Ziyavudin Magomedov v TPG Group Holdings (SBS), LP
| Jurisdiction | England & Wales |
| Judge | Mr Justice Butcher |
| Judgment Date | 27 October 2023 |
| Neutral Citation | [2023] EWHC 2655 (Comm) |
| Court | King's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2023-000401 |
[2023] EWHC 2655 (Comm)
THE HON Mr Justice Butcher
Case No: CL-2023-000401
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND
AND WALES
COMMERCIAL COURT (KBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Tim Lord KC, Daniel Saoul KC, William Hooper and Jessie Ingle (instructed by Seladore Legal Ltd) for the Claimants
Paul Lowenstein KC, Andrew Feld and Sam Goodman (instructed by CANDEY) for the Ninth Defendant
Simon Colton KC and David Caplan (instructed by Fieldfisher LLP) for the Eleventh and Twelfth Defendants
Nathan Pillow KC and David Peters (instructed by Cooke, Young & Keidan LLP) for the Fifteenth Defendant
Justin Fenwick KC, Tim Chelmick and Mark Cullen (instructed by PCB Byrne LLP) for the Seventeenth Defendant
Paul Lowenstein KC, Colleen Hanley, Andrew Feld and Sam Goodman (instructed by CANDEY) for the Nineteenth Defendant
James MacDonald KC and Ben Lewy (instructed by Enyo Law LLP) for the Twentieth Defendant
Richard Power (instructed by Dentons UK and Middle East LLP) for the Twenty-First and Twenty-Second Defendants
Hearing dates: 10–12 October 2023
Approved Judgment
This judgment was handed down remotely at 10am on 27 October 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives (see eg https://www.bailii.org/ew/cases/EWCA/Civ/2022/1169.html).
The Claimants have applied for notification injunctions against the Ninth Defendant (‘Halimeda’), the Seventeenth Defendant (‘ROSATOM’), the Nineteenth Defendant (‘FESCO’) and the Twentieth Defendant (‘Transneft’), and for worldwide freezing orders against the Eleventh Defendant (‘Mr Rabinovich’), the Twelfth Defendant (‘Ermenossa’), the Thirteenth Defendant (‘Mr Kuzovkov’), the Fifteenth Defendant (‘Mr Severilov’), the Twenty-First Defendant (‘Mr Garber’) and the Twenty-Second Defendant (‘GHP’).
The notification injunction sought would require the relevant Defendants: (A) to give the Claimants' solicitors notice of an intention to (1) acquire or dispose of shareholdings worth US$ 1 million or more; (2) make any reorganisation or alteration of its capital structure; (3) take on or pre-pay debt facilities in excess of US$ 50 million; (4) commence, settle or discontinue litigation with a value in excess of US$ 10 million; or (5) to declare or pay dividends or otherwise distribute assets to shareholders or investors; and (B) to inform the Claimants' solicitors of all their assets worldwide exceeding US$ 1 million in value.
The Claimants' claims relate to two alleged conspiracies. One is what has been called the ‘NCSP Conspiracy’, which concerns an interest which the First Claimant (‘ZM’) had in PJSC Novorossiysk Commercial Sea Port (or ‘NCSP’). That conspiracy is said to have involved the Tenth Defendant (‘Ms Mammad Zade’) and the Twentieth Defendant (‘Transneft’). The other, which is said to have involved Ms Mammad Zade and all the other Defendants except Transneft, is what has been called the ‘FESCO Conspiracy’, which relates to ZM's stake in FESCO. Insofar as the application related to the NCSP Conspiracy, and thus as far as Transneft was concerned, it was adjourned on the first day of the hearing. The remainder of the hearing concerned only the alleged FESCO Conspiracy.
The alleged FESCO Conspiracy is said by the Claimants to have been ‘intricate’, ‘coordinated’, ‘stealthy’ and accompanied by ‘subterfuge’. It is alleged to have had at least three limbs, which may be said to be (1) the Option Agreement limb, involving breaches of one or two Option Agreements; (2) the ROFO limb, involving breach of a Right of First Offer, and (3) the FESCO governance limb, in which it is said that the Claimants were excluded from the governance of FESCO.
The Basic Facts
Because of the complex nature of the facts it is necessary, at the outset, to set out the main persons and entities involved, and their relationship, and the basic facts as to what happened. In this section of the judgment I am intending a neutral account.
ZM and FESCO
ZM is a Russian businessman. He is the ultimate beneficial owner of the other Claimants. He has, or had, significant assets in the commercial shipping and logistics sector. One of his assets was a stake in FESCO. FESCO was founded in 1996 as the parent company of the FESCO Group. It is one of Russia's largest entities in the transportation and logistics sector, with a portfolio including port, railway and comprehensive logistics capabilities. The FESCO Group controls the Commercial Port of Vladivostok. FESCO is the 100% shareholder of Halimeda, a company incorporated in Cyprus.
ZM acquired his stake in FESCO in or about 2012 through a complicated holding structure. The relevant relationships have been diagrammatically presented thus:
The companies in the left-hand column have been referred to as ‘the SGS Branch’ or the ‘SGS Companies’.
ZM acquired his stake through a leveraged buyout funded from several sources, including (i) approximately US$ 940 million in debt finance from international banks, (ii) US$ 260 million in equity finance from the US-based private equity firm, TPG, and (iii) a cash contribution from ZM himself.
Intimere and the ROFO
TPG's investment was structured through a joint venture, which was between SGS and a TPG nominee, namely Felix LP (then called TPG-Felix LP) (‘Felix’). The joint venture vehicle was the Third Claimant (‘Intimere’). Felix held preference shares in Intimere. The relationship between the joint venture participants was governed by a shareholders' agreement dated 21 December 2012 (‘the Intimere Shareholders' Agreement’), which was subsequently amended on a number of occasions. Pursuant to the Intimere Shareholders' Agreement, TPG was entitled to appoint one third of Intimere's directors, and a minimum of one of the nine members of FESCO's Board of Directors, while SGS could nominate five. The Intimere Shareholders' Agreement also contained provisions dealing with the possibility of sale; and in particular, in clause 9.03(a), there was a ‘Right of First Offer’ (or ‘ROFO’) when any sale of Intimere shares or change of control of Felix was contemplated, whereby the shareholder contemplating the sale or change of control was obliged first to offer its shares to the other shareholder.
As part of the financing for the transaction, Halimeda raised funds totalling US$ 140 million (called ‘the Margin Loans’) from a separate group of external banks. The proceeds of the Margin Loans were then advanced by Halimeda to the Fifth Claimant (‘Sian’) under a Loan Agreement dated 7 December 2012 that allowed for borrowing up to US$ 150 million, and Sian loaned the funds onward to the Sixth Claimant (‘Maple Ridge’) for the purposes of the acquisition.
ZM's stake and other Options
After this transaction, the Second to Ninth Claimants owned 49.99% of FESCO. It is also relevant to refer to options which the SGS Branch companies held over the recently-acquired interests in FESCO of two other groups, namely:
(1) The interest of the Eighth Defendant (‘Domidias’). Domidias had acquired 23.77% of FESCO through a series of subsidiaries. Sian had an option to acquire this entire stake in FESCO. At the time, Domidias was ultimately beneficially owned by Mr Garber.
(2) The interest of Zutrek Holdings Ltd. Zutrek Holdings Ltd had acquired approximately 4.8% of FESCO via its subsidiaries, as well as an option to acquire a further 4.8% from East Capital AB. Zutrek Holdings Ltd was and continues to be ultimately beneficially owned by Mr Sergei Bazylev.
Maple Ridge Loan
In the period following the acquisition, the bank lending was refinanced by US$ 875 million in Loan Notes issued by a subsidiary of FESCO, Far East Capital Limited SA (‘FEC’). Approximately US$ 796 million was lent on to Maple Ridge, to enable it to repay the prior acquisition finance (‘the Maple Ridge Loan’). On 13 December 2018, the benefit of the Maple Ridge Loan was assigned to Halimeda.
TPG's desire to exit Intimere
TPG had indicated to ZM from at least September 2017 that it wished to sell its interest in the SGS Branch.
Legal proceedings against ZM in Russia
The Claimants say that ‘from around early 2018 it seems that ZM fell out of favour with the political/business leadership in Russia and retaliatory steps then began to seize assets of strategic interest to the Russian state.’ On 30 March 2018, ZM and his brother, Magomed Magomedov (‘MM’), were arrested on charges brought by the Russian Ministry of Internal Affairs and the Federal Security Service (‘FSB’) of ‘organised crime’ and ‘embezzlement’ (POC para. 2). The brothers have always denied these charges, and the Claimants' evidence is that ZM believes them to have been politically motivated.
As a result of these criminal proceedings, ZM's funds were the subject of an interim arrest by order of the...
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