Mr Rustem Magdeev v Mr Dmitry Tsvetkov
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Cockerill |
| Judgment Date | 14 April 2020 |
| Neutral Citation | [2020] EWHC 887 (Comm) |
| Date | 14 April 2020 |
| Docket Number | CL-2017-000737 |
| Court | Queen's Bench Division (Commercial Court) |
and
[2020] EWHC 887 (Comm)
Mrs Justice Cockerill DBE
CL-2017-000737
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION COMMERCIAL COURT
Royal Courts of Justice,
Rolls Building
Fetter Lane,
London, EC4A 1NL
Mr Stephen Robins and Mr Riz Mokal (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Claimant
Mr Steven Berry Q.C. and Ms Anna Dilnot (instructed by PCB Litigation LLP) for the Defendant/Part 20 Claimant
Mr Jonathan Adkin Q.C. and Mr Adil Mohamedbhai instructed by Ignition Law Services Limited) for the Part 20 Defendants
Hearing dates: 20 th, 21 st, 22 nd, 23 rd, 24 th, 27 th, 28 th, 29 th, 30 th January 2020 4 th, 5 th, 6 th February 2020
Draft Judgment sent to parties: 7 April 2020
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.
Introduction
Over the course of three weeks in January and early February I have heard evidence in what, on its face, looks like a simple matter. It is the story of the breakdown of trust between two very close friends. The question for me to decide is this: is the Defendant Dmitry Tsvetkov (“Mr Tsvetkov”) liable to repay the sum of US$10 million loaned to him by a former friend Rustem Magdeev (“Mr Magdeev”) to enable him to buy Graff diamonds to sell in concessions in Dubai and Cyprus; or has that sum already been repaid by means of a variety of different payments, none of which directly say they are repayments of the loan?
The question can be stated simply. The amounts in issue are, by this Court's standards, relatively modest. Yet the case is a less than straightforward matter. There are issues of UAE law and English law in relation to illegality. The accounts given by each of the principals involved many conflicts and contradictions. For reasons to which I shall come, the documents have not been the safe resource on which this Court so often relies. The List of Issues runs to nine pages. Closing submissions ran to over two hundred and forty pages and three days of argument.
In those circumstances it is plainly impossible for me to deal with every issue which has been raised by the parties. To do so would, in the words of Teare J in The Suez Fortune [2019] EWHC 2599 (Comm) at [26], result in a judgment of “intolerable length”. It would also run into serious danger of making it impossible to see the wood for the trees. Thus, while I have carefully considered all the points which were argued orally and in writing, this judgment aims to steer a path through the issues, bearing in mind the guidance given by Lord Phillips MR in English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605, [2002] 1 WLR 2409: “ the issues the resolution of which were vital to the judge's conclusion should be identified and the manner in which he resolved them explained”. The result is scarcely ever to set out all the arguments advanced for each side; but that does not mean that they were not carefully considered and of much assistance in reaching my conclusions.
The course which this judgment will follow is to outline such facts, derived from the documents, as appear to be reliable; noting in passing where each of the main issues in the case “drops in”, and where feasible resolving issues of fact which do not easily fit in elsewhere. I will then deal with the trial and the evidence, and my approach to that evidence, before turning to decide the key issues in the light of that.
In order to navigate the judgment a reader may be assisted by the following index (by paragraph number):
The Facts
Pre-2014
| Introduction | 1 |
| The Facts | 6 |
| Pre-2014 | 6 |
| 2014 | 12 |
| 2015 | 41 |
| 2016 | 65 |
| 2017 | 104 |
| 2018: The Dubai and English Proceedings | 133 |
| Payments – a summary | 142 |
| The Trial | 143 |
| The experts | 169 |
| The approach to the documents | 170 |
| The burden of proof | 174 |
| The First Oral Agreement | 180 |
| The US$110,000 payment | 197 |
| The Second Oral 2015 Agreement, the US$3.5 million payment | 205 |
| and the EM Employment Agreement | 205 |
| The US$3.5 million payment — introduction | 206 |
| The parallel story: Second Oral Agreement | 211 |
| The EM Employment Agreement | 221 |
| The Second Oral Agreement and the US$3.5 Million Payment — conclusions | 228 |
| The US$1.2 million | 233 |
| Trombachev Payment 1 | 247 |
| Trombachev Payment 2 | 251 |
| The accepted payments — conclusions | 257 |
| The disputed payments | 259 |
| The Resignation Letter Issue | 266 |
| Conclusion on the Claim | 279 |
| Illegality | 282 |
| The UAE law on the Employment Agreements | 282 |
| The relevant legal principles | 295 |
| The rival cases | 319 |
| Discussion | 326 |
| The Mitsubishi Variation | 340 |
| Severance | 352 |
| Restitution | 358 |
| The Pear-Shaped Diamond Counterclaim | 362 |
| The Conspiracy Counterclaim | 371 |
| The remaining issues on the Claim | 388 |
| Equix Dubai's Counterclaim | 389 |
Mr Magdeev is a Russian and Cypriot citizen. He is a businessman and investor and met Mr Tsvetkov in 2009 through Mr Rinat Khayrov, father of the Mr Tsvetkov's wife Elsina Khayrova (“Ms Khayrova”).
Mr Tsvetkov for his part is a Russian, Cypriot and British national, primarily residing in London. A friendly relationship developed between Mr Tsvetkov and Mr Magdeev. Mr Tsvetkov ran a “quasi-family office” for Mr Magdeev. They also did some business together in informal partnership. Both were indeed emphatic before me about the relationship of trust which subsisted between them. In Mr Magdeev's words, he trusted Mr Tsvetkov “boundlessly”. Mr Tsvetkov agreed that the pair became very close; he said that the relationship was based on mutual trust and that he regarded Mr Magdeev as something akin to an elder brother. It is ironic that this very trust may have had its own part to play in the disagreement – if Mr Magdeev and Mr Tsvetkov had initially trusted each other less, it seems likely that they would have spent more time ensuring that they were clear and unambiguous as to what terms were attached to their financial dealings.
Mr Tsvetkov also became close to a family of the name of Graff, the owners of a well-known luxury jewellery business Graff Diamonds Ltd (“Graff”). In December 2011 Francois Graff (the CEO of Graff) agreed that Mr Tsvetkov could purchase jewellery at a fixed discount (50% for jewellery and 37.5% for items containing GIA-certified white diamonds). Mr Magdeev was a client of Mr Tsvetkov in this regard, and so was a friend of his, a Mr Ilya Trombachev. Mr Trombachev indeed became one of the major conduits for the selling of the Graff jewellery.
Following this agreement Mr Tsvetkov sold the jewellery so obtained to his clients at a profit. This developed into what was referred to before me as “the Graff Business”.
In mid-2013 Mr Magdeev became involved as an investor in the Graff Business. On 7 June 2013 Bronzeway Holdings Limited (a company controlled by Mr Magdeev) and Hegir Capital Management Limited (a company controlled by Mr Tsvetkov) entered into an Investment Agreement No.1/GR2013 under which Bronzeway loaned $2 million to Hegir. This is known as the “Bronzeway/Hegir Agreement”. This loan forms no part of the dispute – it was repaid in July 2015.
In July 2013 Mr Tsvetkov, using the money loaned by Mr Magdeev, incorporated a company known as EK Diamonds DMCC in the UAE (“Equix Dubai” 1). The company's name was selected using the initials of Mr Tsvetkov's spouse Ms Khayrova.
In 2014 Equix Dubai formally began a business trading in jewellery manufactured by Graff.
On 5 March 2014 a Memorandum of Association of Equix Dubai was signed by Mr Oleksandr Dovgan (“Mr Dovgan”) as the sole shareholder. Mr Dovgan had met Mr Tsvetkov through a property transaction and had arranged for him to have an employment contract, via Mr Dovgan's company Dovgan Conveyancing Services, enabling him to have a Dubai visa. He took the role of initial shareholder in Equix Dubai at Mr Tsvetkov's request, to facilitate the speedy registration of the company. On 21 May 2014 Mr Dovgan transferred 100% of the shares of Equix Dubai to Ms Khayrova. She thus became the sole shareholder of Equix Dubai. At this time Equix Dubai had no premises.
The real story of the case commences in late September/early October 2014, against a background where Mr Tsvetkov was looking to expand the Graff business.
On 22 September 2014 Mr Magdeev entered into what claims to be an employment contract (the “RM Employment Agreement”). The status of this agreement is one of the issues between the parties.
The evidence was, in broad terms, that at around this time it was agreed that Mr Magdeev would lend Equix Dubai US$10 million for three years, and receive 15% interest on that loan. It was also agreed that the loan would not be structured in quite this way. The reasons why, and the importance of those reasons, are contentious.
But as a result, on 9 October 2014 an Investment Agreement was signed (“the October Agreement”) between Mr Magdeev, Equix Dubai and Mr Tsvetkov, by which Mr Magdeev agreed to loan US$10 million to Equix Dubai for three years (“the US$10 Million Loan”). That loan
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