Vneshprombank v Bedzhamov, Kireeva v Bedzhamov
Jurisdiction | England & Wales |
Judge | Mrs Justice Cockerill |
Judgment Date | 03 May 2024 |
Neutral Citation | [2024] EWHC 1048 (Ch) |
Court | Chancery Division |
Docket Number | Case No: BL-2018-002691 |
[2024] EWHC 1048 (Ch)
Mrs Justice Cockerill DBE
Master Kaye
Case No: BL-2018-002691
BL-2023-000277
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
CHANCERY DIVISION
BUSINESS LIST
Rolls Building
Fetter Lane
London
EC4A 1NL
Fergus Randolph KC (instructed by Keystone Law) for the Claimant in BL-2018-002691
Rachel Barnes KC (instructed by DCQ) for the Applicant Trustee in BL-2023-000277
Justin Fenwick KC and Mark Cullen (instructed by Greenberg Traurig LLP)) for the Defendant/Respondent
Hearing dates: 4,5,6 March 2024
APPROVED JUDGMENT
INTRODUCTION
This is an application made during the course of long running and hard fought litigation 1 by Mr Georgy Bedzhamov on one hand and Vneshprombank LLC (“VPB”) and Ms Lyubov Kireeva, his Russian trustee in bankruptcy (“the Trustee”) on the other.
The application is for declarations as to whether there is reasonable cause to suspect that A1 LLC (“A1”) – a company which has to date funded VPB and the Trustee in this litigation — is owned or controlled by a designated person or persons within the meaning of Regulations 5 and 6 of the Russia (Sanctions) (EU Exit) Regulations 2019 (“the 2019 Regulations”) following:
1) The designation of persons (Messrs Fridman, Khan and Kuzmichev) who were major shareholders in A1 until March 2022 and
2) Its sale (or – Mr Bedzhamov would say – apparent sale) shortly after that designation.
Mr Bedzhamov also seeks directions for the future conduct of these proceedings in light of any such declarations, including directions as to the payment and receipt of the outstanding costs order in favour of the Trustee and any future orders made in favour of the Trustee or VPB.
Mr Bedzhamov's position is, in essence, that the litigation cannot now proceed smoothly without a determination as to whether there is reasonable cause to believe that A1 is owned or controlled by Designated Persons (“DPs”). If A1 is owned or controlled by DPs, then payments in the course of the litigation to the Trustee and VPB may benefit DPs and are therefore prohibited under the 2019 Regulations. The position of the Trustee and VPB is that no such determination is necessary, alternatively that the determination should only be made at the point which funds fall to be paid.
The application has to some extent been prompted by judicial concerns, though it seems likely that the point would have been taken in any event, since sanctions questions have been ventilated in these proceedings as early as 2021. In the judgment [2023] EWHC 348 (Ch) (the “February 2023 Judgment”) Falk LJ (sitting with Master Kaye) held (at [35]) that:
“Based on the evidence I have seen it is impossible at this stage to dispel the concern that the March 2022 transaction was not genuine, but instead arranged to give the appearance that A1 is no longer under the control of sanctioned individuals. It is important to note that the relevant regulations, the Russia (Sanctions) (EU Exit) Regulations 2019, make provision for action to be unlawful, at least without a licence, where a person either knows or has reasonable
cause to suspect that the person or individual concerned is sanctioned”.
Following that expression of concern a structure was put in place for the determination of the sanctions issue in partnership with the determination of certain property issues. Matters have moved on however and this separate application was issued by Mr Bedzhamov in October 2023.
As to the ambit of the dispute, the parties disagree on facts but also on the “trigger” for the 2019 Regulations to bite. In line with the obiter indication of Falk LJ, Mr Bedzhamov submits that dealing with funds which one has “reasonable cause to suspect” are owned or controlled by DPs is prohibited unless and until that suspicion is dispelled. The funds must be frozen in the intervening period. The Trustee and VPB say that the prohibition is only engaged if the funds are in fact proven to be owned or controlled by DPs.
Shortly before the hearing of the application it emerged that the Trustee and VPB are exploring a change of funder away from A1, which we are told may render the findings in this judgment moot. We were informed that negotiations with an alternative funder are progressing and are expected to complete sometime in April 2024. There was consequently some discussion at the hearing about whether the hearing should be adjourned or its scope limited. In the end there was no agreement for either of these courses, or even any real enthusiasm on either side for them. Accordingly, the hearing proceeded as scheduled on the basis that we would be kept informed of any relevant developments. No agreement had been reached as at the time of the hearing. Since the hearing we have been informed on 15 April 2024 (separately by each of VPB and the Trustee) that A1 LLC is no longer funding VPB or the Trustee, having been replaced by Cezar Legal Consulting Agency LLC (“Cezar”) pursuant to agreements dated 27 March 2024. On 16 April those acting for Mr Bedzhamov indicated that both the proposed new funder and its third party payer are Russian companies and that further due diligence would need to be conducted before they could be satisfied that the issues before us were at all affected. On 25 April those acting for VPB indicated that the due diligence process was coming to an end and suggesting that the circulation of a draft might be delayed. That suggestion was disagreed with both by the representatives of Mr Bedzhamov and those acting for a related party in imminent litigation elsewhere. We have not been minded to delay circulation of the draft or hand down of the judgment.
As noted on the title page, VPB and the Trustee were separately represented. However the two parties largely made common cause, dividing the submissions between Ms Barnes KC for the Trustee, who led on the issue of construction and Mr Randolph KC who dealt with the factual aspects.
Background
The background to the wider litigation is set out in earlier judgments in this case and need not be repeated. A good understanding of it can be gleaned from reading:
1) [1]–[105] of the judgment of Snowden J [2021] EWHC 2281 (Ch);
2) The Judgment of Falk J [2022] EWHC 1166 (Ch).
It is however perhaps worth just noting that the claims are very considerable indeed, the VPB claim is pleaded at US$1.34bn.
The critical base fact which leads to this application is that A1 is the litigation funder of VPB and the Trustee and therefore stands to obtain a financial benefit from recoveries obtained by them from Mr Bedzhamov. Part of those recoveries include the proceeds of sale from Mr Bedzhamov's interest in a property at 17 Belgrave Square and 17 Belgrave Square Mews, London, SW1X 8PG (“the Property”). That is understood to be his main asset in this jurisdiction. There have been three applications over the last three years for permission to sell this property.
A1 is part of the Alfa Group, which was founded in 1989 and is described on its website as “ one of the largest privately owned financial-investment conglomerates in Russia”.
According to Alfa Group's 2020 Annual Report, the three founders of the Alfa Group, who were described as its “main beneficial owners”, are Mr Mikhail Fridman, Mr German Khan, and Mr Alexey Kuzmichev (“the Founders”). They were members of the Supervisory Board of Alfa Group.
Also on the Alfa Group Supervisory Board are two other gentlemen who have a central role to play in this manifestation of the dispute. The first is Mr Andrei Kosogov. His biography in the Alfa Group Annual Report states this:
“Mr. Kosogov is a member of the Board of Directors of AlfaStrakhovanie Group, a member of the Board of Directors of Alfa-Bank (Russia), a member of the Board of Directors of ABH Holdings S.A., a member of the Board of Directors of Alfa-Bank (Kazakhstan) and a member of the Board of Directors of Alfa-Capital Management Company LLC. From November 2005 through June 2009, Mr. Kosogov acted as Chairman of the Supervisory Board of Alfa-Bank (Ukraine). From 2005 to 2011, Mr. Kosogov served as Chairman of the Board of Directors of Alfa Asset Management. From 2003 to 2007, Mr. Kosogov acted as Chairman of the Board of Directors of AlfaStrakhovanie Group. From 1998 to 2005, Mr. Kosogov was First Deputy Chairman of the Management Board of Alfa-Bank Russia and Director of its Investment banking division. From 1992 to 1998, Mr. Kosogov served as CEO of Alfa-Capital Management Company LLC. Mr. Kosogov graduated from the Moscow Power Engineering Institute in 1987. He was born in Sillamaë, Estonia in 1961.”
Mr Kosogov has therefore worked within the Alfa Bank business and for the Founders for over 30 years – indeed for practically all of his working life.
The other is Mr Fayn (or Fain). Mr Fayn has been on the Supervisory Board of Alfa Group for several years. His 2020 biography states this:
“General Director of A1
Mr. Fain graduated with honors from the Moscow Institute of Chemical Engineering, Engineering Department in 1958. From 1958 until 1988, he was involved in a number of innovative engineering projects. Mr. Fain is the author of more than 70 scientific articles, manuals, books, monographs, and patents. He also holds the honorary title of active member of International Academy of Sustainable Development and holds a candidate's degree and is a professor in the field of applied mathematics. Mr. Fain is often cited by the leading Russian business periodicals as one of the most influential businessmen in Russia. He was born in Moscow, Russia in 1936.”
In his statement Mr Fayn indicates that he too...
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