Ramilos Trading Ltd v Valentin Mikhaylovich Buyanovsky
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Flaux |
| Judgment Date | 09 December 2016 |
| Neutral Citation | [2016] EWHC 3175 (Comm) |
| Docket Number | Case No: CL-2016-000217 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 09 December 2016 |
[2016] EWHC 3175 (Comm)
The Honourable Mr Justice Flaux
Case No: CL-2016-000217
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building
7 Rolls Building
Fetter Lane
London EC4A 1NL
Mr Tim Akkouh (instructed by Hogan Lovells International LLP) for the Claimant
Mr Jeff Chapman QC & Mr Richard Power (instructed by Mishcon De Reya LLP) for the Defendant
Hearing dates: 27 th and 28 th September 2016
Approved Judgment
Introduction and background
The claimant applies by a Claim Form issued on 12 April 2016 for a Norwich Pharmacal and/or Bankers Trust order against the defendant. The schedule to the draft order sets out over six pages no fewer than 39 questions (many of which contain sub-questions) to which the claimant seeks answers. A copy of that schedule is in the appendix to this judgment. One set of 7 questions to do with alleged non-payment of dividends is no longer pursued, having been dropped shortly before the hearing. Nevertheless, and although Mr Tim Akkouh on behalf of the claimant was inclined to accept, in relation to the remaining questions, that only a much narrower set of questions would be appropriate for this form of relief, that cannot disguise that the schedule to the draft order amounts to a request for wide ranging pre-action disclosure and evidence which, on any view, goes way beyond the norm for Norwich Pharmacal and/or Bankers Trust cases. That point is highlighted by the two general questions at the end of the schedule, questions 38 and 39, which are of truly breath-taking width for a Norwich Pharmacal application.
The claimant is a BVI company that holds 50% of the shares in a Cypriot company called APG Polyplastic Group Ltd ("APG"). The remaining 50% of APG's shares are held by a company originally incorporated in St Vincent and the Grenadines, and which has since moved its domicile to Cyprus, called Strongfield Marketing Limited ("Strongfield"). APG holds the shares in a Russian company called Polyplastic Group LLC, which operates a plastics business in (amongst other jurisdictions) Russia, the Ukraine, Kazakhstan and Belarus. It carries on this business both itself and through a number of subsidiaries. Those companies, including APG are referred to hereafter as the "Polyplastic Group". The defendant is a British citizen resident in the United Kingdom. He is one of five managing partners of Strongfield and holds a 30% shareholding in Strongfield. He is Chairman of the board of Polyplastic Group LLC and Chief Financial Officer of the Polyplastic Group.
The ultimate beneficial owners of the claimant were originally Messrs Rappoport and Smirnov. Since 17 March 2016, the claimant has been owned by A1 Group. The claimant's skeleton argument asserts that this is a Russian investment company which is part of the Alfa Group Consortium, one of Russia's largest privately owned investment groups. However, as the defendant's skeleton argument points out, the evidence does not appear to disclose a Russian company with the name A1 Group, but a Cypriot company called A1 Group Limited. Precisely who are the individuals who are now the ultimate beneficial owners is not clear.
The claimant became a 50% shareholder of APG pursuant to a share sale agreement dated 7 April 2005 (referred to hereafter as "the 2005 shareholders agreement"), under which the affairs of the Polyplastic Group were to be managed by Strongfield and its managing partners. The claimant is a silent investor whose two nominee directors on the Polyplastic Group LLC board were contractually obligated to vote in the same way as Strongfield's nominees. That agreement provides for any dispute to be submitted to arbitration before the London Court of International Arbitration ("LCIA") according to the laws of the United Kingdom.
It is important to note at the outset of this judgment that the claimant's case, as set out in the evidence of its solicitor, Mr Daniel Armstrong of Hogan Lovells International LLP (on the basis of instructions from "the Ramilos Witnesses", who are various individuals who had acted as advisers and lawyers to the claimant and Messrs Rovnov and Alenin, who were the claimant's nominee directors from April 2012 and August 2012 respectively, and, in the case of Mr Alenin, a 50% shareholder of the claimant prior to the acquisition by A1), is that the 2005 shareholders agreement was terminated and superseded by a later shareholders agreement entered into on 31 January 2012 (which provides for Cypriot arbitration pursuant to Cypriot law). Mr Armstrong states:
"Although the 2012 Agreement does not expressly state that it terminated the 2005 Agreement between the parties, the Ramilos Witnesses have confirmed that it was understood and agreed that the 2012 Agreement would have this effect. Accordingly, since 31 January 2012, Ramilos and Strongfield's relationship as shareholders in APG and partners in the Polyplastic Group has been governed by the 2012 Agreement as well as the Articles of Association of PG LLC".
Although this position is disputed by the defendant, who does not accept that the 2005 shareholders agreement has been completely superseded by the 2012 shareholders agreement (which is governed by Cypriot law), it seems to me that, given this categorical statement of position by the claimant, it is not open to the claimant to contend that it has an arguable case in support of a potential claim against Strongfield in London arbitration. I will return to this important issue later in the judgment.
The Polyplastic Group was founded in 1991 and is the largest plastic processing company in the relevant post-Soviet jurisdictions. It produces two broad product ranges: (i) polyethylene pipes and accessories (for use in transporting gas, water and sewerage, as well as in other industrial applications), and (ii) composite plastic materials (used in the rail, automotive and electrical products and electronics industries). In the financial year 2012 the Group's turnover was about €668 million.
There is another group of companies operating in the plastics industry, the Polymerteplo Group, 100% owned by Strongfield and operating primarily in Russia, with subsidiaries in the United Kingdom, Belarus and the Ukraine. Its business is principally the production of plastic pipes for use in district heating systems. The defendant is also the Chief Financial Officer of the Polymerteplo Group. The underlying disputes between the claimant and Strongfield concern in large measure the inter-relationship between the two Groups and associated subsidiaries.
The basis for the claimant's application is that there are real grounds for suspecting wrongdoing by Strongfield and its managing partners on four grounds, which can be summarised as follows:
(1) Alleged improper shifting of revenue and costs between the Polyplastic Group and the Polymerteplo Group, to the detriment of the former ("the Costs Shifting Ground").
(2) The fact that the Polyplastic Group has failed to pay dividends for any year since 2010 notwithstanding that, so the claimant contends: (i) its board resolved to pay dividends for the 2011 accounting year, (ii) there has been a substantial improvement in the group's trading performance over this period, and (iii) the Polymerteplo Group—which has one-seventh of the revenues of the Polyplastic Group—has paid out over 12 times the level of dividends as have been paid by the Polyplastic Group over the same period (the "Dividends Ground").
(3) The payment by the Polyplastic Group of hundreds of millions of dollars to intermediary companies, Eurotrubplast Holding Company Limited ("ETPHL") incorporated in St Vincent and the Grenadines and Stavrochem Vegyi Kereskedelmi Kft ("Stavrochem") and Violett Polymer Kereskedelmi Kft ("Violett Polymer") incorporated in Hungary, and seemingly controlled by Strongfield, for the purposes of purchasing raw materials. Despite repeated requests, Strongfield has not provided any accounting information about the activities of these companies (the "Transfer Pricing Ground").
(4) The Polyplastic Group's receipt of loans on allegedly uncommercial terms from what the claimant contends is a connected party called Dameka Finance Ltd (the "Loans Ground").
Before considering the detail of the claimant's claim to relief, it is important to consider the relevant legal framework.
The legal framework
The conditions for relief
The three conditions to be satisfied for the court to exercise its power to grant Norwich Pharmacal relief were set out by Lightman J in Mitsui v Nexen Petroleum [2005] EWHC 625 (Ch); [2005] 3 All ER 511 at [21] (in a passage approved in the notes to Civil Procedure 2016 at 31.18.4 and, albeit without attribution, in Hollander: Documentary Evidence 12 th edition at [4–01]):
"The three conditions to be satisfied for the court to exercise the power to order Norwich Pharmacal relief are:
i) a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;
ii) there must be the need for an order to enable action to be brought against the ultimate wrongdoer; and
iii) the person against whom the order is sought must: (a) be mixed up in so as to have facilitated the wrongdoing; and (b) be able or likely to be able to provide the information necessary to enable the ultimate wrongdoer to be sued."
The first condition: good arguable case
What needs to be satisfied in relation to the first condition was usefully encapsulated by Popplewell J in the recent decision of Orb A.R.L. v Fiddler [2016]...
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