Yukos v Georgiades
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Moulder |
| Judgment Date | 04 February 2020 |
| Neutral Citation | [2020] EWHC 173 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000600 |
| Date | 04 February 2020 |
[2020] EWHC 173 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
THE HONOURABLE Mrs Justice Moulder
Case No: CL-2017-000600
Mr Jamie Goldsmith and Mr Stephen Donnelly (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Claimant
Mr Paul Wong Chun Yi (instructed by Humphreys & Co.) for the Defendants
Hearing dates: 25–28 November, 2–5, 11 and 12 December 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HONOURABLE Mrs Justice Moulder
Introduction
This is in essence a claim brought by the claimant, Yukos Hydrocarbons Investments Limited (“YHIL” or the “claimant”)) against one of its former directors, Cleanthis Georgiades (“CG” or “Mr Georgiades”) and his company, GE Law Services Limited for alleged breach of his fiduciary duties.
Background
YHIL is a company incorporated in the British Virgin Islands. It is a subsidiary of Financial Performance Holdings BV (“FPH”) which in turn is owned by Stichting Administratiekantoor Financial Performance Holdings (the “Armenian Foundation”). The companies within this group including YHIL were formed as a result of a restructuring of the overseas subsidiaries of Yukos Oil, the Russian oil and gas company (“Yukos Oil”). This was initiated in April 2005 by the senior management of Yukos Oil based outside Russia and followed steps taken by the Russian state/Rosneft against Yukos Oil culminating in the bankruptcy and dissolution of Yukos Oil. Yukos Oil's assets outside Russia were placed directly and indirectly into the Armenian Foundation and another Dutch Stichtingen (the “Dutch Foundation”). The purpose of the various companies within the Yukos Foundations (the “Yukos Group”) is to collect in and safeguard assets by engaging in legal proceedings around the world to seek to recoup monies and assets which they assert have been wrongly misappropriated and to distribute assets to former shareholders of Yukos Oil. Historically the Yukos Group had entities and operations in Cyprus due to “tax efficiencies”.
In 2005 the corporate services firm, Abacus Secretaries Limited (“Abacus”), part of PricewaterhouseCoopers, which was assisting YHIL in carrying out corporate functions ceased to act for YHIL and the two representatives of Abacus resigned as directors of YHIL.
The Second Defendant (“GE Law”), a Cypriot company, is registered as a provider of corporate services with the Cyprus Bar Association and provides, amongst other things, shareholders and nominee directors. Mr Georgiades was and is a director and shareholder of GE Law. The two main employees of GE Law at the relevant time were Renata Paretti and Marios Epaminondas.
In September 2005 YHIL appointed CLS Aliens and Consulting Services Limited (“CLS”) as secretary of YHIL. CLS is a firm owned by Mr Georgiades and his sister. Also in September 2005 YHIL entered into a professional services agreement with GE Law.
On 10 August 2006 a further professional services agreement was entered into between GE Law and YHIL and on the same day Mr Georgiades was appointed as a director of YHIL.
For the majority of the period whilst Mr Georgiades was a director of YHIL, the other directors of YHIL were Mr Harlan Malter, Mr Daniel Feldman and Mr Sergei Ketcha.
Mr Georgiades was also a partner at the law firm, Demos and Lea Georgiades and Co (“Demos”), which he owned jointly with his sister. In 2014 it became an LLC from which time Mr Georgiades has been a director and shareholder with his sister.
Gilham International Limited (“Gilham BVI”) Gilham Trust (Cyprus) Limited (“Gilham Cyprus”) and Sunspot International Limited (“Sunspot”) provided services which were similar to those offered by GE Law but are now dormant. Mr Georgiades was the sole ultimate owner at all times of Gilham BVI and Sunspot and the 50% ultimate shareholder of Gilham Cyprus from March 2008 to at least June 2011 (when he became the sole ultimate shareholder).
On 12 October 2007 GE Law and YHIL entered into a further professional services agreement (the “2007 PSA”) effective from 27 July 2007. It was then extended by various amendment agreements.
Mr Georgiades' directorship terminated on 5 May 2011 by shareholder resolution, FPH having decided that other, longer-standing personnel were under-employed and could therefore fill the role.
Until the Settlement Agreement in June 2015 (referred to below), GE Law continued to provide corporate services to YHIL under the 2007 PSA.
In 2014 after the claimant learnt that Mr Feldman had explored setting up a proposed “unauthorised bonus scheme”, Crowe Horwath, an investigations firm, was instructed to conduct an investigation on behalf of the claimant into the bonus scheme and “any further instances of wrongdoing” (Mr Godfrey's witness statement paragraph 83). In this regard Crowe Horwath spent over a week at the offices of GE Law (paragraph 48 of the List of Common Ground) and inspected both electronic and hard copy documents. The investigation by Crowe Horwath completed at the end of April 2015 and a claim was issued against Mr Feldman on 25 June 2015.
On 2 June 2015 YHIL and the defendants entered into a Settlement Agreement (the “Settlement Agreement”) which terminated the 2007 PSA. GE Law was required to return US$600,000 of the US$1 million which had been deposited with GE Law (the “Indemnity Fund”) to enable it to defend itself against proceedings which might be brought against it arising out of its acting for YHIL under the PSA.
The claims in these proceedings
YHIL's central complaint in these proceedings is that Mr Georgiades breached his fiduciary duty, making unauthorised profits or causing losses to YHIL. There are four main categories of profits or losses alleged:
i) the “Introducer Claim”: YHIL alleges that Mr Georgiades received (directly or indirectly through companies owned and controlled by him) undisclosed introducer fees or commissions from a Cypriot bank, Piraeus (Cyprus) Ltd (now Astro Bank Ltd) (“Piraeus”). YHIL's primary case is that the agreement under which these fees or commissions were paid (the “Introducer Agreement”) was with Mr Georgiades personally and that he obtained the benefit of it. The Defendants say that the Introducer Agreement was entered into with GE Law.
ii) the “Political Donation Claim”: YHIL claims that Mr Georgiades obtained financial contributions for his political campaign in Cyprus by causing GE Law to falsely overcharge YHIL up to US$99,000 in respect of services that were never rendered. The defendants' case is that they were not false invoices; rather the board of YHIL agreed that GE Law would issue invoices which would include sums which Mr Georgiades had spent on his election campaign and when Mr Godfrey was informed and objected, the money was subsequently returned by reducing the amount charged by GE Law to YHIL.
iii) the “Non-Disclosure Claim”: Had he disclosed his breaches of fiduciary duty (as required), YHIL asserts that Mr Georgiades would have been dismissed as a director and YHIL would not have continued to engage the services of Mr Georgiades pursuant to the 2007 PSA or made payment for alleged services to GE Law, Gilham BVI and Gilham Cyprus.
iv) the “Interest Claim”: YHIL alleges that GE Law has failed to account in full for interest in respect of the US$1m “Indemnity Fund” paid to GE Law under clause 6 of the 2007 PSA.
YHIL also claims damages for losses suffered due to GE Law's breaches of the 2007 PSA and/or vicarious liability for the breaches of fiduciary duty by Mr Georgiades. The “Eurolink” claim is no longer pursued having been abandoned in closing submissions.
The defendants assert that all claims have been compromised on the terms of the Settlement Agreement, in particular clause 9 which the defendants assert released the defendants from any liability relating to the 2007 PSA. YHIL's primary case is that the Settlement Agreement does not compromise claims, the existence of which were known to the defendants but (to their knowledge) were not known to YHIL in circumstances amounting to sharp practice. Alternatively, the release of claims under clause 9 was expressly subject to the satisfactory completion of all terms of the Settlement Agreement by the defendants, including the return of 60% of the interest due to YHIL on the Indemnity Fund (clause 7). In the further alternative, the Settlement Agreement is liable to be set aside for fraudulent misrepresentation: (a) expressly in clause 9 of the Settlement Agreement GE Law warranted that it “was not aware of any facts or circumstances which might give rise to any claim by YHIL against GE Law arising from its performance of the [2007 PSA as amended]”; and/or (b) impliedly Mr Georgiades personally, by negotiating and signing the Settlement Agreement personally and on behalf of GE Law, warranted that he honestly believed GE Law's representation to be true.
The Defendants also take various limitation defences. Witnesses of fact
For the claimant the court heard evidence from:
i) David Godfrey, currently one of the claimant's two directors and also the sole director of FPH and a board member of the Armenian Foundation;
ii) Harlan Malter, director of YHIL from 30 November 2006 to 3 March 2015;
iii) Martin Parr, director of YHIL from 30 September 2012 to 19 December 2014; director of FPH from 19 June 2008 to 10 October 2014.
For the defendants the...
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...sale of the IRHPs and their effects upon the Appellants.” 108 Finally, I mention Yukos Hydrocarbons Investments Limited v Georgiades [2020] EWHC 173 (Comm), where Moulder J considered, among other things, the “sharp practice” principle. After referring to dicta in BCCI v Ali, Elite Propert......