United Company Rusal Plc (a company incorporated in Jersey) v Crispian Investments Ltd (a company incorporated in Cyprus)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Phillips |
| Judgment Date | 14 September 2018 |
| Neutral Citation | [2018] EWHC 2415 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | CL-2018-000108 |
| Date | 14 September 2018 |
[2018] EWHC 2415 (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
Rolls Building, Fetter Lane
London, EC4A 1NL
The Honourable Mr Justice Phillips
CL-2018-000108
Christopher Pymont QC, David MumfordQC, Thomas Munby and James Kinman (instructed by Macfarlanes LLP) for the Claimant
Daniel Jowell QC, Alan Roxburgh and Richard Eschwege (instructed by Skadden, Arps, Slate, Meagher & Flom (UK) LLP) for the First Defendant
Lord Goldsmith QC, PC, Daniel ToledanoQC and David Davies (instructed by Debevoise & Plimpton LLP) for the Second Defendant
Hearing dates: 14, 15, 16, 17 and 22 May and 27 June 2018
Approved Judgment
Introduction
The central issue in these proceedings is whether the first defendant (“Crispian”) validly and effectively commenced a right of first refusal (“ROFR”) procedure contained in a shareholders' agreement dated 10 December 2012 (“the Framework Agreement”) to which Crispian, the claimant (“Rusal”) and the second defendant (“Whiteleave”) are parties. The Framework Agreement governs the relationship of those parties in their capacity as the major shareholders of PJSC MMC Norilsk Nickel (“NN”), including the rights and obligations of the parties in relation to the sale or transfer of some or all of their respective shareholdings.
Crispian purported to commence the ROFR procedure by written notice to Rusal and Whiteleave dated 6 February 2018 (“the Contested Notice”), offering to sell 3.99% of the share capital of NN for the same price (approximately US$1.477 billion in total) at which Crispian had conditionally agreed to sell that stake to Bonico Holdings Co. Limited (“Bonico”), an associated company of Whiteleave. The offer was made on the implicit basis that such price had been “ proposed by a bona-fide third party purchaser” as required by clause 2.5(5) of the Framework Agreement.
Rusal disputes the contractual validity of the Contested Notice, asserting that the ROFR procedure, on its true construction, is not engaged by an offer from any of the major shareholders (or their affiliates), but only by an offer from an independent party. Rusal further contends that Bonico was not, in any event, “ a bona-fide third party” as the price offered to Crispian was not an arm's length commercial price just for the shares in question, but was artificially inflated. Both Crispian and Whiteleave refute Rusal's contentions.
Nonetheless, both Whiteleave and Rusal purported to accept the offer contained in the Contested Notice and entered share purchase agreements with Crispian for their pro rata share of the 3.99% stake, Rusal doing so without prejudice to its contention (by then formalised in these proceedings, commenced on 12 February 2018) that the Contested Notice was invalid and ineffective. All three parties gave undertakings to the court on 8 March 2018 that, in the event that Rusal's contention was successful, any completed sale of Crispian's shares would be unwound and the parties restored to their respective positions prior to the sales.
Subject to the above qualifications, Whiteleave and Crispian duly completed the sale and purchase of Whiteleave's pro rata share of the 3.99% stake on 15 March 2018. Rusal delayed completion of its purchase, as it was entitled to do under clause 2.5(5), but Crispian asserts that Rusal thereafter failed to provide security for 25% of the purchase price as required by that clause, entitling Crispian to sell those shares to any party for no less than the price offered by Bonico. On 27 March 2018 Crispian gave a further undertaking to the court not exercise the right it asserts in that regard until after judgment in these proceedings.
On 27 June 2018, following the expedited trial of preliminary issues (and in advance of the Annual General Meeting of NN), I delivered my decision that the Contested Notice was invalid and ineffective, such that Crispian was and is precluded under the terms of the Framework Agreement from disposing of shares pursuant to it. This judgment sets out my reasons for that decision.
The essential facts
The background to the Framework Agreement
NN, a company incorporated in Russia, is the world's largest producer of nickel and palladium and a substantial producer of various other metals. NN's ordinary shares are listed on the Moscow and St Petersburg Stock Exchanges and American Depositary Receipts (“ADRs”) for its shares, issued at a rate of 10 per ordinary share deposited, are traded on several international exchanges.
In the period from 2008 to 2014 the two largest shareholders in NN were Interros International Investments Limited (“Interros”), a company incorporated in Cyprus and ultimately owned and controlled by Vladimir Potanin, and Rusal. Rusal's largest and controlling shareholder is the EN+ Group, of which Oleg Deripaska is a major shareholder and, until recently, the President. At the start of these proceedings Mr Deripaska was also the President of Rusal.
Prior to December 2012 Interros and Rusal were engaged in a substantial and protracted dispute as to the management and control of NN, resulting in litigation in several jurisdictions and an LCIA arbitration.
On 10 December 2012, shortly before the commencement of the arbitration hearing, the dispute was settled by the Framework Agreement, pursuant to which:
10.1. Interros and Rusal engaged LLC Millhouse (“Millhouse”), a company ultimately owned or controlled by Roman Abramovich, as an independent investor in NN, each agreeing to sell part of its shareholding in NN to Millhouse for US$160 per share (equating to market price at that time), so that Millhouse would acquire approximately 5.87% of NN's share capital;
10.2. Interros, Rusal and Millhouse, Mr Potanin and Mr Abramovich agreed corporate governance rules for NN, including the election of Mr Potanin as its General Director, the composition of its Board of Directors, its Dividend Policy and the decision-making procedure in relation to Reserved Matters (as defined);
10.3. Millhouse was appointed to act as “Fiduciary” in relation to a block of “Escrow Shares”, consisting of 20.87% of NN's share capital, comprising its own shareholding acquired from Interros and Rusal and a further 7.5% stake to be transferred by each of those parties. Further provision was made for the manner in which the Fiduciary would direct the Escrow Agent to vote the Escrow Shares on specified matters, in particular ensuring that Interros and Rusal could each, in certain circumstances, exercise an effective veto.
Mr Deripaska executed a separate deed by which, in broad terms, he undertook the obligations and liabilities he would have borne had he been a party to the Framework Agreement.
The Framework Agreement was subsequently varied by numerous side letters and two deeds of substitution. Crispian (a company ultimately owned jointly by both Mr Abramovich and Alexander Abramov) replaced Millhouse in April 2013, Crispian thereafter acquiring the 5.87% shareholding in NN from Rusal and Interros. Whiteleave (another company ultimately owned by Mr Potanin) replaced Interros in October 2014 and acquired its remaining shareholding in NN.
It was originally intended that the Framework Agreement would be replaced by a restated or new agreement by 24 May 2013 (as provided in clause 4.5), but in the event negotiations in that regard were unsuccessful and no replacement was signed. Clause 1.4(3) of the Framework Agreement made it clear that, in such circumstances, the full terms of the Framework Agreement would continue to remain in force.
Prior to completion of the share purchase agreement between Crispian and Whiteleave on 15 March 2018:
14.1. Rusal held 27.82% of the share capital of NN;
14.2. Whiteleave or its affiliates held in the region of 31%;
14.3. Crispian or its affiliates held 6.37%;
14.4. The balance, approximately 34%, traded freely on the stock exchanges. The relevant terms of the Framework Agreement, as varied
The Framework Agreement is in the Russian language (save for three clauses in English), but is expressly governed by English law and provides for the courts of England and Wales to have jurisdiction over disputes. The parties to these proceedings (collectively referred to in the Framework Agreement as “the Investors”) have agreed a definitive English translation of all the Russian language clauses to which they have referred and have also produced an agreed composite version, reflecting all amendments. It was common ground that three well-known international law firms (Herbert Smith Freehills LLP and the two firms of solicitors acting for the defendants in these proceedings) were involved in the drafting of the Framework Agreement, although the nature and extent of their input was not apparent. It was also agreed that the version presented to me falls to be construed as though it were an original contract drafted in English.
Clause 1.3 identifies the purposes of the Framework Agreement, including the parties' intention to settle the (then) ongoing disputes and their intention “ to implement the corporate governance principles set forth in this Agreement, including by engaging Crispian as an independent investor”.
Clause 4.4 provides that the Framework Agreement shall be effective until 1 January 2023, a term of just over 10 years.
The critical provisions, for the purpose of these proceedings, are those set out in clause 2.5, entitled “ Lock-up in Relation to Sale of Shares in NN, Acquisition of Shares by Investors and Rights of First Refusal”...
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