Recovery Partners GP Ltd v Mr Irakli Rukhadze
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Cockerill |
| Judgment Date | 25 March 2022 |
| Neutral Citation | [2022] EWHC 690 (Comm) |
| Docket Number | Case No: CL-2016-000553 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 690 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Cockerill
Case No: CL-2016-000553
Shaheed Fatima QC, Tom Cleaver, Will Bordell and Marlena Valles (instructed by Brown Rudnick LLP) for the Claimants
Stephen Cogley QC, Simon Birt QC, Watson Pringle and Farhaz Khan (instructed by Signature Litigation LLP) for the Defendants
Hearing dates: 18 October – 26 November and 20–21 December 2021
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to Bailii and The National Archives. The date and time for hand-down is deemed to be Friday 25 March 2022 at 10:00am.
Introduction
This is the Phase 2 liability/quantum trial, following an earlier trial in 2018 in which I found that the Defendants had breached fiduciary duties owed to the Claimants by appropriating a developing business opportunity which was to be regarded as an opportunity of the Claimants. The size of the claim now said to flow from that finding is US$263,000,000.
The business opportunity is obviously therefore substantial. It is also perhaps an unusual one. As described at greater length in the Phase 1 judgment ( [2018] EWHC 2018 (Comm) [2019] Bus. L.R. 1166), it concerns services provided to “the Family”, who are family members of the deceased Georgian billionaire Arkadi “Badri” Patarkatsishvili, who died unexpectedly in February 2008. Prior to Badri's death, he had owned assets in various jurisdictions, which were in many instances held by structures and individuals in ways which meant that they were not readily identifiable as property of his estate.
Following his death, the Family were left unsure what assets existed or how to access them. Because of the unconventional asset owning structures, assets were also under threat from various third parties, who acted quickly following Badri's death to seek to control the assets. The Family decided they needed assistance with identifying, protecting and recovering the estate's assets (the “Recovery Services”).
The Claimants and the Individual Defendants (Messrs Rukhadze, Alexeev and Marson) were involved in the Recovery Services together in the early years but fell out. A dispute ensued as to whose was the right to pursue the Recovery Services. Was it a right which vested in the Claimants and/or a company called Salford Capital Partners Inc (“SCPI”), owned by Mr Eugene Jaffe (for whom in broad terms the Individual Defendants at one time worked)? Or was it a right which Messrs Rukhadze and Alexeev and the other Individuals who provided the Recovery Services before May 2011 were entitled to pursue when they divided themselves from SCPI/Mr Jaffe?
I concluded that the former was the right answer – that at the time when the Individual Defendants parted company with SCPI there was still a maturing business opportunity (“MBO”) being actively pursued by SCPI and that their actions in resigning with an intent to compete and then taking over that business opportunity were breaches of fiduciary duties which they owed resulting from the positions they held within SCPI and/or or the claimants.
Following that decision, the Claimants have opted to pursue an account by way of remedy. This trial is intended to decide the principles of taking of the account and certain limited issues as to valuation. It was originally intended that there would be a Phase 3 trial before a Master which would finalise the amount due. In the event both parties have moved away somewhat from that original plan; consequently this trial has involved (as its six week length indicates) a significant amount of detail. At this point I am in a position to make an order which sets out an overall figure for the account in relation to the majority of inputs, albeit that (i) the valuation of one asset remains to be finally determined and (ii) issues as to the sums which each Defendant is liable to pay – in the light of the sums which they have received — will also remain to be determined.
In “macro” terms the debate proceeds against a background where the relevant business opportunity was pursued between before the date of the breach of fiduciary duties in early 2011, through to around spring 2018. Within that period a formal agreement between the Family and the Defendants was operative between late 2012 and spring 2018. Little was paid by the Family to the Defendants before 2017, but loans were extended to them. During that time – largely from around 2015 — the Defendants also made a number of investments which have been said to be significant in the context of the account.
In very broad terms the battle lines are drawn up thus:
a. The Claimants maintain that the Defendants should pay over all proceeds which have come to them via the business opportunity they pursued. Prior to and at trial that case extended to a number of the subsequent investments.
b. The Defendants maintain that a number of factors should mean either that the account should produce a close to zero sum or that certain proceeds should not be paid over at all or that there should be a considerable reduction in the amount to be paid pursuant to the account – a reduction in the region of 60%. In particular they say that this is a “strident and egregious” case of unconscionable behaviour on the part of the “victim” of the breach and that this should have a real impact on the amount awarded.
c. In relation to this the Defendants adopt a somewhat “free range” approach – invoking a number of concepts derived from certain of the authorities both individually and as aggregated points. This approach leads to questions about the correct approach to accounts generally as well as a need to consider carefully the ambit of the case law on a number of distinct issues.
d. As to quantum, there are differences of about US$7.8 million when it comes to the question of what receipts respond to the inquiry (“the Responsive Receipts”) and of US$20.5 million when it comes to the correlated, Responsive Expenses. So far as investments made with the proceeds are concerned there is now (following a refocussing of the Claimants' case in closing) a single investment worth US$49.9 million in issue.
By way of final introduction I note that this dispute has, in many ways, a family flavour unusual in the Commercial Court. Not only does it concern work with an actual family, but also Mr Jaffe and the Individual Defendants, who are the UBOs of all the corporate claimants and defendants, had worked closely together for some time before they parted ways. The dispute is hence flavoured with the kind of personal bitterness often seen in family disputes. The case has been pursued on both sides with utter commitment, verging on venom. This is illustrated by the fact that the Defendants' estimated costs for this phase of the trial were in the region of £20 million.
Consistently with this, during the course of the trial a huge number of issues – factual, legal and expert – were raised. Each party served 99 page skeletons. The written closing submissions for each party were limited to 200 pages, but were accompanied by dense appendices. Plainly therefore it is impossible to deal with all of the issues at length. This judgment is therefore structured as follows: Part 1, dealing with the basic timeline and facts which any non-party reader may need in order to comprehend the judgment; Part 2 which provides a summary of the issues and the trial, Part 3 which deals with the law, Part 4 which deals with the essential factual and expert issues which remain and the application of that law to the facts and Part 5 which contains conclusions on contingent issues.
In more detail:
Part 1: The Facts
| Introduction | 2 |
| Part 1: The Facts | 5 |
| Badri and his assets | 6 |
| The Individual Defendants | 7 |
| Before the breakdown: 2008–2011 | 8 |
| Between the breakdown and the IRSA: May 2011 to September 2012 | 11 |
| The IRSA | 19 |
| The Recovery Services post the IRSA: October 2012-December 2017 | 21 |
| After the termination | 28 |
| Part 2: The Issues and the Trial | 29 |
| The issues on the scope of the account | 29 |
| The Responsive Receipts and Responsive Expenses | 29 |
| Common Ground | 29 |
| The Issues | 30 |
| The Responsive Investments | 30 |
| The Trial | 31 |
| Part 3: The Legal Issues | 38 |
| Legal issues: backdrop | 39 |
| The deterrent dimension | 40 |
| Legal issue 1: Equitable principles v. the circumstances of the case | 44 |
| Legal Issue 2: the nature or magnitude of the breach | 47 |
| Legal Issue 3: “reasonable relationship” vs “equitable causation” | 48 |
| Delay | 52 |
| Pre-existing agreement | 64 |
| Allowance for skill | 65 |
| The relevance of the company to whom duties were owed: Mr Marson | 68 |
| Part 4: Fashioning the account | 69 |
| Original scope of the breach found | 69 |
| The “transformation of the opportunity” | 72 |
| Insufficient connection: October 2012 “or such other date as the Court may determine” | 75 |
| Insufficient connection: RBS funding | 76 |
| Alleged profit-sharing agreement | 78 |
| Estoppel | 80 |
| Skill, time and risk | 80 |
| The Defendants' conduct of the litigation | 87 |
| Connection issues: conclusion | 88 |
| The expert... |
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