New Media Holding Company Llc v Ivan Kuznetsov
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Simler DBE |
| Judgment Date | 26 February 2016 |
| Neutral Citation | [2016] EWHC 360 (QB) |
| Docket Number | Case No: HQ13X00015 |
| Court | Queen's Bench Division |
| Date | 26 February 2016 |
[2016] EWHC 360 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Simler DBE
Case No: HQ13X00015
Mr Andrew George QC (instructed by GSC Solicitors) for the Claimant
Mr Rupert D' Cruz and Ms Charlene Hawkins (instructed by Simmons & Simmons Solicitors) for the Defendant
Hearing dates: 4,5,6 & 9 November 2015 and 27 & 28 January 2016
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
This claim arises out of a venture involving investors in a group holding company incorporated for the purpose of their investment as SIA Energokom ("Energokom"), a Latvian registered company. The group comprised companies providing services in the atomic energy sector in Ukraine to government owned energy companies, and was originally wholly owned (before the investments described below) directly or indirectly by Mr Ivan Kuznetsov, the Defendant, a Russian businessman with interests in the energy sector in Russia and Ukraine, and who has specialised in developing businesses related to atomic energy. One of the investors in Energokom was Mr Vladimir Gusinski, an international businessman with interests in several industry sectors.
Mr Gusinski and Mr Kuznetsov signed a document on 27 January 2010 (the "Term Sheet") pursuant to which Mr Gusinski claims that he was granted by Mr Kuznetsov, a redemption right in relation to Energokom shares. In 2012 Mr Gusinski sought to exercise that right by a demand by letter dated 17 October 2012 (referred to below as "the Notice") that Mr Kuznetsov purchase the relevant shares, but Mr Kuznetsov failed to do so.
On 28 December 2012 Mr Gusinski assigned the relevant rights to the Claimant, New Media Holding Company LLC, a company he owns and controls. The Claimant pursues this claim in debt as assignee.
The issues that arise accordingly are whether the Term Sheet gave rise to a legally enforceable redemption right. If it did not, the claim fails. If it did, the next issue concerns whether the Notice constitutes a valid exercise of the redemption right granted by Mr Kuznetsov to Mr Gusinski so that the failure to comply with it can be enforced by an order for payment of the price of the shares together with interest. If the Notice was invalid and/or unenforceable, Mr Kuznetsov contends that so too must be the claim for payment under it.
The Defendant's case in summary is that the Term Sheet was not legally enforceable because (i) it was never intended to be legally binding, there being no intention to create legal relations; and/or (ii) it was not supported by any or proper consideration on the part of Mr Gusinski. In any event, even if it was, the Notice is invalid because (i) it failed to identify which shares Mr Kuznetsov was being required to purchase; (ii) it was being applied to shares not covered by it; and (iii) the Notice was seeking to bring about a transfer of shares whose validity could be challenged by the other shareholders (because their pre-emption rights in relation to those shares under Latvian law had not been complied with).
In addition to many lever arch files of documents, including the contemporaneous contractual and other documents setting out the parties' agreements, intentions and on occasion, aspirations, I heard evidence from Mr Gusinski on behalf of the Claimant, and from Mr Kuznetsov and Mr Kagalovsky (another investor) for the Defendant. English is not the first language of any of these gentlemen. They were all assisted by interpreters, though Mr Kuznetsov and Mr Kagalovsky were more reliant on interpreters than Mr Gusinski.
Expert evidence on Latvian law was adduced by both sides because although the Term Sheet is governed by English law, Energokom is a Latvian registered company and Latvian law affords statutory pre-emption rights to shareholders in Latvian companies. Ms Eva Berlaus produced a report dated 30 July 2015 with 13 attachments on behalf of Mr Gusinski; Mr Lauris Liepa produced a report dated 2 September 2015 with 12 attachments on behalf of Mr Kuznetsov; and their Joint Statement is dated 2 October 2015. Both experts are eminently well qualified to express the opinions they do and there is a substantial measure of agreement between them as reflected by their Joint Statement. At Mr Kuznetsov's sensible instigation, the parties agreed not to call the expert witnesses to provide oral evidence to the court on the basis that the relevant Latvian law and authorities are available (together with the expert reports) and enable this court to reach its own view on points of disagreement.
The experts agree that the absence of any reference to the pre-emption rights afforded to other shareholders by Article 189 of the Latvian Civil Code in the Term Sheet does not render the Term Sheet void or invalid, and does not itself amount to a breach of Article 189. Shareholders not afforded statutory pre-emption rights under Latvian law may have a number of potential remedies: the right to claim redemption from the original acquirer once the transfer had occurred; the right to claim damages from the seller for losses caused as a result of the failure to offer the opportunity of exercising pre-emption rights; and the right to challenge the validity of the share transfer agreement. The experts also agree that the demand letters sent by the Claimant's solicitors to Energokom and the other shareholders did not comply with the formal requirements set by Latvian law for a request to consider pre-emption rights. The experts disagree about other matters to which I shall return below.
At the conclusion of the evidence in November 2015 an application was made by Mr D'Cruz, counsel for Mr Kuznetsov, to adjourn the trial to enable Mr Kuznetsov to provide disclosure in relation to the funding he said he provided to Energokom (that matched the funding provided on Mr Gusinski's side) which was said to have been challenged for the first time on behalf of the Claimant in opening, so that no earlier opportunity had been available to obtain and disclose such documents. That contention was disputed by the Claimant and the application was resisted. I concluded that the question of funding was sufficiently important both to the question of the legal enforceability of an earlier document known as the Road Map with consequences for the enforceability of the Term Sheet, and to credibility more generally, that I acceded to it. I made an order dated 17 November 2015 for disclosure on the issue of the funding Mr Kuznetsov "claims to have provided or facilitated for the Energokom Group between 1 January 2008 and 31 December 2012", to include proportionately focussed categories of document specifically identified by it ("the Disclosure Order").
The trial resumed on 27 January 2016 and Mr Kuznetsov gave evidence pursuant to a third witness statement exhibiting the funding disclosure he had provided. The Claimant also gave some disclosure on the funding issue, but called no further evidence. I address this evidence and its significance for the issues in dispute below.
The witnesses
Mr Gusinski was born in Russia and currently has Israeli and Spanish nationality. He is an experienced businessman specialising in the media sector, having developed Russia's first private television network, a satellite communication network and various radio stations. He is also an experienced investor with business interests in the United States and Ukraine as well as other parts of the world.
Mr Kuznetsov is a Russian citizen. He is a physicist by training and as an academic physicist has participated in scientific research in the field of atomic energy. He first became commercially involved in the atomic energy industry in 1999 and from then on became involved as an investor in companies operating within the atomic energy industry in Ukraine. In 1999 a Latvian company wholly owned by Mr Kuznetsov, SIA AMTO ("AMTO"), purchased a controlling interest in an entity known as Eyum-10 based in Ukraine. He describes in his first witness statement how the core business of Eyum-10 expanded organically between 2001 and 2005 through the incorporation of new companies providing additional services to the atomic energy industry in Ukraine, ultimately forming part of the group of companies that became Energokom following incorporation on 15 October 2007. Mr Kuznetsov also describes how when he first invested in Eyum-10 in 1999 and at all times since then, he has had a business partner as a joint investor in the group of companies, Mikhail Timofejevs. In addition to his involvement in the energy sector, Mr Kuznetsov is also a shareholder and director of Bank Tavrichesky in St Petersburg and an experienced, sophisticated international businessman.
Mr Konstantin Kagalovsky gave evidence on behalf of the Defendant. He too is an international businessman. There is no dispute that he and Mr Gusinksi fell out in the Autumn of 2009 leading to substantial litigation between them. From about late November 2009, all contact and cooperation between the two men ceased. In a judgment dated 16 August 2012 a New York Court found that Mr Kagalovsy had unlawfully diluted Mr Gusinski's interests in the Ukrainian television station in which they had both invested. Judgment was awarded in favour of Mr Gusinski and the Claimant and a sum in the region of...
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