VTB Capital Plc v Nutritek International Corporation and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ROTH,THE HON MR JUSTICE ARNOLD,MR JUSTICE ARNOLD |
| Judgment Date | 29 November 2011 |
| Neutral Citation | [2011] EWHC 2842 (Ch),[2011] EWHC 3107 (Ch),[2011] EWHC 2526 (Ch) |
| Docket Number | Case No: HC10C04611,Claim No HC10C04611,HC10C04611, HC10CO4611 |
| Court | Chancery Division |
| Date | 29 November 2011 |
[2011] EWHC 2526 (Ch)
Mr Justice Roth
Claim No HC10C04611
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
The Strand
London
WC2A 2LL
ALAN GOURGEY QC (instructed by PCB Litigation LLP) appeared on behalf of the Claimant.
The Defendants did not appear and were not represented.
This is an application for a worldwide freezing order made without notice against the fourth defendant, Mr Konstantin Malofeev, who is a resident of Russia. It arises in slightly unusual circumstances in that the proceedings in this case were issued as long ago as 23 December 2010. Of the three other defendants, two are British Virgin Island ("BVI") companies and the third defendant is a Russian company. The second and third defendants are part of the Marshall Capital group, referred to as the "MarCap" group, which is said to be controlled, effectively, by Mr Malofeev.
On 11 May 2011, Chief Master Winegarten gave leave to serve out against all four defendants. The first and second defendants, the two BVI companies, have been served, but service in Russia pursuant to the Hague Convention is a long drawn out procedure, which I am told takes some 12 to 18 months and thus has not yet been effected.
However, the fourth defendant has been notified of these proceedings when copies of the claim form—and related documents, I believe—were sent to him on behalf of the claimant on 28 May. Thus the fourth defendant has been aware of these proceedings for some two and a half months.
The reason why a freezing order is being applied for only now is that further information has come to light only recently that gives the claimant stronger grounds to believe that there is a real risk of dissipation of assets. In any event, it is said that the delay here should not count against this application, but since Mr Malofeev would be aware of the length of time it takes to serve proceedings on him in Russia and, thus, if he was indeed going to dissipate his assets so as to render an eventual judgment difficult to enforce against him, he would feel comfortable that he has some time in which to do so. I shall return to the question of delay shortly.
I shall deal first with the well established grounds for the grant of relief of this kind. As is often said, a freezing order is an extreme order and the court must be cautious about making it. That is especially so when, as is often the case, it is applied for without notice so the defendant has had no opportunity to put his case in advance.
First, the court must be satisfied that the claimant has a good arguable case. The claim here is one of fraudulent conspiracy against the claimant bank in connection with its entry into two related agreements in November 2007: a facility agreement whereby it advanced some $225 million, to a Russian company, called Russagroprom (RAP); and an interest rate swap and derivatives agreement. The facility was to enable RAP to finance a sale and purchase agreement with the first defendant, Nutritek, to acquire through the medium of a company called Newblade part of Nutritek's business. That business comprises nine dairy plants in Russia.
In brief summary, it is alleged that it was falsely represented that the sale of Newblade from Nutritek to RAP was an arms length transaction between two independent companies when, in fact, RAP was ultimately controlled by the MarCap group. Further, it is alleged that financial information on the trading of the dairy plants that was furnished to Ernst & Young for their preparation of a report that valued the business at the equivalent of some $366 million, was very seriously misleading.
After RAP defaulted on the facility agreement, the claimant took control of Newblade and a fresh investigation by Deloitte has found that the real value of Newblade's assets in the dairy plants is under $35 million. Thus, this is a very substantial claim.
The fourth defendant was chairman of Nutritek, or its holding company, at the time and was personally involved in negotiations regarding these agreements with the claimant. Although the actual agreements were concluded, as I said, between Nutritek and RAP, the second and third defendants were also associated with the transaction which it is alleged MarCap as a group had co-ordinated.
The question whether there is good arguable case arises here in two respects. First, for the purpose of rules on service out of the jurisdiction on the fourth defendant. Here, that is a question as to whether the alleged tortious act was committed, or caused damage within the jurisdiction. I will not go into that in any detail because it has already been considered by Chief Master Winegarten, albeit that the test there is formally whether there is a serious question to be tried.
On the facts of the present case I see no discernable difference between those tests. The Chief Master held the condition was satisfied and, with all respect to him, I am satisfied that a good arguable case is shown in that respect. Apart from other things the claimant is in England and the monies advanced under the facility agreement were paid out here to RAP's account in England. I say no more about that as an application by the two BVI defendants to set aside service is pending.
Secondly, in terms of the substantive claim itself, there is very full evidence before the court regarding the transactions as indeed there was before Chief Master Winegarten and I am satisfied that test is fulfilled.
Next it is necessary to consider whether the claimant has shown a real risk of dissipation of assets. As pointed out by His Honour Judge Waksman (sitting as a Deputy High Court Judge) in Cherney v Neuman [2009] EWHC 1743 (Ch) dissipation covers secretion away of assets in a manner that would render any eventual judgment difficult to enforce. In this regard, it is necessary to consider all the circumstances.
Here, there are serious allegations are fraudulent conspiracy and dishonesty. Secondly, Mr Malofeev operates the extensive business affairs of the MarCap Group and, at least until fairly recently, the Nutrinvest Group that held Nutritek, through an extensive web of companies, many in jurisdictions where information regarding the underlying assets is very difficult to obtain, such as Cyprus, the BVI and the Cayman Islands. Although Mr Malofeev appears to be a very wealthy individual, the way his assets are held is opaque and this complex structure involving many nominee companies in different jurisdictions may enable assets to be moved out of the reach of creditors or in a manner that is difficult to trace.
Third, it appears that he holds a significant minority shareholding in a large Russian telecommunications company, Rostelecom, amounting to over 7 per cent of that company, and estimated to be worth around $1.4 billion. But there is information before the court that he has recently been seeking to realise the value of those shares by offering them as security for a loan and then starting to sell in tranches on the market.
Finally, I have been shown, albeit in draft, a report by Ernst & Young of February 2010 into the financial affairs of the Nutrinvest Group which finds serious misuse of assets and false accounting. The direct involvement of Mr Malofeev himself in the matters discussed in Ernst & Young's report is not altogether clear and I therefore give this somewhat less weight. But from the report it appears that there is a strong link between the direction of the Nutrinvest group and the MarCap group, of which Mr Malofeev is in overall control; and some of his close associates appear to be implicated in what went on in Nutrinvest as described by Ernst & Young. I consider that it is reasonable to conclude for present purposes that it is most unlikely that Mr Malofeev would have been unaware of what was going on.
There is also an affidavit before me, in an approved draft which is about to be sworn by Mr Chernenko from the claimant, where it is contended that there is growing publicity in Russia regarding dishonest or unlawful dealings by Mr Malofeev and I have also been shown letters to ministers and public officials making serious complaints and allegations about him. I have to say that I give very much less weight to those, in all the circumstances, and I do not feel able to conclude on that basis that he is under particular pressure the moment and still less, under mounting pressure.
In Gee on Commercial Injunctions (5th edn. 2004), paragraph 12.040 it is said:
"Good grounds for alleging that the defendant has been dishonest is relevant.…if there is a good arguable case in support of an allegation that the defendant has acted fraudulently or dishonestly…then it is often unnecessary for there to be any further specific evidence on risk of dissipation for the court to be entitled to take the view that there is a sufficient risk to justify granting Mareva relief.…The fact that a defendant is experienced in intricate, sophisticated, international transactions involving movement of large sums of money may also indicate that there is a real risk of dissipation."
Those observations, which are supported in the footnotes by authorities to which it is not necessary to refer, are directly relevant to the present case.
The time that has elapsed since Mr Malofeev was notified of these proceedings and the apparent lack of any specific effort...
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