Filatona Trading Ltd & Anor v Navigator Equities Ltd & Ors

The main question raised on this appeal is, in what circumstances does the wording of a contract preclude the intervention and reliance on that contract by a disclosed and identified principal?

In a judgment dated 7 February 2019, Teare J (‘the Judge’) found that one of the respondents to these appeals, Mr Vladimir Chernukhin, was the disclosed and identified principal although he was not named as a party to the contract and that, as such, he was entitled to rely on its terms.

The Judge identified a disclosed principal by reference to article 2(1) in Bowstead and Reynolds on Agency (21st ed, 2018) at §1-039: as ‘a principal, whether identified or unidentified, whose interest in the transaction as principal is known to the third party at the time of the transaction in question’; and proceeded on the basis that the person claiming to be a disclosed principal had the burden (legal, if the claimant, and evidential if the defendant) of showing that, notwithstanding that he was not named as the party to the contract, he was in fact the principal of one of the named parties (Ms Lolita Danilina) and that the other party (Mr Oleg Deripaska) knew this, see judgment at [63]. However, as the Judge also recognised, the fact that a party was a disclosed principal of a named party and the other party to the contract knew this, did not entitle the disclosed principal to enforce the contract if its terms, expressly or impliedly, confined the contractual rights to the named parties, see judgment at [64]. Having considered this issue, the Judge concluded that neither the terms of the contract nor its surrounding circumstances showed that Mr Deripaska was only prepared to accept Ms Danilina as the counterparty; and that the terms of the contact did not ‘unequivocally and exhaustively’ define the parties to it, see judgment at [317].

In the light of the Judge’s finding of fact that Mr Chernukhin was the principal party to the contract, that Ms Danilina was his nominee and that Mr Deripaska knew this, the argument on the appeal focussed on the second aspect of the Judge’s finding: namely, whether the terms and surrounding circumstances of the contract, either expressly or by necessary implication, excluded Mr Chernukhin from exercising contractual rights (including the right to arbitrate).

The contract in question was a Shareholder Agreement (the ‘SHA’) dated 31 May 2005. Two sets of parties were named in the SHA: on the one hand, the appellants in the first appeal (Mr Deripaska and Filatona Trading Limited), and on the other, the appellant in the second appeal (Ms Danilina) and one of the respondents in each appeal (‘Navigator’). The SHA was expressed in the Russian language; but subject to the substantive law of England and Wales (clause 12.5) and arbitration at the London Court of International Arbitration in accordance with its rules (clause 12.1).

Although it will be necessary later in this judgment to consider some of the particular provisions of the SHA, the relevant terms are set out for convenience in an appendix to this judgment.

The Judge’s findings that Mr Chernukhin was the disclosed but unnamed principal party and that Ms Danilina was his nominee cannot be challenged on this appeal in view of the limited basis on which permission to appeal was granted.

There was a minor dispute as to whether it was necessary to consider the terms of the SHA before considering the background or the other way around. However, since it is common ground that the SHA contains no reference to Mr Chernukhin, it will be sensible to start by considering why this was so. Ultimately, the order in which a court approaches such issues may not matter, providing it considers both aspects of construction. Lord Hodge (with whom the other members of the Supreme Court agreed) expressed an analogous point in Wood v. Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173 at [12]:

Ms Danilina and Mr Chernukhin met in 1989 and began to live together in 1991. Both were financially sophisticated. Ms Danilina had been involved in a textile business; and in 1996 Mr Chernukhin had joined a Russian Financial institution, Vneshekonombank (‘VEB’), rising to the position of Vice-Chairman by 1999. In

Mr Deripaska accepted in evidence that Ms Danilina did not have sufficient money to make a substantial investment (see judgment at [80]); and that the source of the wealth on the other side of any transaction was Mr Chernukhin.

In 2001, Mr Chernukhin had learnt of the possibility of acquiring a controlling interest in a textile company, OJSC Trekhgornaya Manufaktura (‘TGM’) at a price in the region of US$10m, see judgment at [84]. The attraction of the acquisition was the development potential of its large site in central Moscow. Mr Chernukhin approached Mr Deripaska as a potential partner in the venture because he wanted a prominent businessman to be the public face of the project; and it was agreed between Mr Chernukhin and Mr Deripaska that each would contribute equally towards the purchase. The parties’ intention was to develop the site and move TGM’s business outside Moscow, with Ms Danilina being involved in running it.

Shares in TGM were purchased over a period of time by companies owned by Mr Deripaska; and by July 2004, 75.4% of the shares had been acquired. In a later document, the Settlement Agreement Act, both parties to the SHA agreed that each of

The joint venture agreement to acquire the controlling interest in TGM was not recorded in any document at the time, see judgment at [96]; and although the interest began to be acquired in 2002, the parties to the joint venture did not record their agreement in a binding document until the SHA in May 2005. Mr Chernukhin’s explanation for this, which the Judge accepted, was that he needed to be discreet in relation to an investment of this sort at a time when he was Deputy Minister of Finance and Chairman of VEB. It was in these circumstances that he relied on Mr Deripaska’s ‘word of honour’ in relation to his investment in TGM. The Judge accepted that there was contact between Mr Deripaska and Mr Chernukhin between 2002 and 2004 in relation to their investment in TGM, see judgment at [110].

On 27 May 2004, Mr Chernukhin was summarily dismissed from his government post and as Chairman of VEB, and left Russia shortly afterwards, never to return.

At this point, although the legal title to the shares rested with Mr Deripaska’s companies, ‘Party 2’ seems to have provided the new management; and from June to September 2004, various draft terms sheets were produced, followed by the exchange of various drafts of what was to become the SHA.

Mr Kargin (the third respondent in the second appeal) was involved in the negotiations leading up to the signing of SHA (in 2004-5), the incorporation of Navigator and events in relation to the Compass Trust, which held the shares in

The SHA described the agreement as:

Mr Chernukhin was not named anywhere in the SHA and did not sign it. It was signed by a director on behalf of Filatona (Shareholder 1) and by Mr Deripaska as Beneficial Owner 1. It was signed by Mr Kargin on behalf of Navigator (Shareholder 2), and by Ms Danilina as Beneficial Owner 2.

A Supplemental Agreement was also signed on 31 May 2005. The Supplemental Agreement had the same parties as were named in the preamble to the SHA. Its material terms were in the terms of an agreement:

Clause 1 was intended to make clear that any transfer by Ms Danilina to Mr Chernukhin would not amount to a ‘change of control’ for the purposes of clause 10 of the SHA. It will be necessary to return to the Supplemental Agreement in the context of an argument by Mr Fenwick QC (for Mr Deripaska) that, if Mr Chernukhin were a party to SHA with enforceable rights, Ms Danilina (as Beneficial Owner 2) would have had nothing to transfer to him.

In October 2005, Compass View transferred its shares in Navigator to a BVI company. This was owned by a Liechtenstein entity of which Mr Chernukhin was the beneficiary.

On 14 March 2006, an addendum to the SHA was agreed, which provided for the purchase of another textile company, some distance from Moscow for US$3.5m.

On 24 May 2006, Navigator paid US$6.25m to Navio. On 26 May, Filatona paid the same amount to Navio; and on the same day Navio purchased the shares in TGM from Mr Deripaska’s companies for US$12.5m, see judgment at [153]. At this stage, the joint venture which had initially been agreed in late 2001 was governed by the SHA and the Supplementary Agreement. Navio owned 75% of the shares in TGM, both parties, according to their signed Settlement Reconciliation Act, having contributed more or less equally to the purchase of the shares.

By February 2007, the relationship between Mr Chernukhin and Ms Danilina was at end, see judgment at [183]. Her case at trial was that, at a meeting in Zurich at about this time, Mr Chernukhin had agreed orally to the division of their joint assets; and that Party 2’s interest in TGM under the SHA would remain (as, on her case, it always had been) an asset of hers alone. This constituted the overlap between what was referred to at trial as her ‘TGM claim’ and ‘Family Assets claim’.

During 2009, differences arose as to how the business of TGM was to be run, see judgment at [221], with Mr Deripaska wanting to replace the General Director, in order to concentrate on the development potential of the central Moscow site. In December 2010, the General Director tendered his resignation in a letter addressed to Mr Chernukhin and Mr Deripaska. Shortly afterwards, the TGM site was forcibly taken over in circumstances set out in the judgment at [242]-[249]. The Judge described the circumstances as ‘of interest to observers of modern-day Russia’, but acknowledged that they did not assist him in determining the issues he had to decide.

The forcible takeover of TGM’s site and business brought about a claim by Mr Chernukhin and Navigator (‘the Chernukhin Parties’) against Mr Deripaska and Filatona (‘the Deripaska Parties’) under the arbitration clause in the SHA. In response Mr Deripaska contended that Mr Chernukhin was not a party to the SHA and that only Ms Danilina could bring an arbitration claim as Beneficial Owner 2.

Following a challenge by the Deripaska Parties to the Tribunal’s jurisdiction, a hearing took place, following which the Tribunal delivered a partial final award on 16 November 2016. It dismissed the Deripaska Parties’ challenge and concluded that it had jurisdiction to determine the Chernukhin Parties’ claims.

On 14 December 2016, the Deripaska Parties brought proceedings under s.67(1)(a) of the Arbitration Act 1996 challenging the Tribunal’s determination as to its jurisdiction. Paragraph 4 of the grounds claimed:

On 23 December 2016, 10 days after issuing the s.67 proceedings in the Commercial Court, the Deripaska Parties entered into an agreement with Ms Danilina, which was described as the ‘Interest Purchase Option and Assignment of Rights’ (the ‘Option Agreement’). The preamble recorded that their views on the parties to the SHA were the same: namely that Ms Danilina was a party to the agreement and that Mr Chernukhin was not. Under the provisions of the Option Agreement, Ms Danilina agreed, among other obligations, to provide ‘oral and/or written testimony’ in the arbitration, (§5.2(a)); and to commence ‘such other litigation as might relate to or affect the Arbitration as Filatona might reasonably request in any court of competent jurisdiction,’ (§5.2(d)). The Option Agreement also stipulated that Ms Danilina should ‘not communicate with … or provide any information or documents to any person … including, inter alia, Chernukhin, Navigator and/or their solicitors’ (§5.6). In consideration of these contractual promises, Filatona agreed to pay Ms Danilina the sum of US$2 million, with a further payment of US$10 million if she were able to obtain ‘confirmation’ of her ‘title’. Unsurprisingly the terms of the Option Agreement figured in the course of the trial; and it will be necessary to consider the agreement later in this judgment.

On 22 February 2017, Ms Danilina issued a Part 7 claim in the Commercial Court in which she advanced her claim that she, and not Mr Chernukhin was a party to the SHA and entitled to exercise the rights of Beneficial Owner 2 (‘the TGM claim’). Vadim Kargin was an additional defendant to the TGM claim. Her claim against him was for damages for (i) breach of an alleged agency agreement by which he was to procure the incorporation of an off-shore company to hold her interest in TGM, and (ii) his part in an alleged conspiracy with Mr Chernukhin to injure her by unlawful means. In addition, she claimed to have acquired an interest in various other assets pursuant to oral agreements with Mr Chernukhin (the ‘Family Assets Claim’).

Since the TGM claim raised common issues with Mr Deripaska's jurisdiction challenge, an order was made that they be tried together, and with the Family Assets claim.

In the meantime, a subsequent hearing on the merits had taken place before the arbitrators in March 2017. In a second partial final award, made on 20 July 2017, the Tribunal found that the Chernukhin Parties had suffered oppressive conduct as minority shareholders in Navio, within the meaning of s.202 of the Cyprus Companies Law, Cap 113. The Tribunal ordered the Deripaska Parties to buy the Chernukhin Parties’ shares in Navio at a price of US$95,181,285 within 42 days.

The trial before the Judge took place in November and December 2018, and January 2019.

Although a considerable amount of oral evidence was led as to the true parties to the SHA, the Judge found that the main witnesses (Messrs Deripaska and Chernukhin, and Ms Danilina) could not be relied on to give truthful evidence. Consequently, in general, he approached their evidence on the basis that it could not be relied on,

The identity of parties to a contract is generally a factual question which does not give rise to any questions of legal principle, see for example Chitty on Contracts, 33rd edition, (2018) at §18-004.

A disclosed principal to a contract is a principal, whether identified or unidentified, whose interest in the transaction is known to the counterparty at the relevant time, see for example, Bowstead & Reynolds on Agency (21st ed.), at 1-039. As such a disclosed principal:

The principle that an agent acting within the scope of an express or implied actual authority binds his principal to the contract is well-established, see for example: Calder v. Dobbell (1871) LR 6 CP 466, and the Privy Council decision in Basma v. Weekes [1950] AC 441 at 454.

Although in the present case the Judge found that Mr Chernukhin was a disclosed and identified principal party to the SHA, and although the parties were not able to identify any case in which a disclosed principal had been excluded from suing or being sued on a contract to which he was a party, it was common ground that the terms of the contract and the surrounding circumstances might demonstrate an intention, expressly or by necessary implication, to exclude a disclosed party from the contract.

It was in these circumstances that we were referred to a number of cases on how the courts approach the question when considering an undisclosed principal in order to identify an analogous approach.

The editors of Bowstead & Reynolds at 8-068 summarise the rights and liabilities of undisclosed principals in two relevant rules:

Paragraph 8-069 contains part of the commentary on rule (1), and includes:

Paragraph 8-079 contains the commentary on rule (4) and includes:

Further on, the editors add:

Three material points arise. First, there is the possibility of inserting an express clause into a contract so as to exclude the possibility of intervention by an undisclosed principal. This is a matter relied on by the respondents.

Second, there may be contracts in which a party is identified by a material description which applies only to that party and where the intervention of an undisclosed principal may be presumed to be excluded: for example, in a contract to paint a portrait, where the identity of the painter is likely to be crucial. These types of contract are sometimes identified by reference to the decisive nature of the ‘personality’ of the party to the contract. They are cases where the circumstances make it clear that the counterparty would not be willing to contract with an undisclosed principal.

Third, in the opinion of the editors of Bowstead & Reynolds, although the contractual terms and the surrounding circumstances may lead to the conclusion that a principal’s intervention is excluded, this will not occur often. In commercial contacts this is due to what has been described as the ‘beneficial assumption’ referred to in the judgment of Diplock LJ in Teheran-Europe Co Ltd v. S.T. Belton (Tractors) Ltd [1968] 2 QB 545, at p.555, see below.

In the present case, the Judge’s starting point was to direct himself as to the ‘heavy burden’ on Mr Chernukhin to establish, contrary to what the SHA stated, that he was the Beneficial Owner of Navigator, that Ms Danilina only signed the SHA as his nominee or agent and that Mr Deripaska knew this. The Judge was satisfied that he had discharged this burden.

A convenient starting point is the decision of the Court of Appeal in the TeheranEurope case (above) and the judgment of Diplock LJ at p.555:

In the advice of the Privy Council in the Siu Yin Kwan case(Administratrix of the estate of Chan Ying Lung deceased) and anor v. Eastern Insurance Co. Ltd [1994] 2 AC 199, Lord Lloyd at 207D said:

Mr Fenwick submitted that these were observations made in the context of what

In Aspen Underwriting Ltd v. Credit Europe Bank NV [2018] EWCA Civ 2590, Gross LJ giving the leading judgment, also referred to the possibility of excluding the right of an undisclosed principal to sue or be sued, at [47]:

More recently in Kaefer Aislamientos de CV v. AMS Drilling Mexico SA de CV [2019] EWCA Civ 10at [55], Green LJ summarised the relevant principle:

In the present case, the relevant enquiry involved two questions. First, why was Mr Chernukhin not named as a party to the SHA? Secondly, in the light of this circumstance, is the SHA to be construed as excluding him from the contract?

This was the Judge’s approach.

The Judge dealt with this in [173]-[174]:

This led to the Judge’s important conclusion, expressed at [176]:

At [177] of the judgment, the Judge came to two further significant conclusions on the facts. First, he found that it was more probable than not that Mr Deripaska knew that

Later in the judgment, he added this:

He concluded:

It is important to note that the Judge did not treat his findings as determinative of either Mr Deripaska’s challenge to the jurisdiction of the arbitrators or Ms Danilina's claims; and that he regarded it as necessary to consider whether the terms of the SHA were such as to exclude Mr Chernukhin from suing or being sued on the SHA as the disclosed principal of Ms Danilina.

At [294] of the judgment, the Judge observed that, in the light of the long-established right of a principal, whether disclosed or undisclosed, to enforce a contract made by his agent, ‘very clear words’ were required to show that only the named party rather than his principal were intended to have the right to perform the contract.

Mr Fenwick had two broad submissions. First, he argued that where a contract ‘unequivocally and exhaustively’ defined the parties to it, it was impermissible to seek to contradict it, see Aspen Underwriting Ltd and others v. Kairos Shipping Ltd and others ‘The Atlantik Confidence’ [2017] EWHC 1904 (Comm), Teare J at [42][43]. In the present case, the SHA had that effect. Secondly, he submitted that there were good reasons in the present case why Mr Chernukhin wanted the contract unequivocally and exhaustively to be seen to exclude him: while he held high political office and was Chairman of VEB, it was expedient to keep any commercial interests entirely out of sight; and that, once he had left Russia, he did not wish to advertise his interest in TGM.

In my view the Judge was right to ask himself whether there were clear and unambiguous words or indications of an intent to exclude the known and identified principal. The expression ‘very clear’ used by the Judge may bring an emphasis to the exercise, where the principal is disclosed, but does not add very much to what is a general principle of construction that clear and unambiguous language is necessary before a court will hold that a contract has removed rights or remedies which one of the parties to it would have at common law.

The principle finds expression in Gilbert-Ash (Northern) Ltd v. Modern Engineering (Bristol) Ltd [1974] AC 689 at 717G, where Lord Diplock, in the context of the right to exclude a remedy for breach of contract for the sale of goods or for work and labour, observed:

In Seadrill Management Services Ltd v. OAO Gazprom [2010] EWCA Civ 691 at [29], Moore-Bick LJ said that:

The speech of Lord Jauncey of Tullichettle in Trafalgar House Construction (Regions) Ltd v. General Surety & Guarantee Co Ltd [1996] AC 199 at 208C is to similar effect:

So far as Mr Fenwick’s second point is concerned, the Judge very plainly had in mind the reasons why Mr Chernukhin was not named in the SHA. It formed an important foundation for his conclusion that he was a party to the contract.

Mr Fenwick relied on a number of features of the SHA and the background as demonstrating a common intention that Ms Danilina was to be treated as Beneficial

He pointed out that in the preamble, where the parties were named, there was no reference to Mr Chernukhin.

Plainly, the naming of the parties in a contract does not ‘unequivocally and exhaustively’ define the parties to it. As the Judge put it at [296] of the judgment:

As such, and by itself, the fact that an undisclosed principal is not named in the contract is the start of the enquiry as to the presumed intention of the parties.

Mr Fenwick questioned how Navio would know the identity of Beneficial Owner 2 and how the SHA was to work if Mr Chernukhin could intervene whenever he liked. The answer to the first question is that Navio’s interest would have been in the Shareholders, not the Beneficial Owner and the Shareholders were always Filatona and Navigator. The answer to the second question would normally be answered by reference to the agreement by which the principal appoints his nominee. This does not appear to be a matter investigated at trial, perhaps because Ms Danilina denied she was anything of the sort.

The obligations of the Beneficial Owners were described at clause 2.2:

Clause 2.2 demonstrates that the intent of the SHA was to bind not only the corporate bodies (Filatona and Navigator), but also of their respective Beneficial Owners to the terms of the SHA. Mr Fenwick submitted that both parties proceeded on the basis that Ms Danilina was to be treated as the party with the contractual rights and duties under the SHA. She was the one with the particular skills to make the business of a textile company succeed, and there were sound political reasons why Mr Chernukhin would not want to be identified as a party.

The Judge acknowledged Ms Danilina’s expertise in the textile business, see judgment at [118]; but made clear findings that one of the primary obligations of Party 2 was a funding obligation, which both parties knew would be carried out by Mr Chernukhin:

At [304] of the judgment, the Judge recognised the difficulties that Mr Deripaska might have in proving that Mr Chernukhin was a party to the SHA and that Ms Danilina was only his nominee: the lack of any documentation to support the claim, which would have to be proved in a foreign language arbitration if he wished to enforce the contract against Mr Chernukhin. However, the Judge also found that this was a risk that Mr Deripaska would have been prepared to take in order to bind Mr Chernukhin so to ensure his financial contribution to the enterprise.

Later, the Judge said this:

In my view, the words of the preamble and clause 2.2 do not come close to constituting clear and unequivocal words or indications demonstrating a common intention that Mr Chernukhin was excluded from performing, and being able to enforce, the obligations set out in the SHA. The proper approach to construing these provisions is to treat him, and not Ms Danilina, as the actual principal of the SHA and therefore the person described as Beneficial Owner 2.

The appellants also drew attention to what they described as the ‘relational’ aspects of the contract: the importance to the success of the joint venture of Ms Danilina’s involvement, in contrast to Mr Chernukhin’s involvement which was entirely financial. They argued that the SHA was an example of the type of agreement described by Leggatt J (as he then was) in Yam Seng Pte Ltd v International Trade Corp Ltd. [2013] EWHC 111 QBat [142]. A contract that:

The point is similar to that expressed by the editors of Chitty on Contracts 33rd edition (2018) volume 2, at 31-066, in a part edited by F.M.B Reynolds:

The appellants submitted that Beneficial Owner 2 had both express and implied obligations which were to be performed by Ms Danilina; and that this was inconsistent with the involvement of an unnamed party to the contract to the exclusion of the named party.

Whilst I would accept that there were contractual obligations that would be performed by Ms Danilina as Mr Chernukhin’s nominee, I do not consider that this point adds more to argument (1) above or that the existence of such obligations comes close to overriding the contra-indications deriving from the surrounding circumstances and the importance of the participation of Mr Chernukhin, identified by the Judge. A relevant question might be: what was to happen if Beneficial Owner 2 did not make the necessary funds available through Shareholder 2?

The warranties of each of ‘the Parties’ can be read perfectly coherently as the warranties of a disclosed and identified principal party to the SHA.

Clause 14.5 is part of Part XIV of the SHA:

The appellants relied on this provision as showing that the identity and obligations of the parties were exhaustively defined by the documents referred to; and that, since there was no mention of any rights or obligations of Mr Chernukhin, it was strong support for a common intent to exclude any rights or obligations which might otherwise arise from his status as principal party to the contract. They relied on a passage from the judgment of Green LJ in Kaefer Aislamientos de CV v. AMS Drilling Mexico SA de CV [2019] EWCA 10 Civ at [113]:

However, in the following paragraph, there is this:

The observation was made in the context of whether there might be an undisclosed principal. In such a case, an entire agreement clause was part of the evidence. It could tend to negative a willingness to contract with a person not named as a party; but might not do so unequivocally where the contract does not state that only the named parties may sue or be sued on a contract.

The Judge followed this approach:

I would accept that the phrase ‘the complete and exhaustive agreement’ in clause 14.5 is an indication that the parties intended only to contract with each other. However, it did not say, as it might that the only persons who may sue upon it were the named parties, see the extract from Bowstead & Reynolds, quoted above at [42]; and the clause certainly did not unequivocally exclude a disclosed principal from suing on it.

In the course of argument, Mr Railton QC showed us that such clauses are in general circulation. The most recent edition of A-Z Guide to Boilerplate and Commercial Clauses (Anderson and Warner) contains the following draft clauses which could have been amended to cover the position of a disclosed principal:

To the extent that Clause 14.5 refers to ‘Parties’, the appellants’ argument does not take the matter significantly beyond that advanced in relation to the preamble; and the Chernukhin Parties do not rely on any previous agreement or any surrounding circumstances beyond those that legitimately established that Mr Chernukhin was a party to the SHA and Beneficial Owner 2.

Although a clause would have been easy enough to draft so as to achieve the effect argued for on behalf of the appellants, it would not have been an appropriate contractual provision since the commercial interests in the SHA were only viable if Mr Chernukhin was a party, providing half of the funding for the TGM acquisition.

The clause provided:

The appellants argued that this clause gave effect to the importance of the identities of the named parties to the agreement. This is plainly right. However, once it is accepted that Mr Chernukhin was a party to the SHA (as the Judge found), a provision dealing

Clause 10.1 provided a right of redemption by the counterparty in the event of a change of control. However, this was subject to the Supplemental Agreement that was signed on the same day and with the same named parties as in the preamble to the SHA. Its material terms were in the form of an agreement which provided that a transfer of the rights of Beneficial Owner 2 to Mr Chernukhin would not constitute a change of control triggering the operation of clause 10.

Without disservice to Mr Fenwick’s other arguments, it is fair to describe his reliance on the Supplemental Agreement as his strongest point. It is the expressed means by which Mr Chernukhin could intervene in, and assert rights under, the SHA. Mr Fenwick submitted that this provision showed that the SHA is to be regarded as unequivocally and exhaustively identifying the parties to the SHA to the exclusion of Mr Chernukhin. If he were a party to the SHA, Ms Danilina would have nothing to transfer to him. It demonstrated that he was not ‘the real and only principal’ or ‘the only person’ who had the rights and obligations under the contract, see Fred. Drughorn Limited v. Rederiaktiebolaget Trans-Atlantic [1919] AC 203, Lord Sumner at p.209 and Ferryways NV v. Associated British Ports, ‘The Humber Way’ [2008] EWHC 225 (Comm) Teare J at [49]. The SHA was structured in such a way that, even if Ms Danilina were Mr Chernukhin’s agent or nominee (as the Judge found), some further ‘collateral’ action under the Supplementary Agreement was required before he could intervene.

The Judge accepted that his being named in the Supplemental Agreement was inconsistent with Mr Chernukhin’s attempt to disguise his interest in the SHA, see judgment at [316]; but in the light of the factual background, he considered it likely that Mr Chernukhin wished to ensure that, if his position as Beneficial Owner 2 were formally recognised, it would not amount to a change of control. In any event:

Whatever else may be said about the Supplementary Agreement it plainly recognised the position of Mr Chernukhin; and it may be, as Mr Railton suggested, that it was intended to prevent Mr Deripaska taking a technical point on the effect of Clause 10. As Mr Railton also submitted, the Supplementary Agreement reinforces the view that Mr Chernukhin was already bound to the SHA. If it were otherwise he ‘broke cover’ in the Supplementary Agreement, but in doing so acquired no rights.

The Judge’s approach, which gave weight to the appellants’ arguments on this issue, is not one that gives rise to any legitimate complaint.

Whether a contract ‘unequivocally and exhaustively’ defines the parties or whether the rights of a disclosed and identified principal have been ‘clearly excluded by the terms of the contract’, may be regarded as two ways of asking the same question; either way there is a heavy burden of persuasion on a party who seeks to argue that a known and identified principal is to be excluded from a contract. Like the Judge, I would accept that there are indications in the contractual provisions that the political importance of not referring to Mr Chernukhin as a party gives weight to the appellants’ arguments; but like the Judge, I am satisfied that there is nothing in the background or the contractual terms sufficient to demonstrate a clear intent to exclude him from exercising his rights or incurring obligations under the SHA. To put it another way, the parties were not unequivocally and exhaustively defined by the terms of the SHA.

It follows that in my view the Judge was right to conclude, as he did (at [322] and

I would dismiss the appellants’ appeals on this issue.

The Judge also dismissed Ms Danilina’s Family Assets Claim, while giving directions for a differently framed claim. Since neither of these arise on the appeal it is unnecessary to say anything further about them.

Although the appellants raised arguments based on ‘contractual estoppel’, as described in Spencer Bower, Reliance-Based Estoppel (5th edition 2017) and estoppel by convention, it was recognised that, if the appeal failed on the primary issue (Mr Chernukhin’s right to sue as a principal to the SHA) they could not succeed on these alternative bases.

However, the respondents relied on two additional grounds for dismissing appeal, which I will address shortly.

First, Mr Railton submitted that, even if Mr Chernukhin were not Beneficial Owner 2, the relevant part of the arbitration clause in the SHA (Clause 12.2) was sufficiently wide to enable each of the named Shareholders and Beneficial Owners to bring arbitration proceedings, and that Shareholder 2 did not necessarily need to act jointly with Beneficial Owner 2 in bringing such proceedings.

It is sufficient for present purposes to observe that it is unnecessary to decide the point.

Second, Mr Railton submitted that the Judge should have struck out the claims of Mr Deripaska and Ms Danilina in the light of the ‘Option Agreement’, which he characterised as an ‘improper agreement’, an agreement for Ms Danilina to provide evidence which both she and Mr Deripaska knew was false, to bring a claim based on such false evidence and for withholding evidence from the respondents.

The Judge explained why Ms Danilina gave dishonest evidence to the Court at [285]:

Mr Railton submitted that the Option Agreement constituted both a perversion of the course of justice and a contempt of court. In such circumstances the Judge was ‘bound to conclude’ that the pursuit of the s.67 claim on behalf of the Deripaska parties was an abuse of process which merited striking out or dismissing the claim; and that the claim by Ms Danilina, pursued under the terms of the Option Agreement was also an abuse of process, which should have resulted in her claim being struck out or dismissed. In each case the conduct of the appellants warranted an expression of condign disfavour by the Court. The Chernukhin parties argued that the Judge failed to ‘grapple’ with this issue: neither refusing their application nor allowing it.

It is apparent from R v. Kellett [1976] 1 QB 372 and R v. Toney & Ali [1993] 1 WLR 362, that a threat or promise to a witness with the intention of persuading the witness to alter their evidence may constitute the crime of attempting to pervert the course of public justice. Furthermore, it is plainly objectionable for a party to direct or put pressure on a witness not to attend an interview with the opposing solicitor, see for example, Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG and others [2013] EWHC 581 (Comm) at [22].

In Summers v. Fairclough Homes Ltd [2012] 1 WLR 2004 at [35], there is a passage from the judgment of Lord Clarke (giving the judgment of the Supreme Court) which was relied on by the respondents:

Lord Clarke added at [36]:

This statement is support for the proposition that, in ‘very exceptional circumstances’, the court may strike out a statement of case even at the end of a trial. It is unnecessary for present purpose to examine what circumstances might very exceptionally justify this course, although they will most likely occur as a result of a development in the course of the trial. The reference to [27] in the National Westminster Bank case which in turn refers to CPR Part 3.4 and 24.2 indicates that issues of proportionality will arise before a claim that (on this hypothesis) would otherwise succeed, should be peremptorily dismissed.

The difficulty with Mr Railton’s argument is that, although references were made at the trial to the impropriety of the transaction being a ‘self-standing basis for striking out Ms Danilina’s claim’, no point was made in relation to Mr Deripaska’s s.67 claim, no application notice was issued and no oral application was made that the appellants’ claims should be struck out on the basis of the Option and Loan Agreement. The best that Mr Railton could say was that the application to strike out was ‘in play’, in the sense that the possibility was mentioned in argument. In complex and protracted Commercial Court litigation this is not sufficient to justify, what was described in Summers v. Fairclough at [49] as, ‘a draconian step’. No doubt many issues came into play in the course of the hearing, but if a party wishes the court to take the exceptional course of striking out a claim during or post trial, there must be a degree of formality to the process, so that the Judge can consider the competing arguments.

In my view, this additional ground for upholding the Judge’s order cannot succeed. The Judge’s approach in the circumstances cannot be faulted.

He rightly took into account the Option and Loan Agreement when considering the complex credibility issues that arose and, when it came to the issue of costs, he made an order in the Chernukhin Parties’ favour on an indemnity basis. This was fully consistent with the approach commended by the Supreme Court in Summers v. Fairclough at [61]. The Judge summarised his approach in an ancillary judgment, [2019] EWHC 727 (Comm) at [18]:

The Judge was in a good position (and certainly a better position than this court) to assess the effect of the appellants’ misconduct; and came to a sensible and proportionate response to it. I would accordingly have rejected this ground for upholding the judgment and order.

For the reasons set out above, I would dismiss both appeals.

I agree that the appeal should be dismissed for the reasons given by Simon LJ.

While the cases concerned with undisclosed principals provide a convenient starting point, the situation with which they deal is very different from the present case of a disclosed and identified principal. When an agent acts for an undisclosed principal, the counterparty has no knowledge at the time of making the contract that there is an undisclosed principal who is entitled to intervene to enforce the contract purportedly made between the counterparty and the agent. However, the law will assume (the ‘beneficial assumption’ as Lord Lloyd described it) that the counterparty ‘is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract’ unless the terms of the contract or background circumstances expressly or impliedly exclude that possibility (see the Teheran-Europe and Siu Yin Kwan cases (above)).

In the case of a principal whose existence and identity are known to the counterparty, however, there is no need to resort to any such assumption. All parties know the true position and can be taken to agree with it. If the counterparty did not agree to contract with the principal, he would say so.

On the facts found by the judge here, the counterparty (Mr Deripaska) knew that Ms Danilia was entering into the contract as the nominee or agent for a disclosed and identified principal (Mr Chernukhin); he always regarded Mr Chernukhin as the real party with whom he was contracting; it was in his interests, because only Mr Chernukhin and not Ms Danilina was in a position to provide the necessary finance, that this should be so; and he never said anything to indicate that he did not agree.

It was common ground between the parties that, in such a case, it would in theory be possible for the contract to provide that, notwithstanding the existence of the disclosed and identified principal, the contract should after all take effect as a contract between the counterparty and the agent. But that would be an odd agreement to make, at any rate on facts such as those found by the judge here. I do not find it surprising that the parties were unable to cite any case where a contract was concluded by an agent known to be acting on behalf of an identified principal, but where the contract contained language making it clear that it was the agent and not the principal who was to be bound.

I agree, therefore, that there is a heavy burden of persuasion on a party who seeks to argue that a known and identified principal is to be excluded from a contract, and that any such intention must appear clearly and unequivocally from the terms of the parties’ contract. I agree also that no such intention appears in this case, for the reasons given by Simon LJ.

I agree with both judgments.