Recovery Partners GP Ltd Revoker LLP v Mr Irakli Rukhadze

JurisdictionEngland & Wales
JudgeMrs Justice Cockerill
Judgment Date01 November 2018
Neutral Citation[2018] EWHC 2918 (Comm)
CourtQueen's Bench Division (Commercial Court)
Docket NumberCase No: CL-2016-000553
Date01 November 2018

Neutral Citation Number: [2018] EWHC 2918 (Comm)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Before:

The Hon. Mrs Justice Cockerill

Case No: CL-2016-000553

Between:
Recovery Partners GP Limited Revoker LLP
Claimant
and
Mr Irakli Rukhadze
Mr Igor Alexeev
Mr Benjamin Marson
Hunnewell Partners (UK) LLP
Hunnewell Partners (BVI) Ltd
Park Street (GP) Ltd
Park Street (BR) Ltd
Park Street (GS) Ltd
Park Street (L) Ltd
Defendant

Ewan McQuater QC, Tom Weisselberg QC and Tom Cleaver (instructed by Brown Rudnick LLP) for the Claimant

Paul Girolami QC, Paul Casey and Watson Pringle (instructed by Signature Litigation LLP) for the Defendant

Hearing dates: 25, 26, 27, 28, 29 June 2, 3, 4, 5, 9, 10, 11, 12, 18, 19, July 2018

Approved Judgment

Mrs Justice Cockerill

Introduction

1

This case concerns events arising out of the unexpected death of Arkady Patarkatsishvili (“Badri”), a Georgian businessman of immense wealth, who had at one time been the business partner of Boris Berezovsky (“BB”). He died suddenly at his home in Surrey in February 2008, leaving no will. His family (“the Family”) comprised his wife Inna Gudavadze (“Mrs Gudavadze”, also referred to in some correspondence as “Inna”) her daughters Iya and Liana, their husbands and Mrs Gudavadze's brother Gregory.

2

Badri's death was highly problematic for the Family, since Badri was secretive about his assets and moreover disdained orthodox methods of holding those assets, preferring to place them in the hands of those with whom he had relationships of trust. Further the Family had had little or no involvement in his business interests during his life, though he pursued some charitable endeavours jointly with Mrs Gudavadze. The upshot was that on his death, his family believed that he had left behind a potentially hugely valuable estate consisting of business and property assets located in many different jurisdictions — but they had very little idea indeed what those assets were, where they were located and how they were held.

3

This dispute has its centre of gravity between two people who both did know Badri well and who became concerned in a project to locate the assets for the family of Badri – for a consideration. The first of these is Mr Eugene Jaffe, the founder and CEO of a company called Salford Capital Partners International (“SCPI”) who had known Badri well for a number of years and had worked with him on numerous projects, in particular a private equity fund (“VDP”) which was a vehicle for Badri's investments and which SCPI managed. Over time he had gained considerable knowledge of Badri's assets, and the subsidiaries of SCPI (based in Russia, Ukraine, Georgia and the Balkans) were in considerable measure occupied with managing some of Badri's other assets. He had also come to know Badri's family. His own London residence was in the same building where they maintained an apartment, once they relocated to London.

4

The second of these people is the First Defendant, Mr Irakli Rukhadze. He was a director of SCPI from 2004 until December 2009 and was from 2004 the head of its Georgia office. As such he had come to know and work closely with Badri and was one of the individuals trusted to be the nominal holder of assets for Badri. Mr Rukhadze knew Badri's family also before Badri's death, and came to know them very much better in the years which were to follow.

5

Initially the two worked together to assist the family and to put together an arrangement for the recovery of Badri's assets and to perform that recovery (“the Recovery Services”); the details of the arrangements are a key issue in the case. During the course of the discussions, the Claimant companies (“RP” and “Revoker”) were established by Mr Jaffe/SCPI with a view to their forming part of a structure for the agreement with the family. The Second Defendant (“Mr Alexeev”) and the Third Defendant (“Mr Marson”) joined to work on the project full-time in early 2009 and October 2009. Mr Marson, a lawyer, was employed by Revoker. Mr Alexeev's employment status is an issue, though he came to be a partner in Revoker. As necessary I will refer to Mr Rukhadze, Mr Alexeev and Mr Marson together as “the Individual Defendants”.

6

In the end however, Badri's family came to an arrangement with Mr Rukhadze and the Fourth to Ninth Defendants (“the Corporate Defendants”) only. That agreement was reached in 2012 between the Family and the Corporate Defendants in these proceedings, which are companies controlled by the Individual Defendants. Before that there was a major falling out between SCPI, the main individuals involved and the Family which resulted in Mr Rukhadze, Mr Alexeev and Mr Marson resigning in spring of 2011 and the Family disavowing any future connection with SCPI in May 2011.

7

The claims in these proceedings are in essence that one or more of the First to Third Defendants breached fiduciary duties owed to SCPI in that they diverted for themselves a business opportunity to conclude the contract for the Recovery Services with Badri's family. There are issues as to whether the Individual Defendants owed relevant fiduciary or other duties of loyalty to one or more of SCPI, RP and Revoker. It is common ground that some fiduciary duties were owed at some point, but there is a vibrant issue as to whether these duties persisted even for the whole of the period up to May 2011 and if so, to whom they were owed. There are also issues as to whether SCPI ever had a relevant business opportunity and whether it remained an opportunity of SCPI or was abandoned by SCPI either to a group of individuals (who styled themselves the “Salford Principals”) or generally such that there could be no breach of fiduciary duty. There is also an issue as to whether there was no diversion of any SCPI business opportunity in that the Individual Defendants resigned from their various contracts with SCPI and the Claimants as a result of being wrongfully excluded from the project such that their fiduciary obligations ceased. The claim against the Corporate Defendants is a parasitic one in knowing receipt.

8

This judgment, which is necessarily somewhat lengthy, is arranged as follows:

Introduction: paragraph 1

The trial and the witnesses: paragraph 9

The statements of truth: paragraph 34

Relevant Legal Principles and Issues: paragraph 43

Fiduciary Duties: paragraph 43

LLPs: paragraph 92

Facts and Factual Issues: paragraph 99

The background: paragraph 99

Badri's death and its immediate consequences: paragraph 123

The emergence of the Salford Principals in the documents: paragraph 158

The Term Sheet and the Steps papers: paragraph 182

Incorporation of RP and Revoker: paragraph 203

The Contractual negotiations: paragraph 225

The beginning of the end: May-August 2010: paragraph 241

The second stage: September 2010-February 2011: paragraph 258

The end: March 2011 onwards: paragraph 273

After the breakup: paragraph 299

The Issues: paragraph 306

The Duties: paragraph 306

The Application of the principles: paragraph 348

Conclusion on breach of duty: paragraph 424

The other causes of action: paragraph 427

Assignment: paragraph 454

Limitation: paragraph 465

Relief: paragraph 467

The Trial and the witnesses

9

This case has been heard over four court weeks. During that time, I have heard extensive factual evidence from some of the main participants in the events which were in issue.

10

I wish I could say that this extensive witness evidence was extremely useful. However, despite the skilled and diligent cross-examination of Mr Girolami QC, Mr McQuater QC and Mr Weisselberg QC, I cannot say that it was.

11

Much of this is to do with the fact that the majority of the witnesses called were very intelligent and motivated and had plainly worked extensively to prepare for their evidence; firstly, with the legal teams in the preparation of their lengthy witness statements and secondly with the documents in preparation for their cross-examination.

12

However what sounds like a virtue is when pursued to this extent actually a vice; the result of this was that I could have very little confidence that the evidence which I was getting was their unclouded recollection rather than a heavily overwritten version based on their reconstruction of events in the light of their microscopic review of the documents – and their own view of their own case.

13

Leggatt J (as he then was) made an important survey of the problems attendant on witness evidence in litigation in his judgment in Gestmin SGPS S.A. v Credit Suisse (UK) Limited, Credit Suisse Securities (Europe) Limited [2013] EWHC 3560 (Comm) at [15–22]. In it at [20] he referred to this process thus:

“Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness's memory has been “refreshed” by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other...

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