coff family. He can resolve the matters with restrictions and charges and that will inevitably immediately increase the value of the Site and will unlock the opportunity to developers."
Dr Shadrin said in evidence, and I fully accept, that he thought that Mr Maggs and Mr Balfour were people of the highest integrity. Mr Balfour was older than him and the range of their connections, knowledge and experience was, in his view, incomparable. Dr Shadrin was also impressed by the fact that the solicitors to the deal were Forsters, a highly respectable London firm. Forsters had advised WLI on property matters for a number of years and Tony Patterson, a partner in the property development department at Forsters had worked with Mr Maggs on very many transactions on behalf of Mr Maggs and WLI. Another partner at Forsters, Craig Eadie, worked in their Company/Commercial department and had also worked with WLI and Mr Maggs in the past. During the course of the transaction, Forsters acted both for WLI and for Eco3.
Dr Shadrin discussed the project with Mr Lisitsin on two occasions when the two men were together at the Church. Dr Shadrin accepted Mr Lisitsin's evidence that their joint commitment to the Church community meant that there was a stronger bond of trust and confidence between them than might otherwise be the case between two men who have not done business together before. On the first occasion Dr Shadrin only gave a brief outline of the project. On the second occasion, which Mr Lisitsin recalls was on 12 July 2005 after the Church's celebration of the Feast of St Peter and St Paul, Dr Shadrin told Mr Lisitsin that the deal was being promoted by WLI—a company that Dr Shadrin said he knew and respected. Mr Lisitsin's evidence was that Dr Shadrin told him that the increase in value of his investment was likely to be at least equivalent to 100 per cent per annum. Dr Shadrin also told him that some very important English people were associated with or involved in the deal. Mr Lisitsin recognised that Dr Shadrin was impressed by these important people and that he mentioned them because he wanted to impress Mr Lisitsin. Mr Lisitsin understood that the deal was being put together by what he referred to as "the best of the English business environment."
Mr Lisitsin said that what attracted him to the deal was that it was a short term arrangement with low risk and high reward. In his experience, that kind of deal was not unusual in the oil trade which he was used to and so it did not seem unlikely that what he was told would indeed come to pass.
(b) The agreement between Ludsin and Eco3 and the transfer of £2 million
Further discussions took place between Mr Lisitsin and Dr Shadrin when the two men were...
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