Berezovsky v Abramovich

In this interlocutory appeal Mr Berezovsky asserts that he once had a disposable interest in a Russian oil and gas company called Sibneft and in a Russian aluminium company called Rusal. He claims that, although Mr Abramovich had the legal title to the shares in Sibneft, he (Mr Berezovsky) was intimidated by threats emanating from Mr Abramovich into disposing of his interest in Sibneft to companies controlled by Mr Abramovich at an undervalue and he now seeks to recover his loss as compensation for the tort of intimidation. He also claims that, although Mr Abramovich had legal title to the shares in Rusal, Mr Abramovich in breach of fiduciary or contract duty disposed of a large number of shares to companies controlled by Mr Oleg Deripaska, thus rendering his remaining shares much less valuable than before. He seeks to recover this loss as compensation for the alleged breaches of duty.

Mr Berezovsky originally asserted that his interest in Sibneft, like his interest in Rusal, was a beneficial interest arising from the terms of the arrangement by which Mr Abramovich came to have legal title to the shares in Sibneft. After receiving Mr Abramovich’s defence that the arrangement made was between Russian citizens in Russia, was governed by Russian law and Russian law does not recognise the concepts of a trust or a beneficial interest, he applied for permission to amend his particulars of claim to delete the words “trust” and “beneficial interest” and their equivalents and to assert merely that he had an interest arising from a joint activity or other (sui generis) agreement with Mr Abramovich which still gave him a right to sue for intimidation if such interest was sold at an undervalue by reason of Mr Abramovich’s threats.

The arrangements in relation to Rusal were allegedly made at the Dorchester Hotel in London and are said to have included an implicit agreement or understanding that Russian law was not to apply because the shares were to be held off shore. Mr Berezovsky’s allegation that the shares were held on trust for him beneficially is therefore still maintained together with an assertion that the arrangement relating to them was impliedly governed by English or British Virgin Islands law. Mr Berezovsky also wishes to assert by a late amendment that there was an express as well as implied agreement that the arrangements were to be governed by English law.

The judge gave permission to make both these amendments and refused to grant summary judgment in favour of Mr Abramovich and to dismiss the claim. There is now an appeal.

Since the tort of intimidation is at the heart of the Sibneft case it is as well, at this stage, to set out the essential ingredients of that tort as stated by Lord Denning in Morgan v Fry [1968] 2 QB 710,724C

“there must be a threat by one person to use unlawful means (such as violence or a tort or a breach of contract) so as to compel another to obey his wishes; and the person so threatened must comply with the demand rather than risk the threat being carried into execution. In such circumstances the person damnified by the compliance can sue for intimidation.”

Background

Much of this is controversial but, since it is the defendant who has applied for summary judgment, the facts alleged by Mr Berezovsky must be taken to be true. Until 30^th October 2000 Mr Berezovsky was a successful businessman with extensive commercial interests, including a company called ZAO LogoVaz and a 50% interest in ZAO ORT-KB which in turn owned 38% of OAO-ORT, a Russian public television company (“ORT”), another channel called TV6, three Russian newspapers and a 21.5% interest in OAO Siberskaya Neftyanaya Kompaniya, a Russian oil and gas company (“Sibneft”).

In addition to his business activities, Mr Berezovsky had been heavily involved in Russian politics. He had been a strong supporter of and on good terms with President Yeltsin and had been Deputy Secretary of the Russian Security Council (October 1996 to November 1997), Executive Secretary of the Commonwealth of Independent States, the CIS, which was the successor umbrella organisation to the Soviet Union (April 1998 to April 1999) and an elected member of the Duma from 1999 until July 2000.

The television company, ORT, had been part-privatised by Presidential Decree in December 1994, as a result of which 49% of that company was sold to the private sector, including a substantial proportion to Mr Berezovsky with the result that Mr Arkadi Patarkatsishvili (“AP”), who was a close business associate of Mr Berezovsky, became First Deputy General Manager. ORT’s television channel was the leading Russian television channel. By 1998 Mr Berezovsky and AP had acquired control of the entire privatised 49% of ORT through ZAO ORT-KB and LogoVaz. Mr Berezovsky to some extent used the channel operated by ORT (“Channel One”) as his political mouthpiece.

President Yeltsin resigned on 31^st December 1999 and Vladimir Putin, then Prime Minister, took over control of the country; after he won the ensuing presidential election, Mr Putin was inaugurated as President on 7^th May 2000. Although Mr Berezovsky had supported Mr Putin for the Presidency, he subsequently openly criticised the government’s policies in the media and in August 2000 publicly declared his intention to form a movement of “constructive opposition” to President Putin’s administration.

On 12^th August 2000 the Russian submarine KURSK was tragically lost in the Barents Sea and all the crew perished. Channel One was highly critical of the government’s handling of the disaster. At a meeting in Moscow with a Mr Alexander Voloshin, Chief of the Presidential Administration, which took place later in August 2000, Mr Berezovsky was informed that President Putin wished to take control of the management of ORT and that Mr Berezovsky should therefore surrender or procure the surrender of ORT-KB’s and LogoVaz’s shareholdings to the state or to an acceptable body and if he failed to do so, he “would end up like Vladimir Gusinsky”. Mr Gusinsky, who controlled a private television network (NTV), had on 13^th June 2000 been arrested and imprisoned on charges of fraud. Three days later he was released and the charges were dropped upon his signing an agreement to sell his shareholding in the company controlling NTV. In the European Court of Human Rights in Gusinsky v Russia Application 70276/01, this use of Mr Gusinsky as a commercial bargaining counter by the Russian Government was subsequently condemned as a serious violation of Articles 5 and 18 of the European Convention on Human Rights.

In the course of the August meeting with Mr Voloshin, Mr Berezovsky asked to meet President Putin. Mr Putin then saw Mr Berezovsky on the following day, repeated the demand for the transfer of the shares, stated that he wished to manage ORT personally and confirmed that Mr Berezovsky would be imprisoned if he did not agree.

Shortly after this meeting AP, Mr Berezovsky’s associate, was required to meet President Putin and was told that the President wished Mr Berezovsky and AP to “clear out” of ORT and that he must negotiate to sell the shares. A price was subsequently offered to AP but Mr Berezovsky refused to sell and in September 2000 he made a public announcement that, in order to preserve the independence of ORT from the government, he would put the shares into a trust. His relations with the President got worse and on 30^th October 2000 he felt compelled to leave Russia and went to France. The envisaged trust was never created.

On 7^th December 2000 a Mr Nicolai Glushkov, a close personal friend and business associate of Mr Berezovsky and AP, was arrested and charged with criminal maladministration of Aeroflot. From 1996 to 1998 he had been First Deputy Director General of Aeroflot. He subsequently helped Mr Berezovsky and AP to set up LogoVaz, as part owner of ORT, and became its first financial manager. He was not in good health but was imprisoned in the harsh environment of Lefortovo Prison operated by the Federal Security Service. He has consistently denied the charges regarding his administration of Aeroflot.

In December 2000, according to Mr Berezovsky, there took place a meeting at his home in Cap d’Antibes, France, between Mr Berezovsky, AP and Mr Abramovich the defendant. These three had an existing business relationship relating to the oil and gas company called Sibneft, referred to above. In the course of that meeting Mr Abramovich stated that he had come on the orders of the President and Mr Voloshin, that Mr Berezovsky and AP had to sell their interests in ORT immediately; if they did so, Mr Glushkov would be released from prison and they would be paid US$175 million but, if they refused to do so, Mr Glushkov would remain in prison for a very long time and the President would seize their interests in ORT. Mr Berezovsky says that he and AP had no alternative but to sell their interests for that price which represented a substantial undervalue. That is what they did, but Mr Glushkov was not released.

Mr Abramovich denies that any such conversation took place. He says that some time before 25^th December 2000 at a venue which he cannot remember he met Mr Berezovsky and AP, was told by Mr Berezovsky that he wanted to sell his interests in ORT and Mr Berezovsky invited Mr Abramovich to purchase them for a price of US$150 million which Mr Abramovich assumed also covered AP’s interests. Mr Abramovich says that he eventually agreed to pay them US$175 million – an amount in excess of the true value of those interests and that the interests of Mr Berezovsky and AP were sold to companies controlled by Mr Abramovich. He vigorously denies that the Russian state was operating through him in persuading Mr Berezovsky and AP to dispose of their interests in ORT.

None of these facts and matters in relation to ORT are said to give rise to any right to compensation recoverable in the English courts but they are relied on to give credence to the claims made in relation to Sibneft.

Sibneft

Meanwhile, in the period from about August 2000 to early 2001, in the course of a number of meetings between AP and Mr Abramovich, the latter stated that it was known by the Kremlin that Mr Berezovsky and AP had interests in Sibneft and that there was mounting pressure from the Government to the effect that those interests “could” be expropriated. According to Mr Berezovsky, AP understood that the implication of such remarks was that if they did not agree to dispose of their interests in Sibneft both he (who did not leave Russia until March 2001) and Mr Berezovsky, who had already fled the country on 30^th October 2000, would face serious consequences and he so informed Mr Berezovsky.

Sibneft had been created by Presidential Decree in August 1995 while Boris Yeltsin was in power and combined previously state-owned companies with interests in the Omsk Oil refinery, oil and gas production and oil exploration and marketing. Mr Berezovsky, AP and Mr Abramovich agreed in anticipation of this privatisation that they would acquire a controlling interest in Sibneft when it was created. Mr Berezovsky was involved in discussing the privatisation plans with President Yeltsin and the then government and with raising the necessary finance, whereas Mr Abramovich was concerned with the selection of the corporate components which would be combined in the new entity.

Mr Berezovsky alleges that before privatisation it was agreed between the three of them in the summer of 1995 that such interest as they acquired in Sibneft would be held as to 50% by Mr Abramovich, 25% by Mr Berezovsky and 25% by AP, that the profits would be shared in the same proportions and that any future business interests which they might acquire would also be shared in the same proportions. This agreement can conveniently be called “the 1995 Agreement”.

Mr Berezovsky originally alleged that under the 1995 Agreement he, AP and Mr Abramovich would hold “beneficial” interests in Sibneft in the proportions 25%, 25% and 50%. However, in Mr Abramovich’s defence it was pleaded that this was a transaction governed by Russian Law and in that law there was no concept of a trust or of beneficial ownership as recognised under the English Law of trusts. This caused Mr Berezovsky to apply to introduce, by an amendment made in July 2009 on the basis of expert evidence, a redefinition of the nature of the interests acquired under the 1995 Agreement by application of Russian Law. The amendment defines that agreement as a joint activity agreement, alternatively as a binding sui generis agreement. It further identifies the rights which Mr Berezovsky and AP acquired by participation in that agreement. It pleads (1) that they had the right to demand from Mr Abramovich a distribution of the acquired ownership interests in the agreed proportions; (2) that on distribution, they would acquire rights of co-owners in respect of any property directly acquired by Mr Abramovich as a result of the agreement and (3) that they had the right to distribution of profits resulting from the joint activity in the agreed proportions.

By further Presidential Decree dated 29^th September 1995 the Government approved a privatisation Scheme under which 51% of the issued share capital of Sibneft (4,516,396,250 shares) would be issued and transferred to state ownership for three years with the balance of the share capital to be sold by tender or auction. By a further decree of 27^th November 1995 it was provided that the Government could auction the right to enter into a “loan for shares” agreement under which the successful bidder would loan money to the State and also manage the State’s shareholding in Sibneft for three years, at the end of which, if the State failed to repay the loan, the 51% shareholding would be transferred to the creditor. A company called Neftyanaya Finansovaya Kompaniya (“NFK”) which was owned and controlled by Mr Berezovsky, AP and Mr Abramovich, together with Stolichny Savings Bank, bid in the auction and on 28^th December 1995 its bid was declared successful. There then followed auctions of the remaining (49%) share capital most of which was acquired by companies under the control of Mr Abramovich and a smaller part of which was acquired by entities jointly owned or controlled by Mr Berezovsky and Mr Abramovich. All such acquisitions are said to have been subject to the terms of the 1995 Sibneft Agreement. In May 1997 NFK transferred its management rights to Finansovaya Neftyanaya Korporatsiya (“FNK”). In October 1998 the State failed to repay the loan and its 51% shareholding was transferred to FNK. On 16^th December 1998 the issued share capital of Sibneft was increased to 4,741,299,639 of which about 86% had been acquired by entities on behalf of Mr Berezovsky, AP and Mr Abramovich subject to the terms of the 1995 Agreement or a subsequent successor agreement made in 1996 (“the 1996 Agreement”).

It was originally pleaded that until 1996 Mr Berezovsky and AP legally owned or controlled companies which owned or controlled their respective proportions of the shares in Sibneft but, because Mr Berezovsky was becoming more heavily involved in politics and AP was the manager of ORT, it was orally agreed between Mr Berezovsky, AP and Mr Abramovich by way of the 1996 agreement that it would be expedient that all the shares owned by Mr Berezovsky and AP in companies which owned or controlled their respective interests in Sibneft should be legally transferred to Mr Abramovich or to entities under his control but that Mr Berezovsky and AP would own their respective percentage of shares in Sibneft “beneficially” as being held on trust for them by Mr Abramovich. The proposed amendment now pleads that under the 1996 Agreement it was agreed that Mr Abramovich, Mr Berezovsky and AP “would arrange matters so that Mr Abramovich or his companies were the legal owners of all the shares in Sibneft which had been acquired pursuant to the 1995 Agreement”, that Mr Berezovsky and Mr Abramovich “would continue to have the rights and interests which they had acquired pursuant to the 1995 Agreement in the shares that would be held by Mr Abramovich” and that Mr Abramovich “would, upon request, transfer to Mr Berezovsky and/or AP shares equivalent to their interest in Sibneft” in the same proportions as stated above. The words “beneficially” held “on trust for them” are sought to be deleted by the application by Mr Berezovsky to amend.

Mr Berezovsky further alleges that it was agreed that he and AP would continue to be entitled to dividends and to any other payments made by Sibneft to its owners in the proportions of 25% each and that subsequent acquisitions of Sibneft would be held subject to the same proportions.

By this proposed amendment it is now asserted that the 1996 Agreement had been implemented by about August 1997 and that Mr Abramovich or his companies were or had become legal owners of all, or substantially all, of the Sibneft shares that were held subject to the terms of the 1995 Agreement and/or the 1996 Agreement. During the period August 1997 – December 2000 Sibneft made significant payments to Mr Berezovsky and AP, at Mr Abramovich’s direction, in connection with their respective interests. No payments have been made since December 2000.

Following the meetings between AP and Mr Abramovich from August 2000 to early 2001 referred to in paragraph 17 above, Mr Berezovsky and AP decided that they were in principle willing to sell their “interests” in Sibneft to Mr Abramovich and that they should meet with him in order to negotiate the terms of the sale. That decision was, according to Mr Berezovsky’s evidence, strongly influenced by his fear, induced by what Mr Abramovich had told AP, that, if they refused to sell, Mr Abramovich would procure President Putin’s intervention and the consequent expropriation of their interest.

A meeting with Mr Abramovich was set up at Munich Airport in early May 2001 with AP. In the course of that meeting AP returned to the issue of the release from prison of Mr Glushkov. Mr Abramovich said that if AP and Mr Berezovsky were to sell their interests in Sibneft to him, Mr Glushkov would now be released.

AP named a price of US$2.5 billion for those interests, which he said was significantly less than they were worth, but Mr Abramovich refused to pay more than US$1.3 billion. AP also requested payment of their due proportions of all amounts which Sibneft had paid out since December 2000 and which would be paid out up to completion of full payment of the purchase price, but Mr Abramovich turned this down.

Mr Berezovsky and AP discussed Mr Abramovich’s offer. Mr Berezovsky concluded that, as he put it in his witness statement, even although the price grossly undervalued Sibneft, they “had no real choice in the matter” because there was a prospect, if they agreed, that Mr Glushkov would be released and that, if they refused, Mr Abramovich’s relationship with President Putin was such that Mr Abramovich was in a position to bring about (1) seizure by the Government of their interests in Sibneft which would be unchallengeable in the Russian courts and (2) the continued incarceration of Mr Glushkov.

The case advanced by Mr Abramovich is inconsistent with Mr Berezovsky’s account. He says that at a meeting at St Moritz Airport, not Munich Airport, in January or February 2001 (prior to the Munich Airport meeting) AP requested him to pay US$1.3 billion to Mr Berezovsky in recognition of the political assistance and the protection which Mr Berezovsky had provided in respect of the creation of Sibneft, taking account of the fact that Mr Berezovsky and AP would no longer be receiving any financial benefit from the funding of ORT by Mr Abramovich. Mr Abramovich says that he agreed to make this payment on the basis that it would be the final request for payment by Mr Berezovsky and that AP and Mr Berezovsky would cease to associate themselves publicly with him and his business interests, including Sibneft. Mr Abramovich denies that Mr Berezovsky and AP ever owned, (legally or beneficially directly or indirectly) or controlled or were entitled to, any interests in any part of the issued share capital of Sibneft. Therefore they had no interest to sell to Mr Abramovich. The meeting at Munich Airport was merely to agree the mechanics for the payment of the US$1.3 billion.

Mr Abramovich admits that he did make a payment of that amount but denies that he made it in the manner alleged by Mr Berezovsky. The judge set out the parties’ contentions about the way in which this was paid in considerable detail but it is unnecessary to say more here than that Mr Berezovsky contends that such payment was made pursuant to what has been called “the Devonia agreement” guaranteed by the Crown Prince of Abu Dhabi. Mr Abramovich says merely that he paid the sum of US$1.3 billion to or through the Latvia Trade Bank by instalments beginning on 31^st May 2001.

Thus Mr Berezovsky now pleads that the 1995 Sibneft Agreement was governed by Russian Law and took effect under Russian Law as either

Mr Berezovsky also pleads that, if the 1996 Agreement is held to be of no legal effect, then the 1995 Sibneft Agreement remains legally binding and regulated the relationship between the parties.

The substitution of these elements of Russian Law and the re-characterisation of the rights acquired by Mr Berezovsky and AP in place of the previous allegations of beneficial interests acquired under a trust are based on the expert evidence of Russian Law contained in an expert report prepared in about April 2009 by Dr I.V. Rachkov, a partner in the Moscow office of the Munich law firm, Norr Stiefenhofer Lutz.

Rusal

In the course of the period 1998/9 to early 2000 Mr Berezovsky, AP and Mr Abramovich had acquired substantial assets in the Russian aluminium industry. Mr Oleg Deripaska and his partners also owned substantial assets in the aluminium industry and in about late 1999 or early 2000 these two groups entered into negotiations for the pooling of their aluminium assets.

On or about 14^th March 2000 Mr Deripaska, Mr Berezovsky, AP and Mr Abramovich met at the Dorchester Hotel in London and, according to Mr Berezovsky, arrived at an oral agreement under which the two groups would pool their aluminium assets in a new company 50% of which would be owned by Mr Deripaska and his partners and 50% by Mr Berezovsky, AP and Mr Abramovich. It was further agreed that none of the participants would sell his shares without the agreement of the others. The new company – OAO Russkiy Alyuminiy (“Rusal”) – was incorporated and registered in Moscow on 25^th December 2000.

In the course of the Dorchester Hotel meeting, according to Mr Berezovsky, it was orally agreed between Mr Berezovsky, AP and Mr Abramovich that the beneficial ownership of the 50% interest in the new company owned by their group would be sub-divided as to 25% to Mr Abramovich and 12.5% each to Mr Berezovsky and AP. It was further orally agreed that Mr Abramovich or companies owned or controlled by him would legally own or control the interests of Mr Berezovsky and AP which Mr Abramovich would hold on trust for Mr Berezovsky and AP to whom Mr Abramovich owed the duties of a trustee and fiduciary. This was supposedly a structure similar to that used for Sibneft under the 1995 and/or 1996 Agreements.

Mr Abramovich was thus to manage the entire business interest of his group’s 50% interest in Rusal. At the time of its registration the share capital of Rusal was owned by six companies registered in the British Virgin Islands (“BVI”). Mr Berezovsky and AP took no part in the management of Rusal and Mr Berezovsky alleges that Mr Abramovich, being entitled legally to own and control a 50% interest in Rusal, must have owned or controlled three out of the six BVI companies.

In about September 2003 Mr Abramovich sold 25% of Rusal to Mr Deripaska without Mr Berezovsky’s knowledge or consent. Mr Berezovsky pleads that, having regard to the facts (1) that, as at July 2004, a BVI registered company called Rusal Holding Ltd (registered on 7^th May 2003) owned the entire share capital of Rusal and (2) that another BVI company called Madison Equities Corporation which was owned or controlled by Mr Abramovich owned 25% of the capital of Rusal Holding, it is to be inferred that, without Mr Berezovsky’s knowledge or consent, Mr Abramovich and Mr Deripaska agreed at some time between May 2003 and July 2004 that the entire share capital of Rusal would be transferred to Rusal Holding whose share capital would be divided in the same proportions as their respective interests in Rusal, that is 50% each, prior to Mr Abramovich’s sale to Mr Deripaska and, if the sale had already taken place, 75 %/25%.

Mr Berezovsky alleges that Mr Abramovich’s sale of 25%, as a result of which Mr Deripaska obtained 75% and therefore a controlling interest in Rusal, reduced the value of the residual shares comprising the 25% from their value as part of a 50% holding. Mr Abramovich informed AP that the 25% sold to Mr Deripaska was Mr Abramovich’s 25% holding and that the price had been US$1.75 billion. AP protested to Mr Abramovich about this disposal without his and Mr Berezovsky’s consent at a meeting in Tbilisi, Georgia, towards the end of 2003 but Mr Abramovich ignored this protest.

In July 2004 Mr Berezovsky and AP sold their 25% interest to Mr Deripaska with Mr Abramovich’s co-operation and consent. AP is said to have conducted negotiations with Mr Deripaska through intermediaries and they agreed a price of US$450 million. According to evidence referred to in the first witness statement of a Mr Marino, Mr Berezovsky and AP decided to get rid of their interest for the best price that could be got, given their minority interest. The mechanics of the sale involved a two-stage transfer of shares in Rusal Holdings from Mr Abramovich’s BVI company, Madison, to AP’s BVI company, Cliren, and subsequently from Cliren to Mr Deripaska’s BVI company, Eagle. Mr Abramovich and AP executed personally a Deed of Release. Mr Berezovsky’s name was not mentioned in any of the documents relating to the sale, Mr Abramovich and Mr Deripaska having insisted that there should be no recognition of Mr Berezovsky because of his political activities. AP executed a Deed of Guarantee as beneficial owner of the shares in Rusal Holdings by which he guaranteed the sale to Eagle by Cliren, the period of the beneficial interest in Rusal Holdings being stated as commencing on 15^th March 2000 – about the date of the meeting at the Dorchester Hotel. Mr Berezovsky’s claim is essentially for the difference between the value of the shares as part of a 50% shareholding and their value as part of a 25% shareholding.

Mr Abramovich denies that at the Dorchester Hotel meeting any such agreement as alleged by Mr Berezovsky was entered into. He pleads that (i) had there been an agreement for a trust, any such trust would have been governed by Russian Law because that was the law with which it was most clearly connected; (ii) under Russian Law the concepts of trust and beneficial interest do not exist; and (iii) only the registered owner of shares can have a proprietary interest in them. Accordingly neither Mr Berezovsky nor AP had any beneficial interest in Rusal and the alleged trust and beneficial interest could accordingly be of no legal effect.

Mr Berezovsky’s reply in its amended form pleads as follows.

(1) Sibneft

Point (iv) has been introduced by way of proposed amendment to replace an allegation that the conduct of Mr Abramovich constituted threats to act in gross breach of trust and would have been flagrantly in breach of Mr Abramovich’s duty as a trustee. Mr Abramovich contends that the proposed amendments alleging breach of a joint activity or sui generis agreement constitute a new claim made after the expiry of the relevant 6 year limitation period and should, therefore, not be permitted.

Mr Abramovich also pleads that the statements said to have been made about possible expropriation were not threats but rather warnings and did not amount and/or could not in law amount to a threat of use of unlawful means by Mr Abramovich or by anyone for whom Mr Abramovich acted as agent. Further, the alleged statement about Mr Glushkov was not a threat of the use of unlawful means or of the use of such means by Mr Abramovich or by anyone for whom he was an agent.

It is further pleaded by Mr Abramovich that insofar as Mr Berezovsky alleges that there could be unlawful conduct if the Russian President or officers of the Russian Federation had taken ownership or control of Mr Berezovsky’s interest in ORT or Sibneft and/or continued to imprison Mr Glushkov and/or were party to any alleged coercive threats or intimidation, adjudication by an English court on such matters would be contrary to the doctrines of act of state, or judicial restraint, in relation to acts of government in that government’s own country.

Mr Berezovsky then alleges that in about September 2005 Mr Abramovich’s interests in Sibneft (70% of the whole) were sold to Gazprom, a Russian public joint stock company for about US$13 billion. But for the fact that he had disposed of his interest in Sibneft to Mr Abramovich, Mr Berezovsky would also have been entitled to sell the whole or 70% to Gazprom for US$3.9 billion or (if 70%) US$2.8 billion. Alternatively, if the tort of intimidation had not been committed but there had been a sale in June 2001 of Mr Berezovsky’s 21.5% beneficial interest at an appropriate and fair price, he would have been entitled to be paid the difference between that price and what he actually received, an amount which he estimates at US$700 million. That is his claim for damages for the tort of intimidation.

(2) Rusal

Mr Berezovsky also runs an alternative case on breach of contract in the sale of the whole or part of the 25% of Rusal owned or controlled by Mr Abramovich.

Mr Berezovsky then pleads that by reason of those breaches of trust and contract Mr Abramovich holds the proceeds of sale of the whole or part of his 25% of Rusal on trust for Mr Berezovsky and/or AP or is liable in equity to account for the profit Mr Abramovich made from the sale to Mr Deripaska, which profit he holds on behalf of Mr Berezovsky and AP as constructive trustee; alternatively Mr Abramovich is liable for loss and damage suffered by Mr Berezovsky, that is the difference between the value of Mr Berezovsky’s portion of Rusal before the sale to Mr Deripaska (at that sale price) and the value after that sale, being the price ultimately received by Mr Berezovsky in October 2004. All these claims are made pursuant to English law which, says Mr Berezovsky, was expressly or impliedly agreed or was the law with which the transaction has its closest connection.

Mr Abramovich’s case is that in or about September 2003 Madison Equities Corporation, registered in the British Virgin Islands, owned 50% of the shares in Rusal Holding Ltd which owned the 6 BVI companies which in turn owned Rusal and then sold for US$1.578 billion 50% of its 50% interest in any or more entities owned and/or controlled by Mr Deripaska. Mr Berezovsky had no interest in any of the companies involved, including Rusal, and no beneficial interest in the shares sold by Madison.

Further, Mr Berezovsky’s claim for breach of trust and/or fiduciary duty fell to be determined under Russian Law – the law which would govern the trust relied upon. Under Russian Law that claim would be time-barred three years from when Mr Berezovsky learned or should have learned about the alleged breach and that was more than three years before these proceedings were begun.

Mr Abramovich makes a similar point with regard to Mr Berezovsky’s claim for breach of contract. He pleads that the claim would fall to be determined under Russian Law which was the proper law of any such contract, Russia being the country with which the alleged contract would have been most closely connected. Accordingly that claim is also time-barred.

Mr Abramovich asserts that all this is so clear that he is now entitled to summary judgment in relation to the Rusal proceedings.

In the light of the above the issues that need decision on this appeal are as follows:-

Proposed amendments in the Sibneft case

Mr Abramovich contends that the judge should not have granted permission to substitute by way of amendment the allegation that the 1995 or 1996 agreement was an agreement for joint activity or some kind of sui generis agreement whereby Mr Berezovsky obtained or retained a disposable interest of any kind in Sibneft. Mr Berezovsky should be confined to the original allegation that he had a beneficial interest; that allegation would be bound to fail because no such interest is known to Russian law. The reason why it is said that the judge should not have granted permission to amend is that the substitution of the looser concept of an “interest” in the sense of an interest stemming from a contract for the originally more precise “beneficial interest” is a substitution of a new and time-barred cause of action and thus not permitted by reason of s. 35 of the Limitation Act 1980 (“the 1980 Act”) and CPR 17.4 unless such cause of action could be said to arise out of the same or substantially the same facts as the previously pleaded cause of action. The judge said it did not so arise and so, if it is sought to plead what is in truth a new cause of action, the application to amend should have been rejected.

Sub sections (1) – (5) of the section 35 of 1980 Act provide as follows:-

“(1)

For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced –

a)

in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and

b)

in the case of any other claim, on the same date as the original action.

(2)

In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either –

a)

the addition or substitution of a new cause of action, or

b)

the addition or substitution of a new party;

…….

(3)

Except as provided by section 33 of this Act or by rules of court, neither the High Court nor any country court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim.

…….

(4)

Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions to the rules may impose.

(5)

The conditions referred to in subsection (4) above are the following –

(a)

in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and

(b)

in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.”

Sub-rules (1) and (2) of CPR 17.4 provide as follows:-

“(1)

This rule applies where –

(a)

a party applies to amend his statement of case in one of the ways mentioned in this rule; and

(b)

a period of limitation has expired under –

i.

the Limitation Act 1980; or

ii.

the Foreign Limitation Periods Act 1984 or;

iii.

any other enactment which allows such an amendment, or under which such an amendment is allowed.

(2)

The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”

For Mr Abramovich, Mr Andrew Popplewell QC subjected the old and the new pleadings to a minute analysis and submitted

I am not persuaded by these rather over-elaborate arguments. A new claim, according to s. 35(2) of the 1980 Act is a claim involving the addition or substitution of a new cause of action. A cause of action is that combination of facts which gives rise to a legal right. A cause of action in tort has, as its essential ingredients, a plea of duty, breach of duty and consequent damage to the claimant. If it happens to be the case that an element of one of those essential ingredients is misstated, misdescribed or omitted, it does not mean that a correct statement, description or inclusion is a new cause of action; even if the formal result of such a statement misdescription or omission might technically be that an unaltered claim would have to be dismissed, that still does not mean that a corrective alteration involves or constitutes a new cause of action.

Brett J said in Cooke v Gill (1873) LR 8CP107, 116:-

“‘Cause of action’ has been held from the earliest time to mean every fact which is material to be proved to entitle the plaintiff to succeed – every fact which the defendant would have a right to traverse.”

In Paragon Finance Plc v Thakerar & Co [1990] 1 AER 400, 405 Millett LJ cited that definition and added:-

“… only those facts which are material to be proved are to be taken into account. The pleading of unnecessary allegations or the addition of further instances or better particulars do not amount to a distinct cause of action. The selection must be made at the highest level of abstraction.”

In Smith v Henniker-Major [2003] Ch. 182, 210 Robert Walker LJ distinguished the question whether a new claim amounted to a new cause of action from the question whether any such new cause of action arose out of the same or substantially the same facts; in relation to the first question, after citing Millett LJ’s observation in Paragon, he said in para 96:-

“So in identifying a new cause of action the bare minimum of essential facts abstracted from the original pleading is to be compared with the minimum as it would be constituted under the amended pleading.”

What then is the bare minimum of essential facts, which can be abstracted from the original pleading? Those facts are (subject to issue (4) as to which, see below) the alleged facts that:-

It may indeed be the case that if a claimant, suing in tort, substitutes by amendment a different kind of loss from that originally pleaded, he will be asserting a new cause of action, but that will not always be so. One needs to know more of the facts of the case before one can confidently assert that the claimant is proposing to substitute a new cause of action. If an act of violence constituting a single breach of duty causes the loss of both a cat and a dog, the claimant would not be substituting a new cause of action if he substituted the word “dog” for the word “cat” but would be relying on the original cause of action which had caused loss. He would be substituting a new loss for the old loss but would not be substituting a new cause of action for the original cause of action. If on the other hand the claimant was relying on a second and distinct act of violence causing a loss at some different time from the loss originally caused to the cat, he would no doubt be relying on a different cause of action.

Thus the addition or substitution of a new loss is by no means necessarily the addition or substitution of a new cause of action. For a cause of action to arise in tort there must be a breach of duty which causes loss but it is permissible to add or substitute further losses if they all stem from an original breach of duty which has caused some loss. This happens everyday in personal injury claims in which a loss of earnings claim may be added to (or substituted for) a claim for loss and suffering, even after the original time-bar has expired; there is no question of a new cause of action being added or substituted because the loss all stems from the negligent act of the car driver or other tortfeasor see for example Stock v London Underground. 30^th July 1999 per Peter Gibson LJ at pp 7-8 of the transcript, Savings and Investment Bank v Fincken [2001] EWCA 1639 para 38 also per Peter Gibson LJ and Aldi Stores Ltd v Holmes Buildings Plc [2003] EWCA Civ 1882 para 28 per Dyson LJ.

Mr Berezovsky submits, that the new claim merely claims the same loss as originally claimed albeit under a different label (namely loss arising from the requirement that he dispose of his “contractual” interests rather than, as originally, his “beneficial” interests). Alternatively he submits that if it is a new loss, different in kind from the old loss, he is nevertheless not substituting a new cause of action for loss caused by intimidation for an original cause of action for loss caused by intimidation.

In my judgment for the reasons given above both of these arguments are individually correct. The only substantial argument put against this conclusion is that the loss is quantified by reference to the Devonia Agreement which refers to the sale and purchase of Mr Berezovsky’s “beneficial” interests in Sibneft when it is now accepted that no such beneficial interests exist under the only relevant law namely Russian law. Mr Popplewell relied on Latreefers v Hobson [2002] EWHC 1586 for the proposition that a claimant who substituted a cause of action under one law for a cause of action under another law substitutes a new cause of action for an earlier cause of action.

In that case the claimant (Liberian) company sued its directors and a number of associated companies for breaches of fiduciary duty in that they had made and partly performed a series of loss-making shipbuilding contracts with a Polish shipyard. The particulars of claim made no express reference to English law as the governing law but did refer to particular sections of the Insolvency Act 1986 in support of the claim. The defences of two of the companies alleged that some or all of the causes of action fell to be determined by Liberian law and were time barred under that law. The claimant thereupon sought leave to amend its particulars of claim to allege duties arising under Liberian law in the alternative which were in some respects wider duties than the duties of a director under English law. The Vice-Chancellor held (para 48-49) that the duties pleaded by way of proposed amendment were indeed different duties from the duties in the original particulars of claim and the proposed amendments did therefore raise new claims for the purpose of section 35 and CPR rule 17.4(2). He went on to hold, however, that the new claims arose out of the same or substantially the same facts and allowed the amendments.

Latreefers is, of course, distinguishable from the present case because the proposed amendments in this case do not allege new (Russian) law duties. They merely accept that the concept of a beneficial interest is unknown to Russian law and re-frame the loss as loss of a (contractual or other) interest. But Mr Popplewell relies on the Vice-Chancellor’s statement in para 49:-

“There can be no claim or cause of action without an underlying system of law to prescribe the remedy and the circumstances in which it is available. In my view it is self-evident that a claim made under the law of one state is a different cause of action to a claim made under the law of a different state.”

This dictum is wider than was necessary for the decision in that case where different duties were alleged and, necessarily therefore, different causes of action were also alleged. I doubt, with respect, whether the Vice-Chancellor’s wider proposition is correct for all actions in tort, if the new claim merely pleads a different measure of loss from a loss already pleaded. If the loss stems from an already pleaded breach of duty the fact that the loss may be measured by a different law from that already pleaded does not necessarily mean that there is a new claim.

It is for a similar reason that the present case is distinguishable from Steamship Mutual Underwriting Association Ltd v Trollope & Colls Ltd (1986) 33 BLR 77 on which Mr Popplewell also relied because in that case it was sought to add a claim for breach of duty in relation to the cracking and displacement of walls to a substantial new building to an original claim for breach of duty in relation to the air conditioning system.

In most cases, of course, the point is hardly likely to matter since, if a defendant pleads a foreign law and a claimant then pleads an alternative claim under that law, such claim will usually arise from the same or substantially the same facts as the original claim, as the Vice-Chancellor held was the case in Latreefers itself. But as far as the main claim in the present proceedings is concerned, it is not necessary to go down that road.

Nor for similar reasons do I consider that there is any substantial change to the nature of the alleged threat merely because the threat has become a threat to expropriate a contractual interest rather than a beneficial interest. Nor does the fact that an estoppel may be relied on make any difference since it is elementary that estoppels do not found causes of action.

I would therefore hold that the substance of the proposed amendments (as opposed to the restitution claims) does not raise a new claim or a new cause of action for the purposes of section 35 of the 1980 Act or CPR 17.4(2).

The first restitution claim is alternative to the main claim and parasitic upon it. It merely alleges that, if Mr Berezovsky cannot recover the value of any “beneficial” or “contractual” or “other” interest by reference to the Devonia agreement merely because Russian law does not recognise such interest, he is nevertheless entitled to recover the value of whatever it was that he had. This claim on any view arises out of the same or substantially the same facts as already pleaded inasmuch as it arises out of the defence which is a material consideration, see Goode v Martin [2002] 1 WLR 1828. I would not, therefore, refuse permission to make this claim.

The second restitution claim is altogether different. It supposes that, if Russian law negates the claim completely because it recognises no right of Mr Berezovsky in relation to any interest of any kind in Sibneft, he is nevertheless entitled to be rewarded on a quantum meruit basis for the work done by him in relation to the receipt by Mr Abramovich of the benefit of the majority shareholdering in Sibneft. This raises questions of fact (such as the work actually done by Mr Berezovsky, the value of the benefit in fact accruing to Mr Abramovich and whether that benefit was in fact due to the activities of Mr Berezovsky) which go well beyond the ambit of the old particulars of claim. I would hold that this claim as framed is a new claim and, on no view could this new claim be said to arise from the same or substantially the same facts as the old claim. I would, therefore, not give permission for this particular claim to be pleaded by way of amendment. It is only in this small respect that I differ from the judge’s ultimate conclusion.

Same or Similar Facts

In the light of my conclusions so far it is unnecessary to determine whether the substantive (non-restitutionary) claims arise out of the same (or substantially the same) facts as the original claims. There is much to be said on both sides of the argument and it is possible that some claims or permutation of claims might surmount the hurdle and some might not. In these circumstances, it is better not to express a final view on this question.

Summary Judgment in respect of Sibneft

Since the new proposed amendments do not (apart from one restitutionary claim) amount to a new claim or a new cause of action, a trial of the Sibneft issues will have to take place. Mr Popplewell submitted that it was desirable to consider whether summary judgment would have been granted on the original pleading, if only because there is an extant appeal in relation to the costs order of the deputy judge and it may be relevant to that appeal to come to a view on this otherwise irrelevant question.

This is, however, a complex question since it is not currently clear to me whether Mr Popplewell’s submissions were made by reference to the state of the pleadings as at:-

There is obviously force in the contention that a claim purely based on the loss of a beneficial interest would have to fail if that was all that was pleaded. But between November 2008 and April 2009 (when Mr Berezovsky’s responsive evidence was served), it was an issue whether Russian law recognised a beneficial interest which could not have been decided then and there. By stages (2) and (3) it was accepted that Russian law did not recognise beneficial interests, but the Reply contained the seeds of the alternative claim which was ultimately permitted to proceed. It is, therefore, exceedingly artificial to consider the academic question whether particulars of claim which did not expressly incorporate the Reply as it stood in July 2009 constituted a good claim. Even if (which may well be the case) they did not, one can hardly believe that, at the putative earlier strike-out application which Mr Popplewell invites one to envisage, Mr Berezovsky would not have been permitted to align the two documents. If he had been so permitted it is unlikely that his claim would have been struck out.

Further than that I am not currently prepared to go on issue (3).

The plea of threat

Much of the argument below was devoted to the question whether, if it had been sufficiently alleged that Mr Abramovich threatened that he would procure the Russian state to expropriate Mr Berezovsky’s Sibneft interests, it was also sufficiently alleged that he would in fact be able so to procure such expropriation. Mr Berezovsky argued that he did not have to plead or prove that Mr Abramovich could in fact procure that result, provided only that he (Mr Berezovsky) believed that Mr Abramovich was in a position to do so, to which Mr Brindle QC (at the time appearing for Mr Abramovich) responded that such belief was insufficient in the absence of any holding out by Mr Abramovich that he was, in fact, in a position to procure such expropriation. This latter contention is not now pursued by Mr Popplewell who confines himself to asserting that there is no sufficient plea that Mr Abramovich threatened that he would do anything at all. It is said that Mr Berezovsky’s pleading goes no further than to assert that Mr Abramovich warned that expropriation by the Russian state might occur.

The distinction between a threat and a warning is established by authority, see Santen v Busnach (1913) 29 TLR 214 and Hodges v Webb [1920] 2 Ch. 70. But the question is whether that is all that is alleged by the particulars of claim. Hodges v Webb is also authority for the proposition (if authority be needed) that a threat can be implied as well as express, depending often on the context in which it is uttered. “If you want to stay healthy, get out of London” would probably be construed as a threat if uttered by a Mafia mobster whereas it could hardly be so construed if said to a patient by his doctor.

In these circumstances I see no reason why it should not ordinarily be sufficient to allege that the defendant threatened that some act (such as expropriation) would occur. It would be a pointless threat if it did not carry with it the implication that the defendant would do what he could to ensure that the threatened action will occur. A pleading which does not spell out that implication is not, to my mind, a defective pleading because, if the defendant is in any doubt about the matter, he can ask the claimant whether it is intended to allege that the words used implied that the defendant would do what he could to ensure that the threatened action would occur. Such a request is unlikely to be made very often since in most cases it will be obvious that the answer will be in the affirmative. There is after all little point in a claimant going to the considerable expense of instructing his advocates to settle a pleading, if all he is going to allege is that the defendant merely gave a warning that a particular course of action was one that might possibly occur.

In fact the pleading in the present case goes much further than merely to allege the threat and there is, to my mind, no difficulty in spelling out from it the implication that Mr Abramovich would do what he could to bring the threatened expropriation about if Mr Berezovsky did not agree to dispose of his Sibneft interests for the supposed undervalue of $1.3 billion. It must be remembered that the disposition was to be to Mr Abramovich’s companies not to some independent party and that Mr Abramovich had therefore a personal interest in ensuring that Mr Berezovsky acted in pursuance of the threat.

For this purpose it is sufficient to set out paragraphs C41, C44(1) and (2) in relation to the threats made in and after August 2000 which culminated in the disposition of the Sibneft interests, C46(1)(a) in relation to the inducement (and implied threat) in respect of Mr Glushkov and paragraphs C51 and C52 in relation to the alleged intimidation.

“C41. From about August 2000, Mr Patarkatsishvili and Mr Abramovich met on a number of occasions. Mr Abramovich on more than one occasion informed Mr Patarkatsishvili that there was increasing pressure from the Kremlin and that Mr Berezovsky and Mr Patarkatsishvili’s interests in Sibneft could be expropriated as it was known that Mr Berezovsky and Mr Patarkatsishvili had interests in Sibneft. It was clear to Mr Patarkatsishvili (as intended by Mr Abramovich) that Mr Abramovich’s message to him and Mr Berezovsky was that they should sell their interests in Sibneft to him, or face the consequences.

C44. Mr Abramovich was well aware that Mr Berezovsky was vulnerable to the threats and pressure imposed in the lead up to and at the meeting at Munich Airport in early May 2001 (described below) given that;

(1)

From November 2000 Mr Berezovsky was a political exile from Russia. From March 2001, Mr Patarkatsishvili also was a political exile from Russia.

(2)

By contrast, Mr Abramovich was close to President Putin and part of his inner circle. …

C46(1) …

(a). Mr Patarkatsishvili raised the issue of releasing Mr Glushkov from jail. Mr Abramovich told Mr Patarkatsishvili that although Mr Glushkov had not been released in December 2000, if Mr Berezovsky and Mr Patarkatsishvili were to sell their interest in Sibneft to him, Mr Glushkov would now be released;

C51. Mr Abramovich undertook a course of conduct in which he made and was a party to the explicit and implicit coercive threats and intimidation pleaded above, including, as inextricably intertwined with the Sibneft transaction, the threats and intimidation relating to ORT.

C52. The course of conduct and the statements made by Mr Abramovich were unlawful and/or illegitimate in that they

(1)

threatened improper and unlawful state conduct interfering in legitimate business dealings and interests and expropriating property without justification for political ends;

(2)

used Mr Glushkov’s liberty, physical well-being and survival as a commercial bargaining chip;

(3)

interfered with rights under Article 1 of protocol No. 1 of the European Convention on Human Rights; and

(4)

were threats to act in breach of fiduciary duty and/or in breach of the duties owed by Mr Abramovich to Mr Berezovsky and Mr Patarkatsishvili pursuant to the 1995 and/or 1996 Agreements and/or as common owners of Sibneft shares.”

Reading those paragraphs, any informed and reasonable person would understand that Mr Berezovsky was alleging that Mr Abramovich was threatening (at any rate impliedly, if not expressly) that he would do what he could to bring about the threatened expropriation of Mr Berezovsky’s Sibneft interests if he was not prepared to sell at an undervalue to Mr Abramovich.

Fearful that the court might not accept his submissions in relation to sufficiency of the intimidation plea, Mr Rabinowitz QC for Mr Berezovsky offered to serve what he called “voluntary further information” under paragraph 51 of the particulars of claim in addition to that which had already been provided under that paragraph. I do not consider that the supplying of such information is necessary to rescue the pleading from any inadequacy but it is right to record what this further information states if only to make clear the current terms of the allegation:-

“Mr Berezovsky’s case is that:

(1)

The statements pleaded at paragraph C41 were implicit threats, in that Mr Abramovich intended by these statements to cause Mr Berezovsky and Mr Patarkatsishvili to fear that, unless they sold their interests in Sibneft to Mr Abramovich, Mr Abramovich would use his influence within the Putin regime to seek to cause their interests to be expropriated.

(2)

The statement pleaded at paragraph C46(1)(a) was an implicit threat, in that Mr Abramovich intended by this statement to cause Mr Berezovsky and Mr Patarkatsishvili to fear that, unless they sold their interests in Sibneft to Mr Abramovich, Mr Abramovich would use his influence within the Putin regime to seek to ensure that Mr Glushkov would not be released from prison.

(3)

No conduct of others is relied upon as constituting threatening conduct.”

We were informed that Mr Berezovsky had agreed the truth of such facts as are contained in this further information and would sign the necessary declaration to that effect.

The application to strike out the claim because the threat is insufficiently pleaded is, therefore, misplaced and I would uphold the judge’s decision under this head.

Act of State

Mr Popplewell reminded us that there were two overlapping principles potentially applicable. The first may be called the pure “act of state” principle namely that the English court will not usually adjudicate upon or call into question acts done by a sovereign government in its own territory; the second may be called the “judicial abstention principle” whereby a court will not engage in assessing or determining issues which call into question acts of a foreign sovereign, either within or outside its territory, if there are no measurable standards by which such assessment or determination can be made. On the basis of Al-Koronky v Times Life Entertainment [2006] EWCA Civ 1123 para 42, Mr Popplewell accepted, at this level of authority, that potential conduct of a state in the future could not fall within the first principle because the principle only applied to acts which have already occurred. The second principle could in an appropriate case, however, apply to future acts.

Mr Rabinowitz submitted that the only acts to which the pure principle of act of state could apply were therefore the pleaded acts which had already occurred in relation to ORT. He further submitted that these acts were mere background to the dispute between the parties and were collateral matters which went to support the allegation that Mr Berezovsky believed that Mr Abramovich would carry out his threat to do what he could to ensure the disposition of the Sibneft interests at an undervalue. As such the act of state principle had no application. The judge accepted this contention but, more fundamentally Mr Rabinowitz submitted that the act of state principle only applied when the English court was asked to conclude that the act of the foreign state was invalid; it was merely a principle that no court could be asked to say that an act of a sovereign state had no validity. But there was no principle saying that a court could not inquire into the question whether any particular act had occurred which was all that Mr Berezovsky was asserting by his pleadings in the present case. Not only that but by virtue of a well recognised exception to the act of state doctrine, the court could enquire into the lawfulness of a particular act of an individual state if it was asserted that the act was a breach of international law or (apparently a gross) breach of human rights. These were submissions on which the judge gave no opinion. They are somewhat far-reaching but it may be necessary to express a view upon them if the judge’s decision as to collaterality is open to question.

It seems to me, therefore, that the following issues arise

Conduct of the Russian state relied on

I have already set out the acts relied on in relation to ORT; the salient acts which could be said to be those of the Russian state are

Assertion of invalidity

The relevant assertion is that the above acts happened; it is also asserted that the acts were such as to persuade Mr Berezovsky that Mr Abramovich’s illegitimate or wrongful threats in relation to Sibneft were serious and were intended to lead to a similar result as the similar threats in respect of ORT. It is nowhere alleged that any of the acts relied on in relation to ORT were invalid. It is accepted that the transfer of the interests in ORT took place and cannot be set aside. For good measure, Mr Rabinowitz made clear that Mr Berezovsky did not contend that Mr Glushkov’s arrest was wrongful at the time of the arrest. The wrongfulness relied on is the use of Mr Glushkov as a bargaining counter at the time of the threats made in relation to Sibneft.

The question of the true ambit of the act of state doctrine therefore arises in this way. Does the doctrine prevent the court inquiring whether acts by the president of the relevant state (or his associates) actually happened or is it confined, as Mr Rabinowitz submits, to decisions about the validity of such acts?

Ambit of the act of state principle

Two recent cases have considered the ambit of the act of state principle. In Regina v Bow Street Metropolitan Stipendiary Magistrate and Others, Ex parte Pinochet Ugarte (No. 3) [2000] 1 A.C. 147 at 286 Lord Phillips articulated the principle thus:

“… it is contrary to international law for one state to adjudicate upon the internal affairs of another state. Where a state or a state official is impleaded, this principle applies as part of the explanation for immunity. Where a state is not directly or indirectly impleaded in the litigation, so that no issue of state immunity as such arises, the English and American courts have none the less, as a matter of judicial restraint, held themselves not competent to entertain litigation that turns on the validity of the public acts of a foreign state, applying what has become known as the act of state doctrine.”

In Kuwait Airways Corporation v Iraqi Airways Co (Nos. 4 and 5) [2002] 2 A.C. 883, 1108 para 135 Lord Hope of Craighead said:-

“There is no doubt as to the general effect of the rule which is known as the act of state rule. It applies to the legislation or other governmental acts of a recognised foreign state or government within its own territory. The English courts will not adjudicate upon, or call into question, any such acts.”

Mr Rabinowitz submitted that, as Lord Phillips said at the end of the quotation from Pinochet, the act of state principle only applies to litigation that turns on the validity of the public acts of a foreign state. He also relied on the decision of the United States Supreme Court in Kirkpatrick v Environmental Tectonics Corporation International 493 US 400, 110 Sup Ct. Rptr 701 (1990). In that case Kirkpatrick had secured a lucrative Nigerian government contract by bribing a government official. A disappointed competitor sued Kirkpatrick for damages under the Racketeer Influenced and Corrupt Organisations Act and the parties were in agreement that both under United States law and Nigerian law the payment and receipt of bribes in connection with government contracts were unlawful. Kirkpatrick applied to dismiss the actions on the basis of the doctrine of act of state but the Supreme Court refused to do so saying per Scalia J at para 406 and 705 respectively:-

“Act of state issues only arise when a court must decide – that is, when the outcome of the case turns upon – the effect of official action by a foreign sovereign. When that question is not in the case, neither is the act of state doctrine. That is the situation here. Regardless of what the court’s factual findings may suggest as to the legality of the Nigerian contract, its legality is simply not a question to be decided in the present suit, and there is thus no occasion to apply the rule of decision that the act of state doctrine requires. Cf. Sharon v Time, In., 599 F.Supp. 538, 546 (SDNY 1984) (“The issue in this litigation is not whether [the alleged] acts are valid, but whether they occurred”).”

This powerful statement of the ambit of the act of state doctrine is entitled to great respect, especially since decisions of the English courts have influenced those of the United States on this topic just as decisions in the United States have influenced our own decisions, see Kuwait Airways in the Court of Appeal [2002] 2 A C at pages 966-968 per Rix LJ. Moreover, Mr Popplewell very properly referred us to A Ltd v B Bank [1997] 1.L.Pr. 586 in which this court, as part of its ratio, applied Kirkpatrick to allow a patent infringement claim (in relation to the kind of paper on which a foreign state issued its currency) to go ahead in the courts of this country, although the national Bank of that foreign state intervened in order to assert that the claimants were calling into question the right of the state to issue and circulate its currency. The claim was made against a bank which kept the banknotes of the foreign state and disposed of them in England. No claim was made against the foreign state or its bank or the manufacturers of the notes, who were in Italy. This court, apparently accepting all the submissions of Mr Jonathan Sumption QC, gave the interveners short shrift and decided

Nevertheless some caution may be appropriate. Lord Hope has, subsequently to A Ltd, in Kuwait Airways reiterated the traditional English law formulation that the court will not “adjudicate upon or call into question” acts of a foreign state within its own territory. If it were an essential part of an English litigant’s case that an act of a foreign state was “wrongful” whether by its own law or by international law, and if that was disputed by the other side, it could well be said that that argument (and any decision upon it) was indeed “adjudicating upon or calling into question” that act, even if it was not specifically alleged that the act was “invalid”. It is worth remarking that Dicey, Morris & Collins, Conflict of Laws, 14^th ed (2006) para 5 – 045 cites Kirkpatrick without any endorsement and does not even refer to it in the Table of Cases.

This perhaps difficult question does not, however, need to be resolved in the present case because not only is it no part of Mr Berezovsky’s case to say that the acts on which he relies were invalid; it is no part of his case either to say that they were wrongful. His concern is only to prove that they occurred as appears to have been the case in Sharon v Time Inc. quoted in the above citation from Kirkpatrick. In these circumstances I cannot think that any question of act of state can arise and the only legitimate question is whether the court should decline to entertain the question whether the “ORT facts” occurred on the basis of the allied doctrine of judicial restraint or non-justiciability.

Collaterality

In these circumstances the question of collaterality, on any strict view of the matter, does not arise. The judge said that the matters relied on were so collateral that no question of act of state arose. If he meant by that that there was no need to consider whether the acts relied on were invalid or wrongful, then I agree with him. If, however, he meant that they were so subsidiary to the main questions arising in the case that they could remain an issue in the action, I would not agree with him because it is plain that Mr Berezovsky considers the history of the ORT transaction to be important for his case as a whole. If he chooses to rely on those facts and matters, it does not lie in his mouth to say that they are insufficiently central to his case to avoid the principle of act of state if it were otherwise engaged. Since it is not, I need say no more about collaterality.

Public Policy

Although there may be some room for development of the law if, for example, what would otherwise be an act of state in a signatory to the European Convention for Human Rights was contrary to that Convention, this is not an appropriate case for such development, since it is not necessary for the court’s decision.

Non-justicability

This can arise in two separate circumstances. The first is in a Buttes Gas & Oil v Hammer [1982] AC 888 type case where the court has no measurable standard of adjudication or is in a judicial no-man’s land. That was the position in that case where a decision would have required consideration of the territorial claims of four different states each with its own laws. The other case arises if there is reason to suppose (usually as a result of a communication from the Foreign Office) that an investigation into the acts of a foreign state would embarrass the government of our own country.

Neither of these considerations arises in the case of the pleadings in the present form. The main question is whether the facts and matters relied on actually happened; the English courts are well equipped to determine that question. There is no judicial no-man’s land and the court has accepted standards of adjudication. It would be a rare case in which the court of its own motion would strike out parts of a case (or stay properly brought proceedings) on the basis of possible embarrassment to a foreign power. No doubt there is an area where the English courts and the English executive should speak with a single voice but in such cases it has to be the executive which speaks first.

& (8) Rusal: English or Russian law/Express agreement for English law

There are two main issues on this part of the case. The more important is whether the court can be sure at this interlocutory stage that the law governing the alleged fiduciary or contractual relationship of Mr Berezovsky and Mr Abramovich with regard to the Rusal shareholdings was Russian law so that all claims are now time-barred or whether it is arguable that English law applies in which case no question of time-bar arises and the case can go ahead. The second issue is whether a late proposed amendment by which Mr Berezovsky alleges that there was an express agreement that the relationship was to be governed by English law should now be permitted.

Once Mr Abramovich had served his defence asserting that Russian law applied to the alleged trust relationship which had come into existence regarding the Rusal shares, Mr Berezovsky pleaded that the governing law of the trusts relied on had to be a law which recognised the validity of such trusts; he further alleged that it was implicit in the agreement reached that the governing law was not to be Russian law and that the governing law was or should be deemed to be the law of the British Virgin Islands, where (it will be recalled) the six companies owning the share capital of Rusal were incorporated, or English law.

I have already recorded the allegation that the contracts by which Mr Berezovsky, AP and Mr Abramovich acquired the original aluminium assets (before any agreement with Mr Deripaska was reached) contained an express English law clause. Mr Abramovich has, moreover, disclosed a preliminary agreement made with Mr Deripaska in relation to the proposed merger of their aluminium assets which also contains an express English governing law clause; there was also an agreement subsequent to the Dorchester Hotel meeting in relation to the merger of the assets also between Mr Abramovich and Mr Deripaska which also contained an English governing law clause. Mr Berezovsky alleges that both these agreements were made on behalf of himself and AP and also alleges (for the first time) that the reason why English law had been chosen for those agreements was that it has been expressly agreed orally either before or at the Dorchester Hotel meeting that he, AP and Mr Abramovich would make their arrangements regarding the proposed merger subject to English law. It is this latest allegation (by way of proposed amendment to the Reply) which Mr Abramovich submits should not now be allowed because it is such an obvious later afterthought that it cannot have any credence.

The judge decided that in the light of the history of the matter, even if one excluded any express oral agreement for English law, it was “strongly arguable that there was an implication of English law to be the governing law of the trust”.

The reason why the judge focused on English law as being arguably the implied governing law of the trust was (1) that section 1(2) of the Recognition of Trust Act 1987 applies the Hague Convention on the Law Applicable to Trusts even to oral trusts although the Convention itself only applies on its own terms to trusts evidenced in writing and (2) that the governing law of trusts is stated in Article 6 to be subject to any express or implied choice of the parties. If there is neither an express nor an implied choice then, by Article 7, the trust is governed by “the law with which it is most closely connected”.

Mr Popplewell submitted that, in truth, there was no serious argument that there was an implied choice of English law because the parties were, at the time of the meeting at the Dorchester Hotel, all resident and domiciled in Russia, the assets of the trust (in the form of aluminium plants which were in due course to be owned by Rusal) were in Russia and the trust would have to be administered in Russia. The pre-trust acquisition agreements could have nothing to do with the matter and the pooling agreements could only be marginally relevant at most since Mr Berezovsky did not see them at the time and was unaware that any of them had an English law clause. In any event the law of agreements which vested property in the trust could not decide what the governing law of the trust itself was, especially if they post-dated the trust.

Although there is currently no authority in relation to the correct approach of a court in deciding whether there is an implied choice of the law governing a potentially foreign trust, it must be arguable that what was said at the time when the trust was set up and the matrix within which that agreement was made are both highly relevant considerations. It will apparently be Mr Berezovsky’s evidence that, when the aluminium interests were being acquired by AP and Mr Abramovich, they said they were making their arrangements through offshore structures and “subject to Western law” whatever that may be. In the context of the proposed merger with Mr Deripaska, AP said that it was important that the arrangements be protected in a proper “British law way”. This and similar evidence may be very important on the question of an implied choice of law because Mr Abramovich apparently proposes to argue (and has expert evidence to support him) that any inquiry into the law with which the trust is most closely connected pursuant to Article 7 could not take account of the fact that Russian law has no concept of a trust. If the judge at trial decided that Mr Berezovsky’s evidence in relation to Rusal is basically correct and that any inquiry pursuant to Article 7 cannot take account of the fact that the very law with which the trust might be most closely connected would ignore the fact that a trust had been created, the question of implied choice of law is likely to assume considerable significance.

In these circumstances the judge may have gone a little far to say that it was “strongly arguable” that English law was to be implied as the governing law but on any view it is arguable that that is the right implication. It is artificial to think that a summary decision can be made either way in the absence of evidence relating to what was agreed at the time and the matrix within which that agreement was made. It is not a suitable issue for summary judgment.

The judge felt that it would therefore be impracticable (and no doubt artificial) to exclude evidence of an express agreement as to English law and to prohibit an amendment so to allege even though it was made very late and would probably have been made initially if any such agreement had in fact been made. I agree with the judge in what was effectively a case management decision; even if I did not I would be most reluctant to disturb it. The result is that in agreement with the judge I would allow the Rusal amendment.

In the result I agree with the judge in the way that he disposed of the applications before him save for one of the many pleas put forward by Mr Berezovsky.

I agree.

I also agree. This has been a major interlocutory appeal lasting 7 days. It must have been even more demanding for the judge than it has been for this court. Since this is almost certainly the last time when this court will consider a judgment of Sir Anthony’s it is appropriate to say that we are lost in admiration at the way he has marshalled the numerous issues and disposed of them in a way with which (save in one minor respect) this court finds itself in entire agreement.