Bank St Petersburg PJSC & Anor v Arkhangelsky & Ors

This awkward case, in which the Claimants have been represented at trial by two Leading Counsel and a junior instructed by a London firm, whereas the Defendants and Counterclaimants have been represented only by their McKenzie friend, has generated a multiplicity of factual disputes and legal arguments; but the parties’ respective cases may be summarised at a high level quite shortly.

The Claimants claim against the First Defendant (whom I shall refer to as “Dr Arkhangelsky”, although in some quotations he is referred to as “Mr Arkhangelsky”) under six personal guarantees (the “Personal Guarantees”) and one personal loan (the “Personal Loan”).

The Personal Guarantees on which the Claimants rely relate to the indebtedness to the First Claimant (the “Bank”) of various companies within the large group known as the Oslo Marine Group (“OMG”) which Dr Arkhangelsky controlled.

The Claimants’ case is that the Personal Loan was obtained by Dr Arkhangelsky to service interest due in respect of such loans to OMG companies.

Towards the end of 2008 the OMG companies, in common with many other enterprises in Russia and elsewhere, suffered extreme financial difficulties.

The parties are agreed that, in light of those difficulties, and some time before the end of the year 2008, there was an agreement that the dates for the payment of interest under the loans should be extended. There is a dispute as to whether the capital repayment dates were also rescheduled. The Claimants contend that specific and different repayment dates were left to be determined in individual agreements, and that in the case of two loans (known as the First and Second PetroLes Loans), for example, the extension provided for was only until March 2009.

Dr Arkhangelsky is adamant that there was an agreement that all payment dates were agreed to be extended to June 2009. According to him, it was only on that basis that he was prepared to agree somewhat unusual arrangements, known as “repo agreements”. These repo agreements provided for the transfer of shares in the principal OMG companies to what Dr Arkhangelsky understood to be Special Purpose Vehicles (“SPVs”) controlled by the Bank, subject to an obligation on the part of the Bank to transfer the shares back “[a]fter the complete fulfilment of the Group’s obligations to the Bank”.

According to the Claimants, however, Dr Arkhangelsky had nothing else to offer: the repo arrangements were his own suggestion and bought him some time in respect of some loans, to be memorialised in due course, but did not buy him the general moratorium alleged, which the Claimants insist was never agreed.

The arrangements and repo agreements were supposed to be described in a memorandum, and a memorandum was indeed prepared by the Bank (the “Memorandum”). However, the Memorandum did not mention any general moratorium (including on capital repayments), reinforcing the dispute between the parties as to whether such a moratorium was ever agreed.

By early 2009, it was clear that the OMG companies were unable to pay interest and then principal due under the loans. In particular, by February 2009, it was clear that the PetroLes loans could not be repaid on time, if at all. Whether and when the OMG companies went into default depends upon the answer to the dispute as to whether and to what extent the loans, and in particular the PetroLes loans, were rescheduled.

It is the Bank’s case that the PetroLes loans became due for repayment at the end of March 2009, that all of the OMG companies went into default in the first half of 2009; and that it was then entitled to and did serve demands for repayment both in respect of the principal indebtedness (including the Personal Loan) and under the guarantees (including the Personal Guarantees, as well as certain other intra-group company guarantees), and then to enforce against and realise the assets pledged to it to secure the loans.

The Bank, early on in a protracted process, seized control of the pledged assets, already having control of the companies by virtue of the transfer of shares under the repo arrangements. Dr Arkhangelsky challenged both the repo arrangements and the Bank’s seizure of OMG’s assets and contended that it was not entitled to call in the loans as it had.

After various protracted legal disputes and court cases in Russia, in which initially the Defendants were successful, the Bank obtained judgments which it enforced on all the OMG loans.

The total sums owed by the OMG companies to the Bank, including sums which are not the subject of the Bank’s claim, amounted, as at 7 September 2015, to RUB 2.181 billion (approximately £20 million at an exchange rate of £1 = RUB 108 as at 7 January 2016)). After various recoveries, as at 7 September 2015 the total of the Bank’s claim in roubles amounted to RUB 1.797 billion (approximately £16.5 million at the exchange rate above stated). The Bank seeks to recover the shortfall under the Personal Guarantees.

Dr Arkhangelsky and his wife (“Mrs Arkhangelskaya”, the Second Defendant and Counterclaimant), on the other hand, have claimed that the Personal Guarantees were forgeries, or at least were put forward and unwittingly signed well after the event of the loans. Until shortly before trial they claimed that the Personal Loan was an invention also and that the documentation was forged.

Dr and Mrs Arkhangelsky also deny ever having been duly notified of the demands for payment under the alleged Personal Guarantees and Personal Loan.

They deny that Dr Arkhangelsky is under any personal liability to the Bank accordingly.

They also, together with the Additional Party, Oslo Marine Group Ports LLC (“OMGP”), make a very extensive counterclaim on the basis that: (a) the Bank acted in breach of terms agreed for the rescheduling of the loans, and was not entitled to make demand under the Personal Guarantees, and (b) the Bank used OMG’s short-term or medium term cash flow difficulties arising in consequence of the global crisis towards the end of 2008 to implement a classic and notorious scheme of fraudulent raiding of OMG’s assets, having identified that the OMG businesses had a value, or at least potential value, well in excess of the loans, and huge business potential.

Their case is that the Bank, “with the assistance of corrupt officials or courts”, took advantage of OMG’s undisputed difficulties in late 2008 and engineered and implemented a ‘raid’, the features of which (they say) fit precisely into one of the classic schemes for raiding distressed businesses identified in a report in 2011 by the National Anti-Corruption Committee, a body which investigates suspect practices in the Russian Federation.

The Counterclaimants contend that, far from being (as the Claimants would have it) a series of sporadic reactions to Dr Arkhangelsky’s alleged dishonesty and hostile actions, the Claimants carefully orchestrated and implemented the scheme by first putting in place the means of securing and then acquiring control of the OMG companies, and then contriving a series of what they contend were fake or sham auctions, whereby first to launder the assets, and then to enable the ultimate sale of the businesses and assets at rock-bottom prices to a web of companies ultimately controlled by the Bank and/or the Second Claimant (“Mr Savelyev”) or their associates. Mr Savelyev is a very substantial shareholder and for many years was Chairman of the Bank.

Dr and Mrs Arkhangelsky and OMGP (together, in the context of their Counterclaim, “the Counterclaimants”) portray themselves, therefore, as the victims of a state-assisted and dishonest conspiracy, which resulted in them being stripped of their valuable businesses, having to flee to France, virtually penniless, leaving Mr Savelyev and the Bank holding and controlling through associated companies valuable assets which Dr Arkhangelsky had built up.

The Counterclaimants seek to recover the difference between the value of the OMG businesses, alternatively the assets, thus ‘raided’. The value of the Counterclaim, if established, is disputed; but according to Dr Arkhangelsky the discrepancy between the realisations achieved and the true value of the businesses and assets realized by the Bank may be as much as US$ 500 million.

That huge discrepancy is presented, moreover, as the crux of the Counterclaimants’ case, from which fraud may be inferred.

The Bank entirely rejects the Counterclaim. Its case is that the moneys it lent were not applied in the development of the businesses of the OMG companies which had, in truth, very little value, and that it was in the position of trying to save something from a wreckage. The Bank contends that the notion of a dishonest raiding scheme is fanciful and assumes a pre-determined sequence which would have been impossible to direct and is far from the truth.

The Bank’s case is that Dr Arkhangelsky presided over a financial pyramid and that the OMG companies which he controlled, far from being genuine and successful businesses, were vehicles for borrowing huge sums against grossly overvalued assets.

The Bank further asserts that a significant proportion of these sums were syphoned off and hidden from creditors so as to enrich Dr Arkhangelsky personally, and the remainder of which were largely used to pay off the interest on previous loans.

According to the Bank, it was because of this that when the global crisis of 2008 hit, the borrowings on which the pyramid depended (and in respect of which, according to the Claimants’ case, Dr Arkhangelsky was required to and did provide personal guarantees) could no longer be serviced, and fresh borrowings could not be obtained. Collapse became inevitable.

The Claimants depict Dr Arkhangelsky as a thoroughly dishonest man, who left Russia to flee from his creditors. They contend that he has contrived increasingly fanciful allegations of forgery of the Personal Guarantees (saying he is not bound by any of them), political intrigue and asset ‘raiding’ on the part of the Claimants to seek to evade liability under those Personal Guarantees which, in light of the massive shortfall between the realised value of the assets which stood as security and the amount of the loans, represent the Bank’s only remaining recourse.

The Claimants seek to strip away these alleged contrivances, and to make good what they present as an ultimately straightforward case that Dr Arkhangelsky is bound by the Personal Guarantees and by the Personal Loan he signed and must pay up accordingly. They reject the Counterclaim as unsubstantiated, false and dishonest; and they also seek declarations to that effect as the only available means of properly vindicating their position and reputations.

Each side’s case, therefore, depends on establishing the other side’s dishonesty. There is no escape from such a finding, one way or the other.

Further, and despite the fact that the parties’ overall cases can be summarised shortly, there is no escape either from the factual detail and issues of both foreign (in this case, Russian) and domestic law, especially in the context of the Counterclaim.

The trial occupied the Court for 46 sitting days (including ten days sitting in France since the Defendants dared not leave, for fear of arrest at any border) as well as many other reading days. The Bank called 12 factual witnesses and 3 expert witnesses. Dr and Mrs Arkhangelsky each gave evidence; and the Counterclaimants also called 6 factual witnesses and 3 expert witnesses. In addition, both the Bank and the Defendants each adduced written evidence from a handwriting expert; and the Bank and the Counterclaimants also put forward one expert each to give evidence as to the value of the relevant businesses; but none of those additional four experts was called, the handwriting experts because the dispute became narrow and to some extent incapable of definitive resolution by expert evidence, and the business valuation experts because the Counterclaimants could not afford to do so, and a stand-off was agreed subject to re-visiting the matter should that prove necessary in the light of this judgment.

All this generated nearly 10,000 pages of transcript and over 200 files of documents. The written closing submission on behalf of the Claimants comprised some 631 pages

The Claimants have throughout been represented by an impressive slate of Counsel instructed by Reynolds Porter Chamberlain LLP (“RPC”): Mr Timothy Lord QC, Mr Simon Birt QC and Mr Richard Eschwege. The Defendants and Counterclaimants have not been professionally represented for the majority of the trial.

At every stage in these complex and fraught proceedings I have been concerned about the inherent disparity in the parties’ firepower in terms of representation, and the obvious and formidable difficulties which confront parties who do not have the benefit of legal representation in marshalling and presenting their own case and in challenging and testing that of their opponents.

That concern has been partly attenuated by the impressive efforts of an extraordinarily capable McKenzie friend, Mr Pavel Stroilov (“Mr Stroilov”) who (with my permission) assisted and spoke for the Counterclaimants throughout, and by the more discrete but invaluable assistance given by Mr Alexander Milner of Counsel, who stepped in for the Counterclaimants pro bono on certain aspects of the case, especially in relation to the expert evidence and on an issue of illegality which I later describe. I am very grateful to both of them, as should be the Defendants/Counterclaimants.

I have kept under constant and anxious review my decision, made at the PTR only after considerable hesitation, to try the case notwithstanding these difficulties. I have in particular taken constant account of the observations of Elias LJ (as he then was) in refusing permission for an appeal against that decision (as it seems to me, also not without hesitation, and indeed misgivings, acknowledging nevertheless that it would have been “a very serious matter for a case of this kind, in which, of course, there is a cross-appeal which alleges very serious allegations of fraud,…[to be]…effectively adjourned forever”).

The disparity in the apparent resources and level and depth of representation between the parties has called for responsible constraint from Counsel for the Claimants, and it has required me to intervene more often than would usually be my preference and practice, and to consider and question each and every reference, footnote and submission with especial care.

I should perhaps note that by far the greater difficulties have arisen in the context of the Counterclaim, since the main claim is more confined, and has been considerably more straightforward. I have sought to consider every avenue opened or explored by that Counterclaim, and to follow up every reference, whilst keeping in mind also that the process must be fair also to the Claimants, and that it is not for the Court to devise its own arguments or otherwise ‘descend into the arena’.

Rather than rely on the selection in the written closing submissions, I have felt it necessary to re-read the entirety of the transcripts of evidence, and all the documents referred to in the course of trial, as well as in the nearly 3,500 footnotes in the Claimants’ Closing Submissions. This has been a long process, involving review of

In the end, I have satisfied myself that the process, though tortuous, has been such as to enable me to reach a decision after full and fair consideration of the evidence and of the competing submissions and legal arguments. Of course, whether my ultimate conclusions are perceived by others to be right is a different matter: but I am satisfied that they have not been skewed in consequence of the different resources of the parties.

After that introduction and high-level summary I start this inevitably very long judgment with a description of the parties and an elaboration of the relevant factual background.

The Bank is the largest privately-owned bank in the St Petersburg region and the NorthWest of Russia. It was incorporated in 1990 when the system of specialised state banks was introduced in what by then had become the Russian Federation. Its original name was joint stock company Lenbank (formerly the Leningrad Regional Directorate of Zhilsotsbank of the USSR).

Mr Savelyev acquired shares in the Bank and became Chairman of its Management Board in 2001, having been approached by the then management of the Bank in the wake of the financial crisis in Russia in that year, sometimes referred to as “the rouble crisis”.

The Bank has since then grown substantially. Its assets in 2001 were some US$ 100 million, and are now some US$9 billion.

Its standing has grown also. In 2007 it became the first Russian privately-owned bank to make an Initial Public offering (“IPO”) by listing on Moscow Interbank Currency exchange (known as “MICEX”) and the Russian Trading System Stock Exchange (“RTS”). It now has more than 55,000 corporate clients and around 1.4 million individual clients.

A mark of its growing standing overseas is that in October 2011 the European Bank for Reconstruction and Development (“EBRD”) acquired a stake in it of some 6.17% of the Bank’s ordinary shares. Its shareholders include well known and respected western financial institutions, such as JP Morgan, Credit Suisse and UBS.

Mr Savelyev, the Second Claimant and second defendant to the Counterclaim, graduated from Tupolev Kazan Aircraft University. He has, since its formation, been a substantial shareholder (direct and indirect) in the Bank. His personal direct shareholding in 2009, as disclosed in the Bank’s accounts for that year, was 29.9% of the voting shares. However, that is not the extent of his interests.

The accounts for 2009 record that he also held 19.9% of a body corporate called ‘Issardy Holdings Limited’ which held 19.9% of the Bank’s voting shares. In addition, it was there recorded that he had a call option agreement with his sister-in-law, Ms Lyudmila Stepanova (“Ms Stepanova”), to buy 81% of a body corporate called ‘System Technologies Ltd’ holding 19.36% of the Bank’s voting shares.

Furthermore, through another body corporate called ‘Verniye Druzya’ (which means ‘Loyal Friends’), which he owned 100% of the shares until 2015 when they were transferred to another vehicle called ‘Sovet Direktorov LLC’ (“Sovet Direktorov”, which is the Russian for ‘Board of Directors’), he controlled further shares. Under cross-examination Mr Savelyev told me this of these arrangements through Verniye Druzya:

“Q. So, Mr Savelyev, do I understand correctly that the purpose of that company is simply as a vehicle for distributing shareholding between managers of the Bank and your daughter?

A. I would like to say before the court, because of course my daughter holds an option from the three holders of the shares, and in the event of non-performance of certain covenants, the daughter is entitled to buy the shares from these three holders of the shares.

Q. What covenants?

A. I do not recall all the covenants now, but for the most part, it's to do with the Bank's capital, following the Bank's strategy, and there have been many provisions that the Bank managers need to comply with.

Q. So in a way, Verniye Druzya is your tool for control of the Bank, isn't it?

A. I never denied that I control the Bank, however, I would like to say that everything here is correct and the Bank's managers, as of today, own the shareholding and have an option with my daughter, between them and my daughter.

Q. Yes, thank you. Then just back to my question, so really, that is the purpose of Verniye Druzya LLC, really to exercise that control and to exercise that arrangement between you and the other top managers; is that the purpose of Verniye Druzya or is it doing anything else?

A. That is the global purpose of the company. The thing is that I am not a young man and I would like to see in time that Verniye Druzya company and my daughter would exercise control of the

Bank in the future period.”

Mr Savelyev, who in addition appears to have owned or controlled further shares in the Bank through other corporate vehicles, also had control at management level, as its Chairman. He described his role in that capacity as “principally a strategic one”: together with its Management Board (see later) he “set the strategy for the Bank”. However, his evidence was that he had few day-to-day dealings with customers. There is a dispute about this, it being the Counterclaimants’ case that he made a practice of having frequent personal meetings with the Bank’s 30 or so largest clients.

The Counterclaimants depict the Bank as to all intents and purposes, and at all material times, Mr Savelyev’s fiefdom. Mr Savelyev personally is perceived by the Counterclaimants as being the principal architect of the conspiracy against them and the ‘raid’ of the OMG assets, acting with the assistance of well-placed friends and contacts. He is also said by the Defendants/Counterclaimants to have threatened Dr Arkhangelsky and his family and to have encouraged criminal investigations and prosecutions against Dr Arkhangelsky by the Russian authorities with a view to discouraging any resistance to the Bank’s objectives. They accuse him of dishonesty and serious wrongdoing accordingly.

Mr Savelyev is also said by the Counterclaimants to have been acting in all this with the assistance of his friends in high places, and especially Mrs Valentina Matvienko (“Mrs Matvienko”). She was Governor of St Petersburg from 2003 until 2011 and since 2011 has been Chair of the Federation Council of Russia (the country’s third-highest elected office). Also said to have been involved in the ‘raid’ are two allegedly “corrupt officials” in the state apparatus of St Petersburg ultimately controlled by Mrs Matvienko during her tenure, namely Gen. Vladislav Piotrovsky, at material times the head of St Petersburg police (“Gen. Piotrovsky”) and Lt. Col. Levitskaya, at material times the St Petersburg chief prosecutor.

Mr Savelyev rejects these claims; and he has become a Second Claimant to these complex and expensive proceedings for the sole purpose of seeking declaratory relief to vindicate his conduct and reputation, although it is fair to note that it was always intended by the Counterclaimants to join him as a defendant, so it was inevitable that he would be a party.

The Bank also called as witnesses of fact the following key personnel within the Bank in addition to Mr Savelyev.

Mr Vladislav Guz (“Mr Guz”) is the current Chairman of the Management Board. At the material time he was on the Management Board and the Major Credit Committee (the “BKK”), and was responsible for corporate customers like OMG.

Ms Olga Volodina (“Ms Volodina”) is the Senior Vice President of the Bank. From 2007 until March 2015 she was the Deputy Chairman and sat on the Management Board, as well as the BKK. At the material times, she was in charge of the Credit Risk

Ms Kristina Mironova (“Ms Mironova”) is currently Deputy Chairman of the Management Board. From October 2008 until April 2009 she was the Deputy Director of Investrbank, the branch which managed the Bank’s lending to OMG. She had to deal with OMG’s borrowing difficulties at the time. She then became the Director of the Client Monitoring Department. The Defendants allege that she is a conspirator. They also allege that she has given false evidence both in these proceedings and in anterior proceedings brought by the Counterclaimants in the BVI which were stayed to enable proceedings by agreement in this jurisdiction (in Claim No. BVHC (COM) 70 of 2011, “the BVI Proceedings”).

Ms Tatiana Kosova (“Ms Kosova”) was the Director of the Bank’s Legal Department from 2007 until 2013. She is currently the Advisor to the Deputy Chairman of the Management Board, Ms Mironova. Ms Kosova’s statement sets out the various steps that the Bank took to enforce its security once OMG defaulted. There is no pleaded allegation that she is a conspirator or that she acted in any way dishonestly, but the Defendants have appeared recently to indicate that they consider her in some way to be part of the ‘fraud’.

Mr Andrei Belykh (“Mr Belykh”) is the Bank’s Director who worked with “Big Corporate Clients”. At the material times, he was the Director of Clients and Bank

Ms Ekaterina Shabalina (“Ms Shabalina”) was the Director of Investrbank until summer 2008 at which point Mr Oleg Platonov took over as Director. In her role she met Dr Arkhangelsky and was involved in some of the lending decisions. She no longer works for the Bank.

Ms Viktoria Yashkina (“Ms Yashkina”) worked in the Credit Department of Investrbank under the supervision of the director of the Credit Department, Ms Anna Borisova (“Ms Borisova”). She, along with others, was responsible at Investrbank for the OMG lending file. A witness statement was served on behalf of Ms Yashkina but this was withdrawn on Day 31 of the Trial without objection and accordingly she was not called to give evidence.

Ms Elena Blinova (“Ms Blinova”) shared with Ms Yashkina responsibility for the OMG file in the Credit Department at Investrbank. She covered for Ms Yashkina during the latter’s maternity leave from February to October 2008.

Ms Tatyana Stalevskaya (“Ms Stalevskaya”) was and is the Deputy Director of the Department of Client Monitoring. She worked in the Bank’s corporate finance department, and reported to Mrs Irina Malysheva (“Mrs Malysheva”).

Ms Natalya Patrakova (“Ms Patrakova”) worked at a junior level in the Investrbank Credit Department in 2008. Her only involvement in the events material to these proceedings was to witness Dr Arkhangelsky sign certain documents in relation to the Personal Loan. Her witness statement is two pages and of limited compass. She no longer works for the Bank. Dr Arkhangelsky has recently said that her evidence is a “piece of fiction”. Ms Patrakova is currently on maternity leave from her employer.

In addition to these employees, the Bank also called as a witness Mr Vladimir Alexandrovich Sklyarevsky (“Mr Sklyarevsky”). He is the General Director and owner of a company called ‘Strategiya Korporativnskyh Investitsiy I Finansov’ (usually referred to as “SKIF”), which focused on corporate restructuring and refinancing of distressed banking assets.

SKIF had originally been incorporated by the Bank under the name ‘BSBP-Finans’ in 2003 and was a long-standing client: Mr Sklyarevsky estimated that by 2009, around 60% to 70% of SKIF’s restructuring and distressed assets management work was carried out for the Bank. Mr Sklyarevsky is not, himself, alleged to be a conspirator but his company SKIF is.

The Bank also called Mrs Elena Vladimirovna Yatvetsky (“Mrs Yatvetsky”, whose maiden name was Goncharuk), a Russian qualified lawyer and legal adviser to an investment and private equity group based in St Petersburg called the “Renord-Invest Group”. Mrs Yatvetsky was a late entrant to the list of witnesses for the Claimants in circumstances described later.

As will become apparent, the Renord-Invest Group came to play a central role in the developing saga: it is alleged by the Defendants to have been part of the conspiracy to seize Zapadny Terminal LLC or “Western Terminal”, and Scandinavia Insurance Company LLC/Stravahoe Obschestvo Scandinavia LLC, or “Scan”, and to buy up their distressed assets at a fraudulent undervalue.

The Renord-Invest Group is said by the Claimants and appears at least nominally to be owned by Mr Mikhail Alexandrovich Smirnov (“Mr Smirnov”), possibly in association with another businessman, Mr Leonid Zelyenov (“Mr Zelyenov”). Dr Arkhangelsky and the Counterclaimants do not accept this: their case is that the Renord-Invest Group is controlled and probably owned by Mr Savelyev and/or the Bank and their “loyal friends” or associates.

Mr Smirnov, who is a former employee of the Bank, is a central figure. He provided a detailed witness statement, which was of especial interest in its description of RenordInvest and its group companies’ participation in the repo arrangements and asset sales. But, in the course of the trial, and after various efforts to accommodate him, I was told that he was too ill to attend and a confidential medical report was submitted in support. Although the Claimants also relied on Mr Smirnov’s evidence by way of a Civil Evidence Act notice, Mrs Yatvetsky appeared, in effect, as his understudy, though she gave an interestingly different picture of the role of the Renord-Invest Group.

Certain other individuals of importance to the story, in addition to Mr Smirnov, could undoubtedly have assisted me but were not called.

Mrs Malysheva was the most obvious of these. Mrs Malysheva was the Deputy Chairperson of the Bank and at material times in charge of corporate financing. It was she who called in Mr Smirnov, the Renord-Invest Group, Mr Sklyarevsky and SKIF to assist the Bank when it became clear to the Bank in early 2009 that OMG could not

There is no doubt that Mrs Malysheva would have been a witness of central importance. She gave a witness statement dated 30 December 2011 in the BVI Proceedings on which the Bank relies by way of a Civil Evidence Act notice. However, by the time of the trial she had apparently ceased to work for the Bank, and the Bank has maintained that she has not been prepared to assist the Claimants. I was given to understand that under the Russian law, it would not have been permissible for the Bank to require her to attend as part of her severance agreement.

Mrs Matvienko did not give evidence either. At an earlier stage of the proceedings I had asked whether she would, and suggested that her attendance might help to dispel the Defendants’ suspicions as to covert assistance or connivance on the part of the state authorities: but I was informed (at an interlocutory stage, when I enquired) that she was an important and busy person and would not be doing so.

Turning to the Defendants/Counterclaimants, their witnesses of fact were Dr Arkhangelsky and Mrs Arkhangelskaya, and six others.

Dr Arkhangelsky comes from a family of some renown in Northwestern Russia, as he was anxious to tell me in a speech he made at the commencement of his oral examination. He told me that his grandfather had won the Nobel Prize for Economics (according to him, the only Russian to have done so); his father was a professor of biology; and his mother was one of the top executives in the Northwestern Russia medical system.

Dr Arkhangelsky himself was educated largely in St Petersburg, but he also spent time abroad at university in Norway and in Germany. He said that this experience abroad encouraged him to adopt ‘Western’ business and accountancy standards, of which he initially boasted of some familiarity but of which he asserted ignorance when later cross-examined.

Dr Arkhangelsky does not appear to lack self-confidence. He appeared to me to harbour no doubts as to his own abilities. He described himself to me as “probably the best student in the university.” He told me that:

“While being a student of the second and while being a student of the second and third year at University of St Petersburg, I've already been given a guest professor lectureship in City University of London, in University of Munster, in Insurance Academy of Oslo, Stockholm, Copenhagen, Finland and so on.

So I have been well regarded that time, when I was only 20.”

After a period of overseas study, apparently, Dr Arkhangelsky got a PhD for a paper comparing Norwegian and English marine insurance conditions and implications for

In his speech at the beginning of his oral evidence, Dr Arkhangelsky described his career thereafter in his own words as follows:

“At some stage I understood that I was too young and too smart to be employed, and I thought that, having all this background, why not go back to St Petersburg and to start my own business. Considering that most of people working in Moscow were above 50 or 60, not speaking any language, still trying to live in the Soviet conditions and didn't want to implement anything modern and European, which was quite strange for me while I spent about 10 or 15 years abroad, so I decided why not come back to St Petersburg and establish a company called, at that time, Scan Marine Consulting. I think it was a really successful venture, so in a short while I managed to obtain the most important, most famous Russian international clients, like all the major oil and gas companies, for whom I've been doing reinsurance generally in markets in London, in Norway, in other Scandinavian countries and in Bermuda. So, as I have written in the witness statement, it has been really one of the first Russian insurance, reinsurance broking companies. And then I decided, why not to go forward, while at that time it was a time of restructuring of the international insurance markets of 9/11 and so on. So I've been rather deep in that subject and I decided, why not to build up something special, local. And later on, when the market would be a better market, not depressed after 9/11, then I would be able to sell this to international players, to international insurance companies with whom I've been working and whom I've been knowing personally. So I've been knowing personally directors of major energy syndicates at Lloyd's and so on, so we've been well regarded, so we've been knowing each other quite well and I believe that in case they wanted to touch Russian market, my business would be the best business for them to buy, or, if not whole, at least a share. Then at some stage, we understood that -- I employed quite a number of good, young people, so most of the people in my office have been between 20 and 35, all of them speaking languages, having experience international experience, got some, at least, partial international education, and I thought that I built up quite a good and modern team and we could easily expand, and definitely one of the areas of expansion was that time I thought the assets of the ex-Baltic Shipping Company. You know, in St Petersburg, in the Soviet Union, one of the major shipping companies was the Baltic Shipping Company, trading worldwide and so on, and as long as my mother has been, let's say, one of the top executives of that community, and she's been known by everybody, so all the exdirectors and captains and so on, they've been personal friends with our family and so on, so I decided -- and this company had been bankrupted, so it has been a number of big scandals and beginning of the 1990s, so it has been divided to many, many different parts and pieces, and so they called it -- some of them, they called it privatisation; some of them called it bankruptcy, but it was a big collapse of criminal things all around there. So I found out that -- then I was the age of less than 30, and I had a good family reputation and I found out that the ex-assets of Baltic Shipping Company had been distributed and divided among hundreds of people who had been considering each other as enemies, so one had been owning a piece of land, another had been owning water at this piece of land, a third one was owning electricity at this piece of land, and they were considering that each of them were stealing assets from each of them. So it has been quite a complicated story. I found myself that I am able to come in discussions, negotiations with these people, and even considering that they are enemies between each other, I consider that I can come and make an agreement with them because they were not considering me as the criminals, as they were considering each other as criminals, so they could have a confidence, especially because of the family connections and my mother's great reputation there. I went around the market while knowing all these people from my childhood, and made a preliminary agreement that I buy each and every piece. So initially it was an Onega Terminal, then it came to Western and Vyborg Port and so on. And so then I've been doing a lot of interviews to Russian media at that time, and they said: what is the secret of your success story? And I said -- I was telling at that time that if you watched a movie, Pretty Woman, so it's absolutely the same what I have done. So I was just collecting assets which were considered not to be interested, each and every, and then by different M&A transactions, I was changing their status, changing documents, changing the purpose of use, obtaining clients and so on.”

Dr Arkhangelsky also struck me as having a propensity to see things as he wished them to be in his ego-centric view of the world; and he tends to regard any detractors or criticism as either lamentably misinformed or inferentially dishonest.

Dr and Mrs Arkhangelsky married in 2002. They have three children, now aged 13, 11 and 9. The effect on their family life of the events with which this judgment are concerned must have been devastating, whatever may be the rights and wrongs of the matter.

The stress on the family was evident in Mrs Arkhangelskaya’s demeanour and tone. She struck me as a quieter, much more hesitant, person than her husband. She was certainly more reserved in giving her evidence, though on occasion defensiveness and what appeared to me to be bouts of despair about her family’s predicament made her appear truculent.

She has a degree in accountancy and audit. She says she had little knowledge of or involvement in her husband’s business. However, she states in her witness statement that she considers that under Russian law the assets of OMG belonged to her husband and herself in equal shares “however they might be held as to legal ownership”.

Mrs Arkhangelskaya was joined as a defendant because (a) what purports to be her signature is on a number of formal ‘spousal consents’ in respect of the Personal Guarantees in issue, and (b) in May 2009, and thus after the Bank had started making demands under some of the Personal Guarantees, she was the transferee of some of Dr Arkhangelsky’s assets under what was described as a marriage contract (though obviously the document post-dates their marriage by some 7 years).

As well as being a counterclaimant with her husband in these proceedings, she was a claimant with him in proceedings in the BVI Proceedings. The BVI Proceedings were eventually stayed, and then in substance recommenced here, in circumstances rehearsed in a judgment of the Court of Appeal reported at [2014] EWCA Civ 593 (and my own judgment at [2013] EWHC 3529 (Ch)).

Although her witness statement emphasises that she believes the facts pleaded by her husband to be true, Mrs Arkhangelskaya explained in her oral evidence that:

“my husband does everything for us, on our behalf. I do have to take part in this, even though I do not like taking part in this, but because we are the defendants here, I have to take part in this.”

My impression is that Mrs Arkhangelskaya veers between bewilderment and anger about her and her young family’s predicament and remains uncertain whom to blame for it; and she retreats into denial, and (it seems) occasional bouts of extravagance, to cope with it.

The Counterclaimants also called the following further witnesses.

Mr Robin Bromley-Martin (“Mr Bromley-Martin”) is Chief Executive of a company called ‘Port Evolution and Development Limited’, and a partner at an entity called ‘Neutralis Asset Management LLP’, which specialises in emerging market project finance and between 2007 and 2009 also traded as or through another entity called ‘Oxus Border Finance LLP’ (“Oxus”). In addition, he has other interests in the field of corporate finance, focusing on emerging markets. He gave evidence, on which he was cross-examined, as to the work he did, mostly through Oxus, for Dr Arkhangelsky in relation to his and OMG’s plans for development of their respective assets. Mr Bromley-Martin seemed almost to straddle a line between expert and factual evidence. He did his best: but the revelation of a number of very material inaccuracies in documentation he had helped to prepare undermined him.

Mr François Ameli (“Mr Ameli”) is a French lawyer. He was called to the Paris Bar in 1993, and is a Professor at the University of Paris Pantheon-Sorbonne, and a lecturer in the fields of international trade law, international contracts, international law and arbitration. He is one of the legal representatives of Dr and Mrs Arkhangelsky in France. He has been representing them in matters before the French courts and other authorities,

Mr Mikhail Eduardovich Nazarov (“Mr Nazarov”) is a Russian lawyer who has represented Dr and Mrs Arkhangelsky in Russia in relation to various criminal charges brought against him, and also Mrs Arkhangelskaya in certain enforcement proceedings detailed later. A regrettable feature of his evidence was that he said he had never been made aware of the Court’s order for specific disclosure of certain of his documents, but (as was revealed by correspondence disclosed by Dr Arkhangelsky, waiving privilege to do so) that was untrue.

Mr Grigory Pasko describes himself as a Russian investigative journalist and former political prisoner. The main drift of his evidence was that ‘raiding’ of businesses and persecution of their owners, with the connivance of the Russian courts and the assistance of state authorities, has been a commonplace in Russia; and that this case fitted a well-established pattern of (to quote an article he wrote in October 2011) “threats, power games and court actions” forcing the target to abandon his businesses and flee for safety, that then being portrayed by the raider as “a flight from responsibility”. He also had interviewed Mrs Malysheva at some length: and both sides, in her absence, relied on what she said, to little effect in my view. What he had to say was general and journalistic: it was interesting, but not of evidential substance and therefore not of much assistance.

Ms Deliya Meylanova is an associate solicitor at Withers. Her evidence was somewhat peripheral.

Also, in the interlocutory stages of the proceedings, Ms Lukina (Director-General of Vyborg Port LLC, as below described) provided a witness statement dated 5 April 2013 earlier in the proceedings in support of Dr and Mrs Arkhangelsky but not for the purposes of the trial: she explained that in doing so she was afraid lest she be subjected to “revenge or pressure” from the Bank and Mr Savelyev, whom she described as having “a huge power and influence”.

The Defendants and OMGP also relied on the witness statement of Mr Vladimir Ashurkov. He is now a full-time anti-corruption campaigner, who founded, with another such campaigner (Mr Alexey Navalny) the Foundation for Fighting Corruption. Having become subject, whilst in the UK, to what he stated he believes to be “a politically motivated criminal prosecution on charges of misappropriation of electoral funds during Mr Navalny’s campaign for election as the Mayor of Moscow in 2013” he sought, and in 2015 was granted, political asylum here. His brief, and the subject of his witness statement, was to “investigate connections between certain individuals” including Mrs Malysheva, her son and husband, Mr Smirnov and Mr Sklyarevsky. His evidence took the matter no further. He did not give oral evidence.

Expert evidence was given on: (a) handwriting and documentary authenticity; (b) banking practice in Russia; (c) Russian law; and (d) business and asset valuation.

Dr Audrey Giles (“Dr Giles”) and Mr Robert Radley (“Mr Radley”) provided reports, on behalf of the Claimants and the Defendants respectively, on the authenticity of identified documents. Neither gave oral evidence.

Mr Mikhail Turetsky (“Mr Turetsky”) gave expert evidence on behalf of the Claimants (by report and orally) on the approach of lending banks in Russia to defaulting borrowers as at the end of 2008, the repo arrangements in this case, and the procedure by which a lending bank enforced its security. Professor Guriev gave evidence (by report and orally) on these matters. He was acting pro bono for Dr Arkhangelsky because “a person like Mr Arkhangelsky deserves justice and I would like to support his right to justice”. He was somewhat partisan. He had not looked at the specific repo agreements, but his generic observations were of some assistance. He had never actually been involved in any enforcement decisions taken by a bank.

The expert witnesses on Russian law were Professor Peter B Maggs (“Professor Maggs”), a Professor of Law specialising in Russian law at the University Of Illinois College Of Law, for the Claimants, and Dr Vladimir Gladyshev (“Dr Gladyshev”), a practicing attorney in Moscow who divides his time between Russia and London, for the Defendants and OMGP. Both are experienced expert witnesses in their fields. Professor Maggs tended to be didactic, Dr Gladyshev to be discursive, but both were of assistance to me.

The experts on Russian real estate valuation were, for the Claimants, Mr Tim Millard (“Mr Millard”), a chartered surveyor and head of the advisory department at Jones Lang LaSalle in Moscow responsible for Russia and the CIS, and, for the Defendants and OMGP, Ms Ludimila Simonova (“Ms Simonova”), a Senior Accredited Appraiser of the American Society of Appraisers (“the ASA”), a partner of IRE Ukraine LLC, a licensed appraisal firm in Ukraine, who holds a PhD in Civil Engineering.

Mr Millard insisted on a market approach even when no market could be demonstrated. Ms Simonova had no practical experience of selling property in Russia at all; her theoretical approach begged many questions; and she tended to intransigence. I am sure both wanted to assist me; but I regret to say that I did not feel able to place safe reliance on either.

On the market valuation of businesses, Mr Yegor Popov (“Mr Popov”), like Ms Simonova a member of the ASA, but also a partner in Deloitte Corporate Finance within ZAO Deloitte & Touche CIS, gave expert evidence for the Claimants. Mr Luke Steadman, a Chartered Accountant with particular experience in accounting and valuation, and a partner at a firm of forensic accountants called Alvarez & Marsal Global Forensic and Dispute Services LLP, gave expert evidence for the Defendants and OMGP. Neither was called, the Defendants pleading shortage of funds. There was in the end some unsatisfactory uncertainty as to whether the Court should proceed on the basis of the written evidence. It was left that the Court would determine whether that was fair and sufficient, or whether it required further evidence after reaching its conclusion whether it would be relevant, and when the issue of funding might be revisited.

Turning to the corporate entities in the OMG, there were two parent companies, Oslo Marine Group LLC (otherwise known as Group Oslo Marine LLC or “GOM”) and OMGP, and a variety of subsidiaries.

A simplified corporate structure chart for the OMG companies (prepared by the Claimants but not disputed) is attached marked ‘Annex [1]’.

In his main trial witness statement, Dr Arkhangelsky described the Group as, by 2008, including:

“9 principal operating companies which owned a variety of real estate at port sites in St Petersburg and other locations in the St Petersburg region. At the same time it was also developing its insurance, reinsurance and broking businesses as well as offering medical insurance, pension and tourism services…By the end of 2008, the group employed a total of around 620 people across its various companies.”

The relevant subsidiaries of Oslo Marine Group LLC or GOM included:

The relevant subsidiaries of OMGP included:

In addition, it appears that OMG had a number of substantial real estate assets held through subsidiary or associated companies, including:

OMG became a customer of the Bank in 2006. Their relationship expanded considerably over the course of that year, 2007 and the first part of 2008.

Mr Belykh, who was in charge of corporate client relationships and of allocating clients to the Bank’s various branches, recalls meeting Dr Arkhangelsky in May or June 2006 to discuss the Bank’s potential financing of OMG companies.

He recalls that Dr Arkhangelsky “had interesting plans and came across as young and ambitious”. In support of his plans, Dr Arkhangelsky relied upon a letter from a deputy

After this initial meeting, Mr Belykh sent Dr Arkhangelsky to one of the Bank’s subsidiary branches, “Investrbank”. The Bank’s Investrbank branch had experience of large corporate financing and was also the branch closest to Dr Arkhangelsky’s offices. It dealt with OMG and arranged all the loans to the group. In 2006, Ms Shabalina was Director of Investrbank and Ms Prokhor was Deputy Director.

There was a strict hierarchy within the Bank for credit approvals. This was explained by Ms Blinova and Ms Shabalina from their experience of working in the credit department in Investrbank between 2005 and 2009 and between 2002 and 2008 respectively. In summary this was as follows.

When a Bank customer sought a loan in excess of certain amounts or on terms which were not standard, Investrbank’s Minor Credit Committee (“MKK”) would consider the information prepared by the credit department, and make a recommendation to the Major Credit Committee (as above, the “BKK”). That recommendation would be forwarded to the Department of Expertise on Credit Projects (which was independent of the credit departments of the various branches) for analysis and its opinion. The BKK, of which (for example) Mr Belykh was a member, would in turn consider the information and if the amount of the loan sought exceeded its own credit limits it would make its own recommendation to the Bank’s Management Board which made the final decision.

Amongst those on the Management Board were Mr Guz (to whom Mr Belykh reported), who from 2004 to 2009 was its Deputy-Chairman and who was then its First Deputy Chairman from 2009 to 2014 (whereupon he became its Chairman), and Mr Savelyev, who was Chairman from 2001 until 2014.

OMG opened a number of accounts with the Bank. Over the course of 2006 and 2007 and in early 2008 the Bank provided a variety of loans to OMG. For example:

Valuations reports in respect of the security pledged were provided by a Russian valuer called ‘Lair LLC’ (“Lair”). Lair was on the Bank’s approved list of accredited valuers: at the invitation of the Bank, Dr Arkhangelsky selected Lair from that list and OMG employed them. The Bank accepted Lair’s valuation reports in extending the relevant loans.

Within Investrbank, the OMG lending was handled on a day-to-day basis by the Credit Department under the supervision of Ms Borisova. Her juniors included Ms Yashkina and Ms Blinova. Ms Yashkina was initially responsible for the OMG files, but she went on maternity leave in around February 2008, and so Ms Blinova took over responsibility for the OMG files in her absence.

Mr Belykh also had meetings with Dr Arkhangelsky at various intervals. He recalls:

“At one of these meetings [Dr Arkhangelsky] explained that he planned to create a large group of companies centred around Vyborg Port, which he intended to acquire. Part of OMG would own a shipping business, another part of OMG would own a port, and another a maritime insurance company. In addition, Mr

By early 2008, Dr Arkhangelsky who in 2006 had been a new customer for Investrbank, was considered one of the branch’s VIP clients. Ms Shabalina recalled that:

“Mr Arkhangelsky seemed to me to be full of ideas, and was interested in new projects.”

Dr Arkhangelsky also had loans from other banks, such as a loan from V-Bank (see paragraph [109(3)] above) when in 2007 he acquired Vyborg Port. Mr Guz, who was responsible for key corporate customers, recalled discussions with Dr Arkhangelsky as follows:

“At some point in 2007, I recall learning (I cannot now recall exactly from whom) that OMG had acquired the Vyborg Port with a loan that had been granted to it by Vozrozhdenie Bank [V-Bank]. It looked from the outside that OMG was receiving large amounts of money from a reputable bank and that Mr Arkhangelsky's business venture was supported by the government. His acquisition of Vyborg Port and the government support for the redevelopment projects he was seeking to undertake gave him credibility so far as I was concerned and suggested that maybe his business plan might after all be feasible. I can recall further meetings with Mr Arkhangelsky in which he reassured me that on top of everything, the federal and regional governments were supporting his plans. He mentioned certain names of federal and regional government officials who were supporting his business plans, but I cannot now recall them. This was relevant because any large infrastructure project requires federal and regional government support to be feasible. In the light of these matters, when Mr Arkhangelsky subsequently requested larger loans for OMG, the Bank was prepared to consider and grant those requests.”

In early 2008, Dr Arkhangelsky sought the Bank’s assistance for a new project to purchase vessels and operate them from Vyborg Port. He was looking to “expand substantially” the fleet of Vyborg Shipping to create a fleet of 30 cargo ships. To finance the project, he sought from the Bank a number of loans to be made to Vyborg Shipping (which had opened an account with the Bank in September 2007), or SPVs owned by it.

The proposal involved the Bank taking as pledges for the loans vessels which were foreign owned and registered abroad rather than in Russia. The Bank had not done this before. In March 2008, Investrbank drew up a credit report for a number of loans to Vyborg Shipping of up to RUB 2.1 billion.

As mentioned above, Dr Arkhangelsky’s plan was to create a cargo fleet for Vyborg Shipping. His expressed objective was first to acquire 10 vessels, and then build 20 more vessels. A Cypriot company, Land Breeze Holdings Ltd (“Land Breeze”), would own companies registered in the Marshall Islands, each one of which would own one of the vessels. They would charter each vessel to Land Breeze, which would sub-charter them to Vyborg Shipping. The vessels would be mortgaged to the Bank, and (according to the Bank at least) Scan and Dr Arkhangelsky were each to give guarantees.

In late March 2008, according to the minutes of a meeting on 26 March 2008, the Management Board agreed to grant the facility of up to RUB 2.1 billion against certain security: a mortgage over each vessel, a guarantee from Scan, and a personal guarantee from Dr Arkhangelsky (it being noted as regards the last that it would be “without financial due diligence at the time of preparing the report and in the course of loan agreements monitoring and without life and accident insurance”).

The drafting of the documentation for this was undertaken by Ms Blinova. She was the Chief Specialist at Investrbank responsible for analysing the lending requirements of Investrbank’s clients, monitoring their financial positions and credit status, and drafting documentation to record the basis and terms of any loans. (As mentioned above, she had stood in for Ms Yashkina who had been in charge of lending to OMG companies but who was on maternity leave at about this time.)

Ms Blinova explained in detail in her witness statement the various loan documents she prepared. These were as follows:

In July 2008, Dr Arkhangelsky sought a fourth loan for Vyborg Shipping, but this time, rather than provide a vessel as security, he proposed that land owned by Western Terminal be pledged. On 16 July 2008, the Bank’s Management Board approved the request to change the type of security, and noted the forms of security given, including (it appears) a personal guarantee.

The Bank agreed to provide the Fourth Vyborg Loan dated 21 July 2008, in the sum of RUB 1.088 billion, “for the purpose of rent payments under the time charter agreements”, and to be used “strictly in accordance with its target purpose”. OMG’s stated purpose was to make payments under time charters for two vessels, named the ‘Tikhvin’ and the ‘Luga’.

The security for the Fourth Vyborg Loan, however, was not any vessel, as had been the case for the first three Vyborg Loans. The loan was to be secured by a mortgage over land at Western Terminal (namely SV Berth 15 and the Western Terminal land plot of some 73,000m²), a Scan guarantee and a personal guarantee from Dr Arkhangelsky.

It was Dr Arkhangelsky who suggested the use of real estate as security rather than another vessel. The mortgage agreement agreed the value of the real estate for the purposes of the pledge to be RUB 1.286 billion.

The real estate assets at Western Terminal also included what Dr Arkhangelsky described as another berth, berth “SV-16”, and “two railway tracks”, which were not pledged to the Bank. Under the Russian cadastral rules, those assets were registered separately from the land they were located in, which was registered as a single plot and pledged to the Bank. There was a dispute as to the value of those unpledged assets. According to the Bank, these additional ‘assets’ were in a very dilapidated state and added nothing to the value of the Western Terminal site.

The Bank described SV-16 as “in truth…little more than a decrepit jetty” with an area of only 120m² with a length of 33.5m and a width of 3.03m, only accessible from the land plot pledged to the Bank. The two tracks, according to the Bank, were outside the Western Terminal site and on land owned by a third party, the Severnaya Verf shipbuilding plant, which was a state-owned military shipbuilding company.

The Counterclaimants, however, maintained that both had material value: berth SV-16 and the railway tracks would significantly increase the capacity of any business operating the Terminal, if owned by the same business as berths SV-15 et al.

For comprehensiveness, it may be recorded that there were some further ‘assets’ within the Western Terminal site, but these had no value because they could not actually be pledged at all: they had no title entry in Rosreestr, the Russian Registry of real property rights. There was an ‘Administrative Building’ which was a two storey ‘temporary structure’ (in effect, a portacabin), and a one storey guard ‘house’, neither of which was (or could be) registered in Rosreestr.

There is also reference to a document which purports to be a ‘spousal consent’ signed by Mrs Arkhangelskaya. In Ms Blinova’s absence on holiday the requisite agreement was drafted by the credit department. It appears that Dr Arkhangelsky signed shareholder resolutions for Vyborg Shipping and Scan authorising the loan and the guarantee. Dr Arkhangelsky does not dispute the loan advanced to Vyborg Shipping, but does dispute that he signed the Scan and Personal Guarantees given in respect of the First, Second and Third Vyborg Loans.

The Fourth Vyborg Loan has given rise to some controversy. In their Opening Submissions, the Defendants and OMGP suggested that by “mid-2008, Vyborg

This has inevitably raised the question as to where the proceeds of the Third and Fourth Vyborg loans went. It is the Claimants’ case that they “simply disappeared into OMG” and were then “diverted into Mr Arkhangelsky’s pocket”.

Dr Arkhangelsky denied this; but his evidence as to what had happened was far from clear. He suggested, without any documentary support, that what he termed “prepayments” for the vessels had been made, but “due to the crisis at whatever, October, November, December, final delivery have not been done, and so we lost quite a lot of money, I think”. He sought to explain his vagueness on the basis first that “shipping is rather a complex thing” and secondly, that “…it’s Olga Krygina who’d been taking care about all these…” (and, knowing she had not been called as a witness, suggested that “you speak to her first”). I cannot accept that evidence; and, though I do not think that it is established that Dr Arkhangelsky pocketed the money himself, I find that the moneys have never been accounted for.

Returning to the description of the various borrowings and their terms, all the Vyborg Loan Agreements (as well as the PetroLes loans) also required the borrower to maintain a stipulated percentage of turnover (100% in the case of the First to Third Vyborg Loans, 70% in the case of the Fourth Vyborg Loan and the First PetroLes Loan and a specific sum of RUB 250 million per quarter in the case of the Second PetroLes Loan) on settlement and currency accounts of the relevant borrower at the Bank. These enabled the Bank (in theory at least) directly to monitor trading performance.

Ms Blinova’s witness statement recounts that, during August 2008, the Bank sent chaser emails to OMG in respect of the valuation report it needed for the Western Terminal security, as well as the direct debit agreements between other banks and Vyborg Shipping and Scan as guarantor.

In the course of the first half of 2008, there were various changes to OMG’s existing loans from the Bank.

For example, the First PetroLes Loan was extended by a year until 5 March 2009, and there were also various changes in security and extension for the First Onega Loan in that its repayment date was extended by a year until 27 June 2009. According to Ms Blinova’s evidence, the extension was reflected in amendments to the various guarantee agreements (though LPK Scandinavia was removed as a corporate guarantor of the First Onega Loan).

As mentioned above, the Bank had previously granted a loan to LPK Scandinavia in November 2007 (the 2007 LPK Scandinavia Loan). LPK Scandinavia now sought a further loan in the form of an overdraft facility. The Bank granted the overdraft facility up to the sum of RUB 145 million by an agreement dated 25 June 2008 (the “2008 LPK Scandinavia Loan”). The only security required, according to the Bank, was a personal guarantee from Dr Arkhangelsky, to which his wife should give her consent. But Dr Arkhangelsky disputes the personal guarantee.

As these loans illustrate, Dr Arkhangelsky viewed all the port and real estate assets as a whole and as having both individual and synergistic value and combined potential.

He described his overall plans for the Group in his 16^th Witness Statement as follows:

“All of the port and real estate assets described above were acquired with the specific intention of developing them in order to realise their full commercial potential. My medium to long term objective for the Group was that it would become a vertically integrated shipping and stevedoring business, concentrating on servicing transhipment traffic in the Baltic. There was an increasing demand for cargo and container transhipment services in Russia, particularly in the St Petersburg ports which were suffering from congestion. I thought that if the Group could capture that demand and satisfy it through its three ports at Vyborg, Onega and Western Terminal it could outperform its competitors and potentially make a great deal of money.

…

Clearly, these plans were extensive [and] could not be achieved overnight. They were going to require substantial investment and would be rolled out in phases over the course of several years…”

I address in greater detail below the difficulties of funding these plans, and whether they were ever realistic (it being the Claimants’ case that they were not, and that indeed they were entirely fanciful). But a brief description of the three terminals, and of the shipping company, may assist in understanding Dr Arkhangelsky’s grand design.

I have described the assets, both pledged and unpledged at Western Terminal in paragraphs [134] to [138] above. Western Terminal had in Soviet times formed part of a larger, state-owned military terminal, which in the past had handled and stored special refrigerated containers and nuclear waste. However, it was not disputed that when in 2007 Dr Arkhangelsky acquired it the Western Terminal site was in a poor state: little more than a timber yard, and (in Dr Arkhangelsky’s own words) “like a swamp and not all the territory is used”.

Moreover, although Dr Arkhangelsky described the Terminal as having its own railway spur and major road junctions, it became clear that at least the railway was on a separate plot which had been in State ownership but was never in OMG’s. Design work for development carried out by a German firm, Schuppertbau, suggested an initial costs estimate for the proposed work of US$200 million.

The Onega Terminal property consisted of 4,506.5m² warehouse and supporting space, and 55,208m² of land. It was designed for Ro-Ro and containing handling and storage. It comprised four warehouses and administrative buildings and three land lots, owned by Scan and LPK Scandinavia.

A particular problem was and remained that the site did not include a berth or direct outlet to the sea, which is obviously vital for any port facility. Instead, Onega’s access to a berth was provided by an unrelated third party, The Sea Fish Port of St Petersburg

A business plan prepared in October 2008 estimated that Dr Arkhangelsky’s plan for a larger and more sophisticated Ro-Ro and container transhipment facility at Onega could cost some RUB 36 billion (then just over US$1 billion).

When Vyborg Port was acquired it mainly handled bulk commodities, including, in particular, coal and timber products. Dr Arkhangelsky’s avowed aim was to modernise the port, increase its cargo throughput capacity and develop a multi-functional container and Ro-Ro terminal. Funding of at least €115 million was sought.

As is already apparent from the loans for that purpose described above, Dr Arkhangelsky also planned to expand Vyborg Shipping’s fleet of vessels: it had started with just one (the ‘Gatchina’). A business plan, which Dr Arkhangelsky described as having been prepared by Lair and which is dated April 2008, envisaged the creation of a fleet of 30 cargo ships as part of what the report described as OMG’s:

“Strategic goal [being] to create a vertically integrated holding in the field of sea cargo shipping – from order placement to cargo delivery, where all the links of the chain are the companies of the Oslo Marine Group.”

Dr Arkhangelsky’s avowed plans for the extensive development of Western Terminal were the focus of a large part of the evidence at trial. He set out in his 16^th witness statement the three stages he apparently envisaged:

“The first stage would involve building an open storage area at berth 15, reconstructing a railway track to connect the port to the main railway system, dredging the channel in front of the terminal, and finishing the construction of berth 15. The second stage would include the reconstruction of berth 16, the building of open storage for containers, the construction of a railway link to berth 16, purchasing port handling equipment and installing a container crane. Finally, at the third stage, we planned to reclaim the bay northwest of berth 16, construct a pile-supported berth, build further storage space, install a second container crane and extend the railway track along the pier.”

Such a development plan was by no means straightforward. In particular, Dr Arkhangelsky explained:

“The development plans entailed the removal of a man-made island near the entrance to the port. From a practical perspective, I understood this to be relatively straightforward. Once this had been done and the bay north of berth 16 dredged, access to Western Terminal by sea from the Gulf of Finland would have been easier than to competing terminals. The island would need to be removed by the state authorities because the land and water were the property of the state. No investments or payments were needed from Western Terminal itself. All I needed to do was try to speed up the process as much as possible. I was seeking to do that by lobbying my contacts and colleagues in the Ministry of

Transport and local government.”

Dr Arkhangelsky set out in his witness statement what he considered were the ‘competitive advantages’ of Western Terminal which he considered justified investment to “exploit as much as possible”. These included, in his perception:

To assist in realizing these ambitions, Dr Arkhangelsky intended, it seems, to make use of his political contacts. Thus, for example, he referred to the fact that in 2008 he created a ‘supervisory board’ for OMG:

“With a view to assisting it to obtain financing and political support for its ongoing development projects. Alexander Shokhin, the president of the Russian Union of Industrialists and Entrepreneurs and former deputy prime minister of Russia, agreed to be its chairman. The other members included Vyacheslav Ruksha, a former deputy transport minister, Vadim Lopatnikov, the chairman of the St Petersburg Audit Chamber, Vitaly Klimov, a member and former chairman of the Leningrad Regional Assembly, Lars Kolte, the Chairman of the Council of Europe Development Bank, and Oleg Preksin, the vicepresident [sic] of the Russian Banking Association. All these individuals had excellent financial and political connections and were well placed to assist the Group in achieving its funding objectives.”

However, Dr Arkhangelsky also acknowledged that his plans for Western Terminal required “substantial investment”. Considerable capital and borrowings would be required. He told me that “obtaining financing for the various projects was going to be critical, and this occupied an increasingly large proportion of my time.”

The preliminary cost estimate for the development of Western Terminal was US$ 220 million. This called for project finance. Dr Arkhangelsky approached Oxus to assist. Oxus, it may be recalled, was a project finance company run by two partners, one of whom was Mr Bromley-Martin.

Mr Bromley-Martin recalls that in early 2008, “Clyde & Co approached us saying that they had a client who wanted assistance with financing and managing a development project.”

From around May 2008, Oxus started work on a draft Information Memorandum (the “IM”) containing a Business Plan for the development of Western Terminal, and which according to Dr Arkhangelsky was “used to approach potential lenders”.

This IM painted a rosy picture of the value of and prospects for development, and of the investment already made; and it was on the basis of that presentation that potential lenders and finance-providers were invited to provide funds.

It suffices for the present to summarise its presentation as follows:

Mr Bromley-Martin said that “We had been instructed that various state organisations would need to – and would – approve the development plans at Western”. Mr BromleyMartin explained that he created a financial model to underpin the IM.

There is no doubt that the draft IMs (in all their versions) were materially inaccurate on matters fundamental to any investment or lending decision.

The most blatant and significant inaccuracies concerned two matters of fundamental importance to any investor or lender: (a) the statements as to the acquisition costs and subsequent investment in the facilities; and (b) the projection as to the capacity of the Western Terminal as measured by annual TEUs.

The statement of acquisition costs disguised perhaps the most egregious and troubling fact in the case: an admitted discrepancy between the figure given in the IM as the cost of acquisition and initial development and the actual amount paid.

Taking for these purposes the version of the IM sent out to banks to attract investment in July, August and September 2008 as the final version (“the final draft IM”), it was therein represented that Western Terminal had been acquired for US$220 million. Thus:

As to the funding requirement, the final draft IM stated as follows:

“Funding Requirement

OMG are therefore seeking to raise up to $300 million in long term debt to fund the upgrade of the terminal and to repay $90 million of short term debt used to acquire the terminal in 2007.

The key elements of this debt are:

•

Asset backing

There is considerable asset backing for the debt, given the size and location of the facility.

•

Gearing

The parent company has already put in US$140 million of equity into the facility.”

In fact, these statements contain or disguise what the Claimants describe in their written Closing Submissions as “an enormous untruth” and “fatal falsehood”. The truth was that Dr Arkhangelsky had bought Western Terminal for only about US$ 40 million in May 2007; furthermore, the alleged equity investment of US$140 million had not taken place.

In that regard:

Under cross-examination, Dr Arkhangelsky was confronted by this falsehood. He gave the following evidence.

First, Dr Arkhangelsky tried to explain the discrepancy between the acquisition price of Western Terminal as set out in the purchase contract and the price set out in the final draft IM by suggesting that he had to pay “separate funding” as part of a “special investment project” in order to acquire territory at Western Terminal which was covered in water and was to be reclaimed. He alleged that the share purchase contract related only to the existing eight hectares of land, whereas the acquisition price in the final draft IM also related to the territory covered in water.

This was not suggested in Dr Arkhangelsky’s witness statement (or Mr BromleyMartin’s) and was not true. The final draft IM itself contained reference to the potential purchase of a further four hectares, which was to be reclaimed as part of the development, but that territory had not been acquired in May 2007 and so could not explain the US$ 220 million figure. Any reclamation of the water territory at Western Terminal was part of the very development for which financing was sought; it did not relate to the original acquisition cost of the site as represented in the final draft IM.

Second, Dr Arkhangelsky sought to suggest that Mr Bromley-Martin had misunderstood the acquisition price for Western Terminal, that “there is definitely some logic behind that, so I think it’s better to speak to him first”. But this smacked of playing

Finally, with nowhere else to go in order to explain the extraordinary discrepancy, Dr Arkhangelsky alleged that in relation to Western Terminal he had made corrupt payments of US$ 160 million to a Mr Dmitrienko, the head of the Russian Federal Agency for Ports and Shipping. His evidence was as follows:

“A. We paid $40 million for acquiring pieces of land and assets of the Western Terminal which had the property rights, but we also acquired investment project for these 4 hectares of land, and it had other additional value, and so I assume that here we are speaking about these both projects.

Q. And are you saying that you actually paid, you actually paid extra money for these other rights?

A. Of course, as I said to you before, yes.

Q. And how much did they come to?

A. I think the figures are correct, and as I said --

Q. Sorry, $180 million; is that right? Makes up the shortfall, does it?

A. No, because initially we paid 40, then we paid 20 more.

Q. So $160 million, is that right?

A. Yes, and --

Q. Sorry, $160 million represents the extra payment, does it, for these extra rights?

A. I think so. I don't have all these figures and the currencies right now but, as I said, we have paid quite substantial amounts, even personally, to officials. Q. Up to US $160 million?

A. Quite big amounts, yes. It has been done in stages because the project was ongoing, and as I mentioned in the open court, I paid personally to Mr Dmitrienko, who at that time was head of the federal agency.

Q. How much did you pay him?

A. It has been quite a number of instalments been transferred to different accounts, and been connected to different stages. I don't remember all the figures now.

Q. And why were those payments made? Why were those payments made?

A. Why? Because he was a Russian bureaucrat who was responsible for development in this territory, and unless he would not agree and unless he would not support this project, that project would not be realised.”

Thus, it was ultimately Dr Arkhangelsky’s case that the explanation for the discrepancy was that he had had to pay vast bribes, seeking to justify that on the basis that the way of things in the Russian Federation (and in particular St Petersburg) made such payments a necessity, and the price of doing business and expanding the Western Terminal in accordance with his plans:

“A. …Your Lordship, it is quite important to note that we are not able -- we were not able to do – in the aquatoria of the port of St Petersburg, we are not able to do ourselves anything because it's the federal things and it is only federal government who can do this. And that was normal that we were paying to officials to include these substantial amounts in the federal budget.

Q. Was it a bribe, Dr Arkhangelsky, in effect? It was, wasn't it?

A. Yes, it is. It is.

Q. So you had to bribe a federal official in order to be able to get your Western Terminal acquired?

A. No. We acquired the Western Terminal --

Q. Mm hmm.

A. -- but for the future development of that, as long as the project had been quite big and important, we had to bribe, yes.

Q. And without paying the bribe, you wouldn't have been able to develop Western Terminal at all, would you?

A. No. We are speaking about -- it's very well described in the investment memorandum that even the territory and the state at which it was, in 2007 or 2008, would be possible to handle 500,000 containers. What we are speaking about, we are speaking about much greater development, because, as your Lordship probably could notice, that the draught at the berth at Western Terminal is 4.5 metres. So, by dredging by the federal authorities, we could bring it to 14 metres, which is the maximum draught of the channel of St Petersburg, and that could enormously increase the capacity and the profitability of the project.”

Thus, in more detail, the upshot of Dr Arkhangelsky’s oral evidence was:

Although the bribes were allegedly only directly made in relation to Western Terminal, according to Dr Arkhangelsky they were also necessary for OMG’s port asset business as a whole:

“A… to be absolutely correct, the same person is responsible for all the ports and shipping, and having relations on Western Terminal would mean his general support to other projects also.

Q. So by making these payments, you were securing the support of officials to all three of your port businesses?

A. Absolutely.”

The explanation (payment of bribes) may be more arresting; but the basic fact that the latest draft IM presented an entirely false figure is important in itself too. It was accepted that the figure for the acquisition cost was not inserted by mistake. It was the figure intended to be inserted and was based (I accept and find) on answers given to Oxus after specific enquiries it made to OMG.

Mr Bromley-Martin was cross-examined about this, and in particular the source of the figure, and his view as to its amount relative to the poor condition of the Terminal. He emphasised that he had not seen the share purchase contract showing the true figure. He acknowledged that the US$220 million figure:

“Struck me as being rather a lot, I must admit, but that was the information we received from our clients.”

Mr Lord, when cross-examining Mr Bromley-Martin, clarified that he was not suggesting that Mr Bromley-Martin knew that “the cost was different”. It is a fact, however, that Oxus had had available to it the OMG accounts which recorded the Western Terminal acquisition price: Mr Bromley-Martin had exhibited them to his witness statement. Even if Oxus only received the accounts in September 2008, as Mr Bromley-Martin suggested, it made no changes to the October version of the IM.

In his oral evidence, Mr Bromley-Martin sought to suggest that he only reviewed the accounts as a “civil engineer, not as an accountant”, but the price was clearly recorded

No satisfactory explanation as to why the discrepancy was not spotted ever emerged. I can only conclude that Oxus’s due diligence was remarkably deficient; and that Mr Bromley-Martin and his colleagues were too easily satisfied by Dr Arkhangelsky’s assurances, thrown off course of consistent enquiry by the difficulties he described in getting any “meaningful information” from OMG and then further distracted and subsequently convinced by a valuation just before the final version of the IM in October stating the Terminal to be worth US$220 million.

None of that, however, explains or excuses the fundamental misrepresentation of the acquisition cost in the final draft IM.

A second important element in the analysis of Western Terminal in the final draft IM was the figure for annual TEUs: that is the measure of the capacity of the terminal and perhaps the most significant indication of its potential. It is thus of considerable significance that this figure was haphazardly and inconsistently stated in the various drafts of the IM, including the final draft IM, giving the impression that it was plucked out of the air.

A comparison of the IM’s drafts shows as follows:

It is difficult to know quite what to make of this extraordinary inconsistency on a figure going to the heart of the value and prospects of the Western Terminal and the likely perceptions of potential investors and lenders. I would be disposed to accept that the 7,000 TEU figure is an aberration, or perhaps a monthly rather than a yearly figure. But the wild differences at least cast further doubt on the final draft IM figure of 500,000 TEU per annum. That figure is almost impossible, to my mind, to justify.

The only evidence for it really is the say-so of Mr Bromley-Martin, based on information he had apparently garnered from others with more expertise: he accepted that at the time (of the IMs), his port experience was “largely in bulk materials rather than containers, so therefore I was relying upon other people’s information” though he went on “…since then, in the last five years, I’ve done nothing but container terminals, hence, I’m rather more fluent on the subject myself…” . He was adamant, not only that the other figures were ‘typos’, but more importantly that, based on information he said he had been given by others (the one with experience in Gdansk, the other with experience in Singapore) the 500,000 TEU figure in the final draft IM was correctly stated and entirely justified:

“A. I see no relevance to the fact that I changed a draft in an internal document to the fundamental point, and that is that 8 hectares is capable of handling at least 500,000 TEU per year.

Q. If we go back, please, to to the original draft [IM]…you can see that you included some statistics…” A. Mm hmm.

Q. Which I don’t think feature later, in later drafts: can you see halfway down the sentence there is a sentence:

“Other statistics. 30,000 TEUs per hectare and 1 metre of quay equals 1,000 TEUs.”

A. That was just an aide-memoire to me.

Q. Yes, but Mr Bromley-Martin, weren’t you there setting out what would be the orthodox or conventional figure for TEUs per hectare?

A. That was the the historical information that I found on the internet which was later disproved by updated practice in the industry.

Q. As you were led to believe by Dr Arkhangelsky in this information…

A. Vitaly had nothing to do with us finding this information at all.

Q. But when you started out, your first draft information memorandum…

A. The person I was relying on at this stage was actually James Sutcliffe, based on his experience at Gdansk; he was a major input. There was also another gentleman who was helping us as well, who was in Singapore, who was also a long-standing container manager operator, so we were getting the bulk of information from those two gentlemen.

Q. I’m going to suggest, Mr Bromley-Martin, that a figure of 30,000 TEUs per hectare, in other words, 240,000 TEUs per annum, is a more realistic estimate for the potential container capacity or turnover of this developed site?

A. I’ve already told you a few minutes ago, with modern methodology, modern software that you can stack…if you look at my sheet here, I’ve used two and a half containers’ height. Most container terminals are using between four or five, so with modern systems you can greatly increase the volume of container throughput…”

I was not persuaded by this evidence, borrowed from others, and contradicted by the contemporaneous notes quoted. I accept the Claimants’ submissions that:

In light of these inconsistencies, and unrealistic assumptions, I accept the Claimants’ case and find that there was no sufficient basis for a projected TEU capacity of 500,000 per annum, which implausibly implied that by 2011 Western Terminal would have become the second largest container handling terminal in Russia.

The final draft IM was thus fatally flawed. It disguised the fact that some US$160 million attributed to the acquisition cost was in reality not attributable to acquisition, nor to investment; and it presented a materially inaccurate picture of the capacity and thus the prospects of the Western Terminal.

Nevertheless, armed with a draft IM (or perhaps more than one version, the evidence is not clear), Dr Arkhangelsky said that he and Oxus met various international banks during the summer of 2008, and that non-disclosure agreements were entered into with a number of banks. It is not clear whether it was the final draft IM or some earlier draft which was provided to such banks.

There is very little, if any, documentary record or other evidence of any of the meetings which Dr Arkhangelsky said had taken place, except in respect of BNP Paribas.

In the first week of September 2008, Oxus and Dr Arkhangelsky went to Paris to meet BNP Paribas. On 12 September 2008, BNP Paribas provided a letter of interest with its thoughts on the development of Western Terminal.

BNP Paribas noted Dr Arkhangelsky’s objective to raise US$ 300 million, and that of the US$ 300 million debt facility, US$ 220 million was stated to be required for the redevelopment of Western Terminal, and US$ 80 million was required to restructure OMG’s debts. BNP Paribas said it would need to go through a due diligence and financing process with Western Terminal. It set out its various requirements, and suggested that if an advanced business plan was ready due diligence could take 3 to 4 months.

Oxus replied to BNP Paribas on 19 September 2008, saying:

“As an overview, OMG would be delighted if you were to take the lead in a syndication of the debt, subject to the normal due diligence and contract…”

On 25 September 2008, BNP Paribas provided to Oxus a formal proposal to act as a structuring and arranging bank in connection with the financing of the development of Western Terminal. The letter noted:

“…although we are confident that the Project will be able to raise limited recourse debt, we believe that given the local environment and the limited precedent in infrastructure project financing in Russia, a number of structuring issues will need to be carefully reviewed and addressed before providing a comprehensive arranging offer. We believe also that commercial bank’s debt market cannot be the only financing route and other financing sources (Multilateral Institutions and/or ECAs) will need to be implemented in order to reach a successful financing.

We believe therefore that significant preliminary works need to be carried out at this stage in order to elaborate the most appropriate financing structure for the Project…”

BNP Paribas set out its proposals for its services, including a monthly retainer fee of €25,000 plus a success fee for its services. The proposal stated:

“When appointed, we will start reviewing the financial model prepared by Oxus and providing comments to ensure that it answers lenders usual requirements. On the basis of our preliminary review, the model may need to be substantially amended and we would like to discuss the most efficient process to do so with you.”

The letter also stressed the need for due diligence and a detailed risk analysis:

“We also suggest that the due diligence related to the market be undertaken as a matter of priority. We would therefore need to be advised by an independent technical consultant, which will in term also opine of the technical aspects of the Project…

The above activities will culminate in the fatal flaw analysis and a detailed risk analysis of the Project and related mitigation strategy as may be deemed necessary in the context of raising a long term project financing.”

It is quite clear from the exchanges of correspondence between Oxus and BNP Paribas that the latter, whilst still wishing to encourage some involvement for which it would be remunerated, had fundamental concerns about the viability of the underlying proposition. Thus:

Dr Arkhangelsky did not proceed with the BNP Paribas proposal. His evidence in his witness statement was:

“In October 2008 Oxus and BNP continued to negotiate the detailed terms of the mandate letter. The terms were essentially agreed, but BNP required the Group to pay a monthly retainer fee of €25,000 for their services in addition to all the other fees and expenses related to other professional advisers and consultants. October 2008 was a time of enormous uncertainty in the markets and I did not think that the Group could commit to this expenditure at that time. I expected that the cash flow position would improve over the coming months and intended to take the project forward as soon as we were able to do so.”

The glib suggestion that “the terms were essentially agreed” thus gives a false picture. BNP Paribas may have been prepared to start the fundraising process if OMG paid it a retainer, but there was no deal without payment. Indeed, to explain away his nonpayment of the retainer, his oral evidence suggested that terms had not been agreed with BNP Paribas.

Even more striking is the fact that, by that time, it would appear that Dr Arkhangelsky could not spare a monthly retainer fee of just €25,000 for assistance in raising loan on better terms which could have saved OMG (by its expert Mr Bromley-Martin’s calculation) roughly $50,000 per day in interest charges. This throws a stark light on the dire cash position in OMG and Western Terminal by autumn 2008. Dr

It may be, as the Bank suggested, that there was another reason for Dr Arkhangelsky shying away from any commitment. He may have appreciated that if BNP Paribas went ahead and carried out the independent due diligence that it required, that would have focused forensic investigation on the Western Terminal project which would have exposed unpalatable features about his and OMG’s business practices, and especially the payment of huge bribes. Thus, the Bank argued, Dr Arkhangelsky knew that the project would never pass the requirements of lenders, and so was not going to spend any of his money on it.

I return later to that too: for the present suffice it to say that no bank ever did make an offer to or in fact provide any such funding for Western Terminal.

In addition to his plans for Western Terminal, Dr Arkhangelsky’s witness statement speaks of his efforts also to acquire additional land and cargo handling and other facilities at Onega Terminal in accordance with another business plan which Dr Arkhangelsky said was prepared by Lair in October 2008 (see paragraph [119] above).

As with his avowed plans for Western Terminal, these were nothing if not ambitious; but his evidence as to their funding was markedly more vague and problematic, not least because (as previously explained) the part of Onega Terminal that OMG owned did not have its own berth, OMG was reliant on co-operation agreements with the owners of the only berths, namely SFP, the holding company of ROK No. 1 Prichaly, which thus had a strong negotiating position.

The plans envisaged the expenditure of RUB 2.3 billion to acquire additional land at the terminal (which was needed to give it is own berth), RUB 5.9 billion to purchase cargo handling and other equipment and RUB 9 billion to develop the land and construct the necessary port facilities.

It is the Claimants’ case that these plans were always entirely fanciful or ‘pie in the sky’. Dr Arkhangelsky’s witness statement was vague and unsupported by any compelling documentary evidence, and his cross-examination increased its fragility rather than its substance. He rattled off names of third parties with whom he said he was conducting negotiations; and he referred to having signed, in September 2008, a contract on behalf of Scandinavia Trading Company (in the OMG) to acquire 100% of

Two evidential details provide an insight into the reality (or unreality) of these grand expansion plans. One is that a potential mandate agreement with Mr Bromley-Martin’s company, RBM Resources Ltd (“RBM”) under which RBM was to manage the development, was never finalised or signed “for the same reasons that prevented me from signing the mandate with BNP”. The second is Dr Arkhangelsky’s reliance on a couple of documents which he described as constituting “written expressions of interest”, but which on inspection constituted no more than acknowledgments of Dr Arkhangelsky’s overtures and requests for more detailed information for “preliminary due diligence”. That this is as far as Dr Arkhangelsky had got by February/March 2009 speaks for itself.

A similar picture emerges in relation to the plans for the development of Vyborg Port. Dr Arkhangelsky maintained that the EBRD was willing to provide that funding, and further that OMG also had productive discussions with a Russian bank called KIT Finance about a US$150 million bond issue. Neither eventuated, and both were dismissed as pipe-dreams at best by the Claimants.

Dr Arkhangelsky’s propensity to read as constituting virtual commitment bland communications indicating little or no more than that potential investors or financiers were considering a proposal is illustrated by his reliance on a letter from the EBRD to Mr Yuri Novikov, Deputy Chairman of V-Bank, dated 21 January 2009. This simply informed him that EBRD was “considering a project finance of up to EUR 115 million to OMG for the reconstruction and modernisation of Vyborg Port”, and referred to information on its website (of which no record was provided to me).

Dr Arkhangelsky’s assertion that thereafter, in March 2009, EBRD “approved financing” is not supported by any evidence, and is inconsistent with his witness statement that as at March 2009 EBRD had not yet conducted its final review and due diligence. His assertion that the EBRD website in March 2009 published a confirmation of its intent to finance the project was not substantiated.

Furthermore, Mr Lord referred Dr Arkhangelsky in cross-examination to a draft basic term sheet which not only expressly stated at the top that it did “not constitute an offer or commitment by EBRD” but also provided for all the assets of the proposed borrower (Vyborg Port) to be pledged: but all those assets had already been pledged to another bank, namely V-Bank. I should record that I did not find at all convincing Dr Arkhangelsky’s attempt to explain this as being likely to be resolved with V-Bank.

As to Dr Arkhangelsky’s parallel discussions with KIT Finance, which also undertook an interesting and revealing review and modelling exercise of OMG’s financial position (see below), it emerged that EBRD and KIT Finance were not informed or aware of the other’s involvement. It is clear that OMG’s alternative fundraising projects would each have destroyed and cancelled out the other because lenders would have been concerned if it transpired that the borrower was also trying to obtain finance for other projects at the same time.

The same goes for the other track being pursued with BNP. It seems likely that Dr Arkhangelsky appreciated this: an indication of that being that he baulked at any suggestion of an inter-creditor deed which would instantly have revealed the position.

As it was, neither EBRD nor KIT Finance ever committed to raising any funds for OMG.

The broader fact is that OMG never obtained financing for its development plans from any of V-Bank, Sberbank, VTB, Vnesheconombank, or any of the other some 25 banks and other lenders whom Dr Arkhangelsky (allegedly) approached in 2008 and 2009 (or at any other time).

This was entirely at odds with Dr Arkhangelsky’s claim in his witness statement for trial that “The banks took the Group very seriously and invariably expressed interest in supporting it” and that he could “see no reason” why he should not have been able to refinance his debts to the Bank.

Had that been true, there would have been every reason for Dr Arkhangelsky to keep the Bank informed about his negotiations with prospective lenders. It would have given him leverage in his dealings with the Bank to show that he had alternative sources of finance. But it was not; it was a delusion, and his claim in the same witness statement to have “kept the Bank apprised in relation to the development plans partly to demonstrate that the Group had a bright future and that its debts would be repaid” was likewise false.

The truth is, as the Claimants put it, that the OMG business was built on sand, and OMG could not survive on its operational turnover, but could only survive by borrowing money to buy more assets to support further borrowing.

In addition to the proof of the pudding being in its inability to even begin to service its loans, this is also revealed by an analysis of OMG’s financial statements, and, in particular, OMG’s combined audited accounts for the year ended 31 December 2007 dated 14 August 2008.

Dr Arkhangelsky was cross-examined on these at some length, despite his quite vehement protests that this was not fair or helpful since neither he nor his examiner

He had earlier said this:

“I am very much concerned on all the discussions we had here in respect to IFRS accounts. So it’s really a very complex matter and you cannot judge it, you know, from the point of view of standard logic.”

I accept that IFRS accounting has its complexities, and, at least to the uninitiated, its mysteries. Further, Dr Arkhangelsky exhibited both the 2007 OMG consolidated accounts and the Scan accounts to his first BVI affidavit and had given an explanation of the main figures, and his reluctance before me to answer questions that plainly arose was unsatisfactory. In any event, the audited accounts are intended to speak to, as it were, the world; and they tell a story that in basic outline is beyond neither logic nor understanding.

The Combined Income Statement for the OMG 2007 shows as follows:

That figure for net profit, however, requires, and duly received at trial, some further analysis of its derivation. As to that, Note 6.19 shows that for 2007, OMGP acquired Western Terminal LLC for US$ 40.289 million, but the business’s total fair value was put down as US$ 85.813 million, giving a figure for negative goodwill of US$ 44.524 million. Other acquisitions associated with Western Terminal were also re-valued, to give a total negative goodwill figure of US$ 50.857 million. ‘Negative goodwill’ arises when a business is purchased below what is said to be its fair market value, such that the buyer makes a resulting gain and it can be accounted as income. Almost all the

But the ‘gain’, even if substantiated by proper valuations, is a one-off gain, not an operational or recurring item, and it cannot support the buyer's ability to meet any of its monetary liabilities in the short term.

Similarly, the change in fair value of investment property which results from the revaluation of real estate is a ‘one-off’ event which does not indicate trading performance and should also be treated as a non-operational item on the profit and loss statement.

As the Claimants pointed out, if negative goodwill is removed from the Combined Income Statement, i.e. if the ‘income’ attributable to the acquisition of certain businesses was removed, then OMG’s net profit for 2007 of US$ 45.767 million would have been wiped out, and OMG would have made a substantial loss. The same is true of the removal of the entry for change in fair value of investment property.

Dr Arkhangelsky had no substantive answer to either. His attempt to deflect the point by suggesting that it was the product of IFRS accounting beyond logic or lay explanation was entirely unpersuasive. As again the Claimants noted, the point is neither mysterious nor anything to do with any peculiarity of IFRS accounting. The simple point is that OMG only made a ‘profit’ in 2007 because it acquired businesses which were then re-valued and the resulting ‘gain’ booked in the accounts. If these ‘gains’ from business acquisition and revaluation were to be removed, the accounts show the following:

Properly analysed, therefore, the accounting information confirmed the increasingly obvious reality that, whatever might be its potential, for the present OMG was borrowing to survive and had to go on doing so without any real prospect of servicing its increasing debt burden.

That then is the background of OMG’s rapidly developing cash crisis, and its almost total dependence on the Bank (and V-Bank), towards the end of 2008. By then, and probably throughout, the reality was that OMG was substantially, if not completely, reliant on the Bank for financial support; and the Bank was aware of that, regarding it both as its exposure and its opportunity.

By autumn 2008, and in addition to loans from other banks, OMG had 15 loans (including overdrafts) from the Bank, amounting to RUB 3.7 billion. Dr Arkhangelsky said:

“…the majority of the Group's debts at that time were owed to the Bank and Vozrozhdenie Bank [V-Bank]. The Group's debt to the Bank stood at approximately RUB 3.7 billion, while around RUB 2 billion was owed to Vozrozhdenie.”

Although Dr Arkhangelsky’s position was that OMG “continued to be in a sound financial position and was able to service its loan obligations in a timely manner” until November 2008, it is plain (and I find) that by autumn 2008 OMG was already in deep trouble, and that in truth Dr Arkhangelsky was well aware of this.

The first ostensible sign of trouble from the point of view of the Bank came in midSeptember 2008 when (as recorded in an email dated 15 September 2008 from Ms Prokhor to Mr Belykh) PetroLes failed to comply with its financial covenants. (I return later to the curiosity that the table attached to that email does not list some of the Personal Guarantees now asserted by the Bank to have been provided by Dr Arkhangelsky.)

A vivid illustration of OMG’s difficulties is that, whereas the amounts coming into the OMG accounts before September 2008 were in the millions of roubles, by the autumn, they were only in the thousands of roubles, and were insufficient to cover any substantial part of the interest due on the OMG loans.

In his evidence, Mr Belykh confirmed that, by around October 2008, he was hearing from a number of sources within the Bank, and Ms Volodina and Ms Mironova in particular, of growing concerns regarding OMG’s financial position.

Mr Belykh said that in response he had had at least two meetings with Dr Arkhangelsky, who had sought to reassure him that the problems were there, but that they were only temporary, and had brought letters of comfort from other Russian banks (in this context Mr Belykh mentioned, in particular, Vneskekonom Bank and VTB Bank) to support his position and request for temporary facilities.

OMG’s gathering difficulties were further described in Ms Blinova’s evidence:

“Up until autumn 2008…the OMG companies appeared to be good borrowers and made their repayments on time. However, I remember that OMG began to have financial difficulties during the second half of 2008, and started to default on its lending obligations.

In early October 2008, I emailed Ms Krygina in relation to the failure by Vyborg Shipping to maintain the minimum turnover

in accounts with the Bank as set out in the Vyborg loan agreements. Another OMG company, PetroLes, had similar difficulties. On 27 October 2008, I emailed Mr Berezin and Ms Kirikova [at OMG, see below] noting that the turnover of LPK

Scandinavia…was RUB 73.4 million where it should have been RUB 362.5 million. Because of the failure to maintain the requisite turnover levels, the Bank increased the interest rates on the loans.

By the end of October [2008], I recall that the OMG companies were continually failing to comply with their obligations under the loan agreements…I therefore prepared draft notices of demand to Mr Arkhangelsky in respect of his guarantee obligations in relation to each of the loans…

It also started to become difficult to get information from the

OMG companies…”

Dr Arkhangelsky blamed this cash crunch on two factors. First and foremost, he depicted this as an inevitable consequence of the global crisis, and the uncertainties in the international freight market which it occasioned, rather than anything particular to OMG. Dr Arkhangelsky said this:

“…the global financial crisis which followed the collapse of Lehman Brothers on 15 September 2008 had an immediate impact on many businesses worldwide, including those in the shipping and ports sectors. I had many contacts in the port business all over Russia through the Russian Ports Association, and I was aware that the problems the Group was facing were by no means unique.”

Secondly, he cited seasonal cash flow difficulties:

“…the Group’s cash flow in the winter months was invariably weaker than during the rest of the year because of the extreme weather conditions which limit access to the port of St Petersburg.”

The fact that OMG was already in difficulty by September 2008, and the fact that winter weather in St Petersburg’s Port cannot explain the cash collapse of all the OMG companies across the board, both suggest that there were other underlying and systemic difficulties, more particular to OMG.

Dr Arkhangelsky accepted that by late November 2008 he anticipated that OMG would be unlikely to be in a position to resume servicing its loans, which by then exceeded some RUB 3.7 million to the Bank, and some RUB 2 billion to V-Bank, which had a mortgage over the land at Vyborg Port), “until the spring of 2009 at the earliest.”

The need for both temporary facilities to avoid default, and for a longer term rescheduling of OMG’s obligations, was by this time, therefore, unavoidable and acute.

Even so, Dr Arkhangelsky was reluctant to admit that it was necessary for him to enter into two transactions as a matter of urgency at the end of October 2008 to enable GOM to cover interest payments due by OMG at the end of October and November 2008.

The transactions were (a) a loan of around RUB 30 million to Dr Arkhangelsky from a client of the Bank called Tekno SPb (“the Tekno loan”); and (b) a loan of RUB 130 million to Dr Arkhangelsky (personally) from the Bank, i.e. “the Personal Loan”.

Dr Arkhangelsky has never accepted that he entered into the Tekno loan.

There are, I must say, odd features in relation to it. There appears to have been no formal agreement in writing, and it seems to have been arranged by Mr Platonov (who had taken over as Director of Investrbank from Ms Shabalina) without reference to others in the credit department (including Ms Volodina). Further, whilst in the BVI Proceedings, Ms Mironova, who was at the time Deputy Director of Investrbank, gave evidence that it was she who organised the loan, she later had to clarify that she had not done so, confirming that it was Mr Platonov’s doing.

However, there is no doubt (and I find) that Dr Arkhangelsky did receive from Tekno funds in the sum of RUB 33 million, and (since the contrary was not put to either Ms Volodina or Ms Mironova, who appeared to accept its accuracy) I accept that this was on the terms described in what Ms Volodina described as “an information note” provided by Mr Platonov on 2 December 2008 (“Mr Platonov’s note”).

Mr Platonov’s note casts an interesting light on both sides. It appears that Mr Platonov arranged the loan in the context of a likely non-payment of loan interest by Vyborg Shipping at the beginning of November 2008 and:

“to prevent the Bank from having [to make] a significant amount of provisions, and [was] used not to cover the needs of companies but oriented towards Bank’s revenue. Initially, the loan was obtained for 7 days since V.D. Arkhangelsky expected inflow from sales of a plot of land in the amount of RUB 1 billion, as well as a loan from Petrokommerts Bank in the amount of RUB 2 billion. Due to a delay in the said financing, the term of the loan was extended for 21 days. During this time, the client [Dr Arkhangelsky] paid a portion of the loan in the amount of RUB 18 million independently; final deadline for repaying the loan also was on 28 November 2008.”

That date, 28 November, was also both the date on which several interest payments became due from OMG, and the date of the (disputed) Personal Loan (as to which see further below).

By November 2008, the signs of OMG’s serious and systemic financial difficulties were beyond disguise. Although OMG was only one problematic client in the difficult circumstances as they were then, it was Investrbank’s largest borrower at the time, owing approximately RUB 4 billion, and its difficulties increasingly took up time for Investrbank’s staff to address.

Ms Mironova described in her witness statement the growing nervousness within Investrbank that OMG would default on its collective debts, but also recalled that:

“Mr Arkhangelsky was very quick to remind the Investrbank's employees of his apparently impeccable repayment history and just as quick to reassure everybody that this was a short term cash-flow problem and that the monies would soon be flowing in the large amounts as they had been before.”

This did not tally, however, with the fact that the cash shortfalls were spread across the group. As Ms Mironova (who took over from Ms Prokhor as Deputy Director of Investrbank on 30 October 2008) put it in her witness statement:

“Once I began to examine the OMG loans and review OMG’s financial information in around mid-November 2008 I identified that OMG appeared to be in financial difficulty. I could see from the group’s cash flows into their accounts held at the Bank (from monitoring those accounts), that during the autumn there was a material decrease in the monies being received into the accounts of OMG companies. I knew that OMG, on its face, was a diversified group, with timber, shipping, leasing, insurance and port services businesses and it seemed to me very odd that payments into all OMG’s accounts that I had seen statements for had decreased. One company of OMG could suffer some cash flow difficulty, but for this to happen…across the group and at the same time was worrying.”

Ms Mironova (after discussion with her immediate superior at the time, Mr Platonov, and Ms Volodina who was in charge of the Bank’s Credit Risk Directorate) decided to escalate the concerns in relation to OMG to central office.

At that time, it seems from her evidence that there was no department dedicated to dealing with problem debts and so the natural reporting structure was to the senior bank management. Ms Mironova therefore contacted Mr Belykh, as a Director of the Corporate Clients and Branches Department. Ms Mironova knew Mr Belykh from their time working together in Moscow.

Mr Belykh confirmed that he had also become aware by now of the Tekno loan, and though he was not able to recollect when or how, and emphasised that he had no involvement in its arrangement, the fact that such a loan from a client of the Bank had apparently been perceived (by Mr Prokhov) to be necessary further highlighted the growing urgency to find some solution for OMG’s immediate needs.

Through the second half of November, Mr Belykh told me, he regularly spoke to Dr Arkhangelsky, both to try to monitor OMG’s position and to understand the support that OMG would be likely to need.

The immediate risk to the Bank concerned OMG’s repayments (both interest payment obligations and other debts) that fell due at or shortly after the end of November 2008. These were outlined by Ms Mironova in an email dated 24 November 2008 which she sent to Ms Volodina and also copied to Mr Belykh, as follows:

The last substantive paragraph of that email reads as follows:

“The Borrower invokes the permission granted by the CAB [to] receive financing to an amount covering all their problems and declares the necessity of such refinancing.”

Ms Mironova could say only this in that regard:

“I did not have direct knowledge of any such permission, and I do not now recall the reason for including this statement in that email but suspect that it reflects something that Mr Arkhangelsky had said to one of my subordinates.”

No different explanation was offered on behalf of Dr Arkhangelsky, but he relied on it as further demonstrating his openness with the Bank and his understanding that the Bank (including Mr Savelyev himself) had indicated support.

The Bank had calculated that OMG needed RUB 130 million by 28 November 2008 (the date the interest fell due) to avoid default. On 26 November 2008, Mr Belykh reported that after discussions with Dr Arkhangelsky, OMG would not be making repayments before 1 December 2008.

The options for the Bank were either to defer the next interest payments, or to grant an emergency RUB 130 million loan before 28 November 2008 to cover the payments.

According to its case, the latter was perceived by the Bank to offer the easier and quicker holding solution. Ms Mironova explained:

“The Bank was prepared to grant Mr Arkhangelsky an additional loan to cover OMG payments due at the end of November, and to do so by way of a personal loan. I do not remember who had initiated the idea of a personal loan, I only recall that at the end of November 2008 it was the loan structure which was being put in place to assist the OMG companies in avoiding default on their facilities. A personal loan would be much quicker and more straightforward for the Bank to process and approve than a corporate loan. If a loan had been made to an OMG entity for the purpose of enabling another OMG company to pay interest to the Bank, then the Bank would have had to create a considerable percentage of reserves in its accounts for this loan, as the Bank would be lending money to a member of the borrower group to enable a company in the group to meet its interest payments.”

Mr Belykh explained further that it was far easier to arrange a personal rather than corporate loan, and this was important because of the pressures of time; he told me:

“…as long as we were really pressed in time, as I've said, that was the last working day in terms of documentation for both sides, for Mr Arkhangelsky and for the Bank, it was easier to arrange as a personal loan. An application for a personal loan takes several pages, but not too many, two, three, four, depending on the borrower, while an application for a corporation demands an updated financial analysis to be included into that, and it was much easier, as long as we were pressed, just to find finalise that in this way. And also, as long as for Mr Arkhangelsky that was practically the same, which type of risk to accept, we would definitely request his personal guarantee anyway. So for him to have a personal guarantee on whatever cooperation he could provide to us, or to have a personal loan himself, was absolutely the same. So we just tried to save time and to resolve the problem of outstanding interest as soon as possible.”

Mr Belykh’s evidence was that the meeting at which (it is the Bank’s case) the Personal Loan was agreed in principle took place on 28 November 2008. It appears from his witness statement that although he had no direct recollection of the meeting being on that date, it coincided with his receipt (under cover of an email from Mr Berezin) of an unsigned letter from Dr Arkhangelsky, addressed to Mr Savelyev and dated 28 November 2008, receipt of which he told me he does recollect.

In that letter, Dr Arkhangelsky, having referred to “the financial crisis” and OMG’s difficulties in “servicing its debt”, asked Mr Savelyev:

“for your endorsement of the refinancing of Oslo Marine Group companies’ debt to the Bank…in full, including

Mr Belykh’s recollection (reinforced, as I took him to accept, by a process of reconstruction from the documentary record) was that Dr Arkhangelsky brought a signed top copy of that letter to the Bank for the purposes of a meeting he had asked for with Mr Savelyev to discuss OMG’s difficulties and its need to reschedule its debts.

Mr Belykh, in addition, reasoned that the likelihood that there was a meeting on that day was that 28 November 2008 was a Friday, and thus the last day of the business month, when repayment of interest was due. He explained:

“… if you look on the calendar, 28 November was the last day of the month, and the Bank needs to close its account of the month and, therefore, it was really necessary to do something on 28 November so that November reporting would be clear for the Bank and for the Central Bank, and that was the reason of the temporary solution which was supposed to be done. Because that was Friday, and because that explained certain things, that was necessary to go ahead really fast…”

Mr Savelyev, who told me that this was his first business meeting with Dr Arkhangelsky (contrary to Dr Arkhangelsky’s insistence that they met regularly both before and after that date), likewise recalled its date as being 28 November 2008, and cited personal diary entries in support of this. Mr Savelyev could not, however, recall being referred to the letter referred to above at the meeting or indeed ever having received it.

Mr Savelyev’s evidence was that discussion at the meeting (for which he was quickly briefed by Mr Belykh and which Mr Belykh attended for a short time before leaving to allow the two ‘principals’ to discuss matters) was of the possibility of the Bank granting as matter of urgency a short term personal loan to Dr Arkhangelsky for him to use to enable OMG to meet its immediate financial commitments and thus avoid default.

Mr Savelyev’s evidence was that this was indeed the outcome of the meeting: according to him, the Personal Loan was agreed in principle and its processing as a matter of urgency to avoid OMG going into default at the end of the month was entrusted to Ms Mironova as the Deputy Director of Investrbank at the time.

Ms Mironova confirmed this account. She told me that she specifically made sure that the documents were taken to OMG to be signed in the presence of a Bank employee before being returned to the Bank. One of the credit department’s employees, Ms Patrakova, told me that she took the documents relating to the Personal Loan to OMG’s offices, and saw Dr Arkhangelsky sign all the documents.

Dr Arkhangelsky, however, denied that there was such a meeting at the end of November 2008. He insisted that while he had “a lot of meetings with Mr Savelyev”, “there were no meetings at the end of November”.

Further, he was, at least until trial, adamant in his denial of being a party to, or even being aware of, the Personal Loan. Like the disputed Personal Guarantees, he described the Personal Loan documentation as “bogus” and suggested it had been fabricated by the Bank as part of “the scheme to defraud [him].” Thus, in the BVI Proceedings he said:

“I have no knowledge of any such loan and certainly did not sign any loan agreement or receive any draw down of this amount or any other sum.”

Nevertheless, in the event, the Defendants/OMGP only weakly disputed the Personal Loan at trial: they did not, in cross-examination, challenge much of the Bank’s witness evidence as to the Personal Loan, and in his witness statement for trial, Dr Arkhangelsky reluctantly accepted that he might have signed it (and see paragraph [709] below).

In the end, the Defendants’ case became in effect that Dr Arkhangelsky might unwittingly have signed the Personal Loan, but was not conscious of having done so, and that it was probably something agreed by his subordinates and put before him without his attention being directed to it. In his oral closing, almost at the end of Day 45 of the trial, Mr Stroilov sought to put forward the suggestion in relation to the Personal Loan that, although (he accepted) “it is clear on the evidence that it was not entirely an invention”, it is a:

“…different question whether, in fact, it was arranged with his knowledge, and one can easily see this being done between the Bank and Mr Berezin, who would be an obvious contact point who would be handling the question of outstanding interest payments at the end of each month…

…

…at the time Mr Arkhangelsky was approaching the Bank not with a request for a personal loan, as it was initially suggested on the Bank’s side, but asking for a much more long term and comprehensive restructuring of the entire loan portfolio. It is not credible that in response to a letter where Mr Arkhangelsky asked Mr Savelyev for a one-year moratorium on all payments and a three-year extension on capital payments, that what he got in response was a loan of, I think, 130 million for one month…

…

So what we would invite your Lordship to find is that Mr Arkhangelsky was dealing with restructuring and was trying to negotiate a restructuring with the Bank, whereas these monthly payments were dealing with underlings, most likely by Mr Berezin, and in this way the personal loan was something that was arranged and, well, frankly, fabricated without Mr Arkhangelsky’s knowledge in this way…”

These submissions were valiantly made; but did not appear to me to be sustainable.

For reasons which I elaborate later, I do not think there can be any real doubt that Dr Arkhangelsky did sign the Personal Loan agreement and did receive the sums expressed to be borrowed by him pursuant to it.

However, I would accept that the Personal Loan may well have been devised, as much in the Bank’s interests as OMG’s, to enable the Bank to avoid provisioning against the outstanding loans (Mr Platonov’s estimate of the possible provision if Vyborg Shipping failed to pay its loan interest at the end of November 2008 being some RUB 1,031,300) and to repay Tekno. The reality is that the Bank needed to avoid provisions just as much as Dr Arkhangelsky wanted funds with which to repay.

Mr Platonov said as much in his Information Note, where he also explained that the amount borrowed (RUB 130 million) was used to cover (a) discounted bills of Scan carried to ‘on demand’ accounts in the amount of RUB 65 million, (b) partial repayment in the sum of RUB 2.3 million of a loan to Onega, and (c) loan interest payments for November, including RUB 29.4 million on account of Vyborg Shipping, RUB 5.7 million on account of PetroLes, RUB 7.2 million on account of LPK Scandinavia and

In its Closing Submissions, the Bank presented both the Tekno loan and the Personal Loan as demonstrating that the Bank was going out of its way to assist OMG in late 2008. As I have said, I think that there can be no real doubt that Dr Arkhangelsky did agree the short-term measures of the Tekno loan and the Personal Loan to avoid imminent default.

Pausing there in the chronological sequence, it is convenient at this point to describe an important element in the context in which the subsequent discussions relating to rescheduling OMG’s debts took place: that is to say, the regulatory rules which required the Bank to make reserves against bad or doubtful debts. I take the following summary very largely from the Claimants’ Closing Submissions.

The various regulations are usefully summarised in prospectus documents issued by or on behalf of the Bank. The Claimants’ Closing Submissions quoted from the 2013 Prospectus which provided as follows:

“Provisioning and Loss Allowances

The CBR put in place certain rules concerning creation of provisions for loan losses in respect of loans extended by banks. The CBR’s Regulation No. 254-P dated 26 March 2004 as amended (“Regulation No. 254-P”) requires the banks to adopt procedures for calculation and posting of provisions for loan losses and continuously monitor the financial position of the banks’ borrowers.

Regulation No. 254-P is applied subject to the order of the CBR No. 2459-U “On Peculiarities of the Credit Risk Assessment in relation to Single Loans, Loan and Similar Indebtedness” dated 3 June 2010.

Regulation No. 254-P requires credit organisations to rank their loans into five categories instead of four, as prescribed by the earlier regulation and the range of loans that must be provided for has been extended to include rights assigned under contracts, mortgages acquired in the secondary markets, claims relating to the purchase of financial assets with deferred payment, rights under repo contracts and some other operations. The five categories of loans are as follows: quality I category (standard loans) – no credit risk; quality II category (nonstandard loans) – moderate credit risk; quality III category (doubtful loans) – considerable credit risk; quality IV category (problem loans) – high credit risk; quality V category (bad loans) – no probability that the loan will be repaid. The allocation of the loan into a particular category is based on the “professional judgement”, which is a special procedure set out in Regulation No. 254-P. Regulation No. 254-P established that credit organisations do not need to make provisions for category I loans (standard loans). Category II through V loans entail the following provisions, respectively: (i) 1 to 20 per cent.; (ii) 21 to 50 per cent.; (iii) 51 to 100 per cent.; and (iv) 100 per cent. Additionally, credit organisations will be required to classify their loan security into two groups on the basis of its quality. Finally, Regulation No. 254-P provides for a simplified procedure in respect of writing off bad debts, especially minor debts, as compared to former procedures.

Provisions for loan losses are calculated at the end of each calendar month in roubles, and then adjusted each month. Such provisions are only used to cover losses relating to the principal amount of the loans and exclude interest and any discount. The CBR and its regional units have the right to audit the banks’ compliance with the requirements relating to provisions for loan losses and check the correct calculation of such provisions in order to balance the need to create provisions on the one hand and ensure the correct preparation of the banks’ financial statements for tax purposes on the other.

Russian banks are required to make provisions for loans of the same kind granted to individuals depending on whether the loans are secured and in respect of the period of time the loans are in arrears. Banks are equally required to make provisioning for loans to individuals which are not overdue. These include 0.5 per cent. for portfolios of loans secured by mortgage and auto loans, 1 per cent. for portfolios of other loans to those individuals who maintain bank accounts with lending bank and 2 per cent. for portfolios of all other loans. Regulation No. 254-P also sets a maximum level for provisioning of loans granted to individuals which are overdue for more than 180 days but less than 360 days at a rate of 75 per cent and at a rate of 100 per cent. for loans granted to individuals which are overdue for more than 360 days.

…”

Similar wording is found in the 2007 Prospectus, and the 2008 Prospectus.

As explained in the regulations, loans that fell into “Quality III category (doubtful loans) – considerable credit risk”, (i.e. the category before “problem loans”), required the Bank to make provisions of between 21-50%.

The witness evidence was in line with the above. Much of Ms Volodina’s evidence was concerned with explaining the position on reserves, and distinguishing the different categories. Mr Savelyev set out the stages by which the Bank made reserves when there was a default. There was no automatic provision of a full 100% of reserves in the event

From the Bank’s point of view, all that was required to meet its objective of preventing a default that would give rise to a reserving obligation at year-end 2008 was to extend the time for interest payments. Except in the case of the overdraft and the Personal Loan, no capital repayment was due under any of the relevant loans until 2009: for the purposes of any concern about reserves for the year-end capital repayment was, according to the Bank, therefore irrelevant. As Ms Volodina explained in her witness statement:

“However, the Bank was not prepared in general to extend the time for capital repayments on loans beyond the maturity dates. As at December 2008, it would have been possible for the Bank to extend the existing maturity dates, but I was very much against this. This was not a prudent or sensible course for the Bank to take. Insofar as any loan maturity dates had not been reached, it was not necessary in late December to extend those capital repayment dates because there was no risk of imminent default. More particularly, my view was that the Bank needed to make sure that OMG still had milestones in place over the coming months. This was because I wanted to keep some earlier obligations to act as indicators to signal whether OMG’s financial position was improving. If OMG’s finances started to improve, and the companies started to perform any of their obligations then the position could be reconsidered in early 2009. If the causes of OMG’s financial difficulties had been the short term cash flows which Mr Arkhangelsky represented to us, then OMG would have been expected to have been able to discharge those obligations by March 2009. However, my view in December 2008 was that we had already afforded Mr Arkhangelsky and OMG various allowances in the hope that time would allow the group to recover its financial state, and I did not trust by that time that Mr Arkhangelsky would be able to improve OMG’s condition. I therefore considered that any extension of the loans beyond their existing maturity dates was not sensible from the Bank’s perspective.

I should add in this context that the Bank typically prefers to give loans of one year terms, and then at maturity to consider whether to agree an extension for another year (rather than granting loans for longer terms). The Bank prefers the “staging” of loans (where they are advanced for one year plus one year terms) for two main reasons. The applicable banking regulations provide that the Bank is not required to create reserves for loans of less than one year. It also allows the Bank to monitor on a shorter time frame the borrower’s financial performance and ability to discharge their indebtedness.”

The Bank’s position, therefore, was that there was no incentive, let alone imperative, for it to agree to extend any date for capital repayment, and that all that was ever agreed was deferment of interest.

Dr Arkhangelsky, on the other hand, appears to have viewed the matter more generally. On his view of things, the Bank could not afford to take any risk of default, and needed to reschedule not only interest but capital repayments to remove it. His stated perception was that it was the Bank which needed a deal, and in particular a moratorium in respect of OMG’s obligations, since:

“if the loans were in default, the Bank would have to transfer a sum equivalent to the outstanding indebtedness to the Central Bank which would result in a reduction of its capital base and worsen its own financial position.”

He elaborated on the dangers for the Bank, with some insistence in the course of his cross-examination:

“So it was actually a two-sides problem. So for me, you know, non-payment of interest, yes, it might cause, later on, in three, four, five, six months, any court investigations and so -- court discussions, so that they could claim that I have to pay and repay, pay and repay loans and so on. But for them, it was immediate trouble with the Central Bank and their accountancy. So for them, it was much more stronger problem than with me. And the most important, that by that time the Bank of St Petersburg faced that bank had problems with all the clients, and my share in their portfolio was about 4 per cent of their whole loan portfolio. So for them, default on 4 per cent of their loans was nearly -- they could lose their licence, so they can cease their operations. So for me it was just technical non-payment, and its arbitration and so on. But for them it could cause immediate cease of the operation for them as a bank. So for them it was immediate trouble.”

Thus, in the Bank’s perception and presentation, the discussions with Dr Arkhangelsky in the last months of 2008 were for it an exercise in patient client handling and assistance, with Dr Arkhangelsky in effect as supplicant. Whereas in Dr Arkhangelsky’s depiction, it was the Bank which most needed a deal before year-end: in his perception, in effect, his weakness was his strength, and the Bank’s exposure.

That brings me to the chronology relating to Dr Arkhangelsky’s efforts in late November and December 2008 to reschedule OMG’s debts to the Bank, which by then exceeded RUB 3.7 billion (there being owed also some RUB 2 billion to V-Bank).

This chronology is in part disputed, as is the upshot of what was agreed. Whereas Dr Arkhangelsky’s evidence depicts a collaborative style of engagement, with frequent meetings between himself and Mr Belykh and others “from time to time” with both Mr Guz and Mr Savelyev to address a shared problem, Mr Savelyev and the Bank’s witnesses depicted more formal meetings, with repeated assurances on the part of Dr Arkhangelsky that OMG’s difficulties were the consequence of short-term cash flow problems, rather than systemic problems, and few incentives to the Bank to do more than the minimum necessary to help OMG to avoid immediate default.

The key dispute relates to whether there was a meeting between Dr Arkhangelsky and Mr Savelyev in December 2008, as alleged by Dr Arkhangelsky, at which (so he asserts) Mr Savelyev agreed to a moratorium for capital payments (which Mr Savelyev and the Bank deny).

Dr Arkhangelsky, though he denied any meeting in November, asserted that there was a meeting with Mr Savelyev in the Bank’s offices in early or mid-December. In oral evidence he variously suggested “something around the middle of December” but later changed this to “around 10 December 2008”.

The flavour of Dr Arkhangelsky’s version of events appears from the following extract from his witness statement:

“At this meeting, I informed Mr Savelyev that the Group needed to restructure its loans because it would struggle to make the interest payments for the month ended 31 December 2008 and through the winter months. I explained that the Group was having severe cash flow issues because the clients of the group had stopped making payments, then the freight market had totally crashed and that port dues were not being paid. I also explained that, anticipating the annual extreme weather conditions, I did not envisage the Group’s situation improving until, at the earliest, spring 2009. It was for this reason that I explained that the Group needed to restructure its loans and have a moratorium on further monthly interest payments for a period of at least six months.

A number of the outstanding loans fell due for repayment during the first six months of 2009. As the borrower companies were unable even to make periodic interest payments at that time, they obviously had little prospect of repaying these loans on their due dates. It was therefore necessary to extend the repayment dates. I did not expect this to be a problem, because it was very common in Russia for banks to grant short-term loans even when the purpose of the loans was clearly a long-term one. The banks would then repeatedly extend the loans as necessary, typically for six months at a time. This is what happened with Vozrozhdenie Bank [V-Bank]…

I made it clear to Mr Savelyev that both elements of the proposed moratorium – a suspension of interest payments until the end of June 2009 and a restructuring of all debts which matured before that date – were equally important for the Group; and that I did not expect sufficient improvements of the Group’s position much sooner than in six months. On the other hand, I felt that a suspension of payments for six months would enable the businesses either to recover sufficiently to resume paying interest to the Bank or, if that did not prove possible, to explore what refinancing options were available with other financial institutions. I remember at the time of the liquidity crisis President Putin had made a statement that the Russian Central Bank had to support strategic industries, so I was confident, given the strategic importance of the Group, that a refinancing package would be achieved either with the Bank or elsewhere.

…

At the meeting, it appeared to me that Mr Savelyev understood the position that the Group was facing as a result of the global liquidity crisis and was generally sympathetic to our position. His primary concern was to avoid the Bank encountering difficulties with the regulator, the Central Bank of Russia. He explained that if the loans were in default, the Bank would have to transfer a sum equivalent to the outstanding indebtedness to the Central Bank which would result in a reduction of the Bank’s capital base and worsen its own financial position. It was therefore in the Bank’s interest, as well as the Group’s, for the loans not to go into default. Accordingly, Mr Savelyev indicated that he was in principle prepared to agree to a moratorium for six months to allow the Group companies’ cash flow to improve to the point at which they could resume making interest payments. At the end of the meeting he indicated that he would discuss the matter internally within the Bank and come back to me.”

Mr Savelyev, having asserted the fact of a meeting on 28 November (culminating according to his evidence in an agreement for the Personal Loan), in his witness statement for trial denied Dr Arkhangelsky’s assertion that there was a meeting between them in early December. By the time of trial he was adamant that he only had two meetings with Dr Arkhangelsky in 2008, one in late November and the other in late December.

This was contrary to his evidence in the BVI Proceedings, but he sought to explain that “on reflection I now believe that to be incorrect”. On that basis and in any event, Mr Savelyev also fulsomely rejected Dr Arkhangelsky’s contention that at that December meeting they made an agreement in principle on a 6-month moratorium for capital repayments.

As to the disputed meeting, it was also the evidence in the BVI Proceedings of Ms Mironova, who Dr Arkhangelsky placed as having been present (together also with Mr Guz), that indeed there was a meeting in early December (as well as at the end of

It is odd that both Mr Savelyev and Ms Mironova should have had the same initial recollection and then both have had to correct it. One such mistake corrected on reflection might be understandable; two is more concerning, especially since it is to their advantage now (see paragraph [310] below). This was one of various instances when I formed the impression that, albeit in this instance in the heat of the BVI Proceedings, the Bank’s witnesses signed what was put in front of them without sufficient carefulness as to the truth.

However, I have not been persuaded of the Defendants’ submission that it was the BVI evidence as to the early December meeting with Mr Savelyev which constituted the truth, whereas the later correction was a contrivance crafted to give more veracity to the denial of any moratorium; and even if I had been so persuaded, I would not have found that it resulted in any agreement, whether in principle or otherwise, for a general moratorium as Dr Arkhangelsky has alleged.

In reaching that conclusion I have taken into account Mr Stroilov’s fair points that (a) Mr Savelyev’s memory was notably selective and remarkably frail on inconvenient issues, allowing him to be curiously categorical in his denials and yet notably, almost painstakingly, vague as to what did happen; and (b) Mr Savelyev’s evidence as to having had only two business meetings with Dr Arkhangelsky seems inconsistent with his evidence that “he would be well acquainted at least with the biggest borrowers of the Bank.” However, these points have seemed to me to be outweighed, as regards the point in issue, by the following:

As I explain at greater length later, the real relevance of this factual dispute is to the obviously important issue, which is central to both the Bank’s claim and the Counterclaim, as to whether there was ever any finally agreed 6-month moratorium for OMG’s indebtedness across the board (as Dr Arkhangelsky insists there was). If there had been an agreement in principle in early December, that might have added credence to Dr Arkhangelsky’s version of events, which is that the meeting later in December 2008 was one at which a full agreement was made for a moratorium; whereas if there had not been, the Claimants’ version, to the effect that no definitive agreement was achieved in December 2008 beyond one for some indefinite extension to be clarified later in formal documentation which the Bank agreed to prepare, is more plausible.

Returning then to the chronological sequence, it is clear that throughout December 2008 OMG’s position continued to deteriorate substantially: indeed, receipts had all but dried up.

Dr Arkhangelsky continued to present the problem to his creditors as a short-term cashflow difficulty, as a result of customers delaying payment due to their own economic difficulties. He sought to reassure the Bank, and especially Ms Mironova and the credit department at Investrbank, that this was a temporary problem; and, for example, he repeatedly expressed confidence that a large payment from certain Finnish customers

Ms Mironova’s evidence was that as OMG’s financial problems became increasingly apparent through December 2008, and some wider restructuring of OMG’s debt appeared inevitably to be the only solution to avoid default, the Bank turned more attention to ways in which it might safeguard its existing security and, if possible, enhance it.

In particular, and not least because (a) according to the valuations (those by Lair) it was then relying on (see below) the value of the pledged assets comfortably exceeded its loans; and (b) OMG had few other assets to offer anyway, the Bank’s focus appears to have been on devising ways of ensuring that its existing security would not be put at risk or devalued. A theme of the evidence on both sides is that it is a fact of commercial life in Russia that default usually leads to a hard-fought war between lender and defaulting borrower.

In that context, the Bank’s case is that it began to look at ways of preventing steps being taken by Dr Arkhangelsky, if and when OMG went into default, to use his control of the legal entities holding the mortgaged assets to dissipate those assets or to take other steps (whether by frustrating legal action or otherwise) to defeat, delay or dilute the value of enforcement proceedings.

Possibly building on Dr Arkhangelsky’s own suggestion in his letter of 28 November 2008 of a transfer of shares in Vyborg Shipping, it seems (especially from the evidence of Ms Mironova and Mr Belykh) that the Bank began to focus particularly on some form of “repo” transaction under which the Bank would acquire (for a nominal consideration) the shares in the relevant companies, subject to a provision for the shares to be repurchased (likewise for a nominal consideration) upon timely repayment of the debt. That would secure for the Bank control over the debtor companies (or the means of achieving it) so that it could more easily enforce its security without obstruction from the defaulting borrower or shareholders trying to block or impede the realisation of security. (It also, of course, gave the Bank potential access to the business value of the entire group; and a central issue between the parties is whether that was in truth its objective from inception.)

Ms Mironova turned, therefore, to consider which shares or companies might be the most useful and appropriate for these purposes; and her evidence was that she:

“identified two companies which were potentially suitable for a repo arrangement: Western Terminal and Scandinavia Insurance. This is because these two companies had no loans from any other banks and nearly all their assets had already been pledged to the Bank.”

According to her evidence, Ms Mironova discussed this possibility with both Dr Arkhangelsky and Mr Berezin on a number of times on the telephone in the period between 8 December and 25 December 2008. On 22 December 2008, she emailed Mr Berezin (copying Dr Arkhangelsky) a pro-forma ‘Securities Purchase Agreement’

Dr Arkhangelsky did not deny receipt of these pro forma documents, but sought to shrug this off as “one of the examples of the possible transactions”, adding

“I [can] clearly remember that she hasn’t had anything in mind by that time. So she sent this securities sale and purchase agreement because I think it was on the files of the Bank, but there was not any suggestion what and how to be so – that was just one of the examples. And to be clear, in Oslo Marine Group we haven’t any shares or anything which could be bought. We had a participation. So we haven’t any securities. We had only limited liability companies, so for sure it was not relating to us in any respect. It was just as an example.”

Pressed in cross-examination as to whether he accepted that at least there had been some discussion about some repo agreements prior to a meeting on 25 December 2008 (see below) he answered:

“Not really. Not really. I don’t think so…

Maybe [Ms Mironova] discussed it with Berezin, but no any conference calls for sure, because in Russia at that time we haven’t had such a technology…So I don’t remember that I have ever been discussing it with her…

And it would be really strange for me to discuss anything with her by telephone, because at least twice a day I’ve been passing her office and…if I want to speak to the Bank, or, especially, you know, quite an important issue for me, I would stop in on the way and meet her and discuss that because, you know, it’s – any repo, whatever, transactions, consider that you have to make a picture as to whom and what and so on, so I don’t think that’s true.”

Ms Mironova’s evidence was that there was in fact just such a meeting on 24 December 2008 between Ms Mironova and Dr Arkhangelsky and Mr Berezin, as a precursor to a meeting arranged for and which it is common ground took place on the following day, 25 December 2008, between Mr Savelyev and Dr Arkhangelsky. She stated that at the meeting on 24 December, the discussions were specifically focused on repo arrangements identifying Western Terminal and Scandinavia Insurance as the subject entities. She said this:

“I specifically recall that Mr Arkhangelsky asked about the risks that the OMG companies or he would face with such repo transactions. I replied that I was an economist and not a lawyer and he should ask his own lawyer this. I do not recall any other specific details about the discussions concerning the proposed repo. I certainly do not recall the conversations being difficult or Mr Arkhangelsky raising objections to the proposal.

Mr Arkhangelsky also asked whether the repo would be enough to secure the restructuring of OMG’s loans. I replied that this would be a matter for Mr Savelyev and the other members of the Management Board. I had no authority to agree anything on behalf of the Bank.”

It is common ground that there was a meeting between Dr Arkhangelsky and Mr Savelyev on the next day, 25 December 2008, at which Mr Guz, Ms Volodina and Ms Mironova (for the Bank) and Mr Berezin (for OMG) were also present.

However, there is (perhaps inevitably given the dispute as to whether there had been a meeting in early December at which matters of substance were agreed at least in principle) substantial disagreement as to the context, content and consequences of the 25 December meeting.

The Bank’s case in relation to this meeting was summarised in its Closing Submissions as follows:

The Bank also stressed that, as far as it was concerned, it was not legally required to do anything as at 25 December 2008. It maintained that it was under no obligation to extend any of OMG’s loans and could have permitted OMG to go into default; and that under the reserves rules, if OMG had defaulted, the Bank would not have needed to create 100% reserves immediately, but a lesser amount to reflect the categorisation that there was ‘considerable credit risk’ for ‘doubtful loans’.

Further, and of central importance, the Bank insisted that it did not agree to any sixmonth moratorium on all payments as alleged by Dr Arkhangelsky. While the Bank did

The Bank’s position was that it was prepared to assist OMG if it could. Mr Savelyev put it this way:

“there was a request from Oslo Marine Group to avoid default, and we kindly accommodated him.”

What, according to the Bank, it did make clear in that context was that it needed further protection in return. It was in that context (according to its case) that (as the Bank viewed the matter) the Bank took up Dr Arkhangelsky’s offer of some sort of repo transaction, such as he had himself proposed in discussion with Ms Mironova earlier in the month, under which he would transfer shares in OMG companies to the Bank or its nominees, in effect as collateral for a longer term restructuring.

As to this, the only one of the Bank’s witnesses to offer any detailed account was Ms Mironova. Ms Volodina says she was not present at the time; Mr Belykh offered nothing, and Messrs Savelyev and Guz were vague in their witness statements, although both confirmed that there were discussions in broad terms. Mr Savelyev stated the following under cross-examination:

“He asked whether we can help him to avoid the default. We said: can you offer some additional security? Yes, and in that additional security Mr Arkhangelsky said: look, I do not have any other kinds of security to offer, all I can do is organise a repo transaction.”

Ms Mironova’s evidence, on which she was not specifically challenged, was as follows:

“As to the discussions at the meeting regarding the repo, Mr Savelyev did not himself propose the repo arrangement. He asked Mr Arkhangelsky what he proposed in return for the restructuring. I believe that Mr Arkhangelsky was not expecting such a turn of events, he mumbled something like “Kristina [Mironova] and I agreed on two companies” and asked Mr Berezin to name the deal, as if he forgot their names. He told Mr Savelyev that the proposed transfer of shares in Western Terminal and Scandinavia Insurance showed how serious he was about ensuring the debt to the Bank was repaid, and I recall that he referred to the fact that he had already pledged his assets and had granted personal guarantees.

I understand that Mr Savelyev said that he thought that the Bank would, in principle, consider restructuring of OMG’s loans, in return for a repo arrangement as additional collateral. Mr Savelyev then asked me to take Mr Arkhangelsky to Mrs Irina Malysheva in order to prepare the relevant documents for the transfer of shares, after which Mr Arkhangelsky’s request would be out to the Management Board for consideration. Mrs Malysheva was a member of the Management Board and was responsible for corporate finance. In her role she was an expert in corporate restructuring deal with clients.”

As to the aftermath, she continued:

“I understand that Mr Arkhangelsky has made a number of allegations about the meeting. I am told that he has accused the Bank and Mr Savelyev of threatening him at the meeting and forcing him to agree the repo arrangement. This is nonsense. Neither Mr Savelyev, nor anyone else, made any threats against Mr Arkhangelsky or his family at that meeting. The meeting took place in a friendly atmosphere, in keeping with the approaching New Year holiday period. I witnessed Mr Arkhangelsky voluntarily agreeing to the repo arrangement which he had indicated to me in advance of the meeting that he was prepared to do; in my view he did so because he realised that it was the only way to have the restructuring of OMG’s loans and avoid an immediate default by OMG.

I understand Mr Arkhangelsky has alleged that the Bank agreed at the meeting to give the OMG companies a six month moratorium on all payments that were due to the Bank. This is also wrong. There was no such discussion at the meeting.

I recall that the precise details of the restructuring were not discussed at the meeting. This is customary of meetings with Mr Savelyev where agreements in principle are reached but he leaves his deputies to deal with the detail. The detail of the restructuring was worked out and agreed after the meeting and submitted to the Bank’s Management Board for discussion and approval.”

As may be inferred from Ms Mironova’s account, Dr Arkhangelsky presented at trial a very different and more malign picture of the meeting, which he described under crossexamination as “a really terrible meeting”. According to him, Mr Savelyev’s attitude had by that time changed significantly: he was “now very aggressive” and informed Dr Arkhangelsky that the Bank would:

“only allow the Group a moratorium on its payments if the shares in Western Terminal and Scan were transferred to the Bank. He made clear that this was non-negotiable.”

Dr Arkhangelsky continued in his witness statement:

“The demand for the transfer of the shares (and it was clearly a demand, not a request or proposal) came as a shock. It was a vastly different proposition to what had been discussed at our first meeting. It was in my view disproportionate and unacceptable and I explained this to Mr Savelyev. I emphasised that the Group’s underlying assets covered the Bank’s outstanding loans very comfortably and that there was no need for the Bank to take such an extreme position.

Mr Savelyev quickly made it plain that this was not a commercial discussion. He began to make personal threats against me and my family. In particular he told me “you won’t get out of here until you agree to sign the contracts”, “think of your children’s future” and “you want to celebrate New Year, don’t you?”

Until that point I had had faith in Mr Savelyev as a partner who would support my businesses. I was taken aback by this change of attitude and did not know what to make of it. I had no opportunity to reflect on the terms he was insisting on. I simply felt I had no choice but to comply with his demands, because I needed a moratorium on payments for the Group. I was well aware of Mr Savelyev’s power in St Petersburg, and the control he could exercise over the police…Until this point I had not considered this power to pose a threat to me – if anything I thought the opposite – but now I had no doubt that he and his associates had the ability to cause serious problems for me and my family if I failed to do what was asked of me. Accordingly, I felt I had no choice other than to comply.”

Dr Arkhangelsky was adamant under cross-examination that it was this threat to his life and family, and his appreciation of the forces that had been brought against others in similar positions and could be brought to bear against them, which had convinced him he had to agree to arrangements that he considered to be one-sided in the interests of the Bank. When it was suggested to him that the real pressure was simply that inherent in the predicament of his companies and the imminence of default Dr Arkhangelsky said this:

“…in Russia…you cannot do any enforcement. So the first step for the Bank would be to go to the arbitration court. Normally, before you start this, I mean before the first court sitting, it would take minimum three months, minimum three months for the first sitting, and then the proceedings before any enforcement, I think would have taken between 6 and 12 months minimum. So theoretically speaking, for me it was much more interesting that I don't pay these loans at the end of the year, they go to the court, start the proceedings, and then I have one and a half years for the first stage of the court, and then I have a Court of Appeal, which is one more year. So theoretically for them, absolutely minimum is two years to get the court decision which would allow them for enforcement proceedings, and that would really help me, and I could get refinancing by that time, or find any other player. But I, instead of going in any litigations, I agreed that I open all my business, give them all my business, just to save their licence and save the Bank. Actually what I should say, that I saved the Bank of St Petersburg from ceasing their operation, because they have not had the resources to pay for their reserving. So that's what I am telling. So I've been open to the Bank not to create problems for them because the Bank was rather weak compared to -- whole portfolio was defaulting, and I thought that this, my behaviour, would only help to improve relations. And absolutely the same was the case with V-Bank, because everybody understood that it's -- the default at that time, it's not a problem for the client. It's major the problem for the Bank, because Russian banks are weak banks and they were not able to -- in case most of the loans are defaulting, they were not able to have all these reserves in place by the end of the year.”

I address the allegations of intimidation and duress further below.

It will also be necessary to determine the circumstances in which Mrs Malysheva, (whom Dr Arkhangelsky said (without contradiction) he met for the first time after the meeting with Mr Savelyev on 25 December), came on the scene and took over personal and direct responsibility for the Bank’s relationship with OMG. It was Dr Arkhangelsky’s evidence and apparent conviction that the introduction of Mrs Malysheva, for no logical reason since she was at the time overseeing the Corporate Finance Department and would not ordinarily have been involved, marked and evidenced the commencement of the ‘raid’ on OMG assets which he alleges was orchestrated by Mr Savelyev and Mrs Malysheva and is the substance of the Counterclaim.

Returning once more to the chronological sequence, it is common ground that it was agreed that the requisite paperwork to record formally the arrangements for OMG to have some time to meet its payment obligations should be drawn up and signed before the end of December, even if the effectuating documentation might well take longer to finalise. The documentation needed to be completed (to that extent at least) by the end of the month, because if it was not, and the interest instalment dates were not extended, OMG would go into default.

The resultant Memorandum, which was dated 30 December 2008, was prepared (after the meeting on 25 December) largely by Mrs Malysheva with the assistance of Ms Stalevskaya, the deputy director of the department of Corporate Finance, who could offer no explanation why either she, or for that matter Mrs Malysheva, was chosen to be involved.

Dr Arkhangelsky’s evidence was that the content of the Memorandum was in effect dictated by the Bank, and that he had little or no input in the drafting process. He was at particular pains to emphasise his lack of involvement, and what he portrayed as the rush of it all in the context of the fact that the Memorandum refers to the Personal Loan,

However, there is an email from Ms Stalevskaya to Mr Vasilev of OMG, circulated to Mr Berezin (also of OMG) and dated 29 December 2008 which specifically refers, amongst other documents (including “Sale and purchase agreements”) to “Memorandum” and the gist of the email suggests that the document has been previously discussed and circulated, awaiting only signature. Although under crossexamination Dr Arkhangelsky sought to explain this away, his explanation appeared to me far-fetched: and see paragraphs [809] to [810] below.

As to the terms of the Memorandum, which it is the Bank’s case was in the nature of a framework agreement or an agreement in principle, rather than a binding contract:

I address Dr Arkhangelsky’s evidence as to his understanding of the effect of the arrangements provided for by the Memorandum in paragraph [375] below.

There is no dispute that the Memorandum was signed in Mrs Malysheva’s office by Dr Arkhangelsky on behalf of “the Group” and by Mr Savelyev on behalf of the Bank on 30 December 2008. There are no other signatures. According to Dr Arkhangelsky, Mr Savelyev:

“was also effectively representing the purchaser companies, which seemed logical, because no distinction was drawn between the bank and the companies for these purposes. For the security to be effective the Bank would obviously need to control the companies and this is what I assumed the position to be. Mr Savelyev certainly never suggested that the companies would be owned by independent third parties…”

Dr Arkhangelsky’s recollection was that the final version of the Memorandum, dated 30 December 2008, was provided to him in Mrs Malysheva’s office, and that he was required to sign it then and there, just before being also required to sign the various repo agreements. Dr Arkhangelsky says that he did not take legal advice on the Memorandum nor did he check its terms. He says that he signed it “on behalf of ‘the Group’”. For the Bank, however, Ms Stalevskaya’s evidence was that the final draft had been sent to OMG earlier and that Mr Vasiliev, OMG’s lawyer, brought back the Memorandum signed by Dr Arkhangelsky on 30 December 2008.

There is some evidence in support of the Bank’s version, in that there is a copy of the draft Memorandum which contains only Dr Arkhangelsky’s signature and the GOM stamp. This suggests that the draft was taken to the Bank by Mr Vasiliev, which made this copy, following which the Bank (by Mr Savelyev) signed. If Dr Arkhangelsky had signed the Memorandum in Mrs Malysheva’s office, then it is not clear why there would be a copy with only Dr Arkhangelsky’s signature and the GOM stamp.

Further, Dr Arkhangelsky accepted that Mr Vasiliev did bring back to the Bank signed copies of the various agreements concerned with the repo arrangements, but not the Memorandum. In his witness statement, he suggested that Mr Vasiliev returned those “signed contracts” to Ms Stalevskaya on 31 December 2008. It seems unlikely that Mr Vasiliev would have brought to the Bank the repo agreements, which Dr Arkhangelsky says he himself signed on 30 December 2008, but not a copy of the Memorandum which was also signed by Dr Arkhangelsky on 30 December 2008. It seems more likely (and I find) that Mr Vasiliev returned all the documents to Ms Stalevskaya at one time, and that he did so on 30 December 2008.

It was common ground that the Memorandum records only part of the deal reached between the Bank and OMG/Dr Arkhangelsky at the meeting on 25 December (and, on the Defendants’ case at the earlier meeting on about 10 December or thereabouts). Indeed, it was necessarily accepted that it makes no express reference to the restructuring of the loans; and there is no express provision for any specific extension of time for payment of interest, let alone principal, in respect of the debts listed in its clause 1.1.

The terms of the Memorandum were much explored and revisited in cross-examination, and there was some debate as to whether it was in a form intended to be given contractual effect; but the most basic dispute between the parties is not really as to its content, nor as to its contractual effectiveness, but as to what the parties had agreed as the quid pro quo for the repo arrangements which it envisaged and made provision for

The Bank’s answer to this is that what had been agreed emerged in the form of the detailed documentation which subsequently emerged. Its case is that it was always envisaged and accepted that detailed documentation would be needed in respect of each of the loans identified, that the extensions in each case would have to be considered carefully by the Bank, and that any formal agreement on this would be unachievable until after the new year (2009), so that it was not possible to make any express provision in that regard; but that all that was ever contemplated was deferral of interest repayment, and there was never any question of extending capital repayment obligations.

Dr Arkhangelsky, on the other hand, says that it was expressly agreed at the meeting that all payments due from the Group companies to the Bank, including interest payments and capital repayments, would be subject to a general six-month moratorium until the end of June 2009. On the Defendants’ case, that was the only reason why Dr Arkhangelsky sought a meeting with Mr Savelyev in the first place; that the repo arrangement was only proposed as a condition of the moratorium; and that Mr Savelyev’s promise of the moratorium was the reason why Dr Arkhangelsky agreed to transfer the shares. Dr Arkhangelsky was adamant that, even though the “Memorandum as drafted does not expressly record our agreement that there would be a moratorium on interest payments and a prolongation of the loans”, nevertheless he and Mr Savelyev had a clear agreement to this effect.

His case was, in effect, that this stood to reason, and was the only realistic rationale for his agreement to the repo arrangements:

“It would have made no sense for me to have entered into the December 2008 arrangements with the Bank if there had been no agreement for the moratorium. The Group would then have derived no benefit from the arrangements whatsoever: in effect, it would simply be handing over Western Terminal and Scan for the Bank’s benefit without getting anything in return. Even faced with Mr Savelyev’s threats, I do not think I would have agreed to a completely one-sided agreement of that kind. The whole point of the agreement from my perspective was to obtain a deferral of payments under the loans. Although the terms offered by Mr Savelyev were unattractive, in the difficult circumstances in which the Group found itself at that time they were clearly preferable to the alternative of default.”

To my mind, the premise of this contention, which is that Dr Arkhangelsky would not have given up control and the value of his companies “without some significant quid pro quo” (to quote the Defendants’ written Closing Submissions), is unimpeachable; and indeed I do not understand the premise to be contested. The real issue, however, is not whether Dr Arkhangelsky and OMG would always have wanted something in return, but what more specifically it was understood or agreed that they would get in return, and in particular whether what was envisaged was loan-by-loan extensions of varying lengths (as is the Bank’s case), or a general extension or moratorium of six

Given that the Memorandum is silent on this crucial point, the answers must depend on the documentation signed pursuant to it and any collateral evidence.

Whether or not determinative of the issue (as the Bank contends it is) the fact is that, rather than a single document or a standardised suite of documents providing for a moratorium across the board, the Bank prepared documents, which were agreed and signed on behalf of the various OMG companies concerned, providing for tailor-made extensions, not all to June 2009.

There is no dispute that the documents were (a) prepared by Ms Blinova (then chief specialist in the lending division of Investrbank) and Ms Yashkina (the “leading specialist” in that division) on the instructions of Ms Borisova (who was Head of the Credit Department at Investrbank) and Ms Mironova, (b) intended to reflect the outcome of the discussions on 25 December 2008, (c) not finalised until January or February 2009, and then (d) backdated to December 2008.

The purpose of backdating of the agreements concluded in January or February 2009 to 29 or 30 December 2008 was to be consistent with the Bank’s decision not to permit a default of the OMG companies at the end of December 2008. In the meantime, the relevant internal approvals were drawn up, and the Bank made the relevant entries in its systems so as to avoid OMG going into default.

Ms Blinova explained:

“Because there were so many additional agreements to all the OMG loans, I recall that I said that it was not possible to draft them all by the end of December. Ms Mironova told me that the Bank had agreed with Mr Arkhangelsky not to declare a default while documents were being prepared and that all the necessary documents could be prepared and signed in January 2009. I recall that Ms Yashkina and I made the required internal entries so as to avoid the borrower’s default under the OMG loans and the Personal Loan.

…

I also prepared additional agreements to the guarantee contracts to reflect the changes, including the additional agreements to Mr Arkhangelsky’s personal guarantees. I would have emailed these documents to Ms Krikova in the OMG financial department. I cannot recall from my discussions with OMG at the time it ever being suggested that Mr Arkhangelsky had not previously provided personal guarantees in relation to these loans.

I recall that Mr Arkhangelsky did not visit the Bank’s offices to sign the additional agreements. The signed documents were delivered to the Bank’s offices by hand by an OMG driver…” 358. It seems likely that the same applied to revisions to the spousal consents.

Dr Arkhangelsky confirmed:

“The Bank also put forward individual addenda to be signed in relation to each of the loans to implement the agreed moratorium. These were sent to the relevant Group companies and were signed by them without my involvement.”

However, these addenda did not cover all the loans, and, even as regards the loans addressed, did not adopt a general 6-month moratorium. Dr Arkhangelsky could only say in this regard (and I take this from his witness statement) that in view of his agreement with Mr Savelyev he assumed that the other loans would be covered by “a similar procedure”. He accepted that “this did not happen”. He could not point to any contemporaneous complaint on the Defendants’ behalf.

I return to the issues relating to the alleged moratorium in paragraphs [793] to [837] below.

Mrs Malysheva was in charge of the drafting and implementation of the repo arrangements. Ms Stalevskaya assisted in some of the drafting of the documents. Again, it is not obvious from their positions in the Bank why they were chosen for the task. It is common ground that the agreements were not ‘off the peg’: they had to be specially devised and drafted.

Ms Stalevskaya explained in her evidence that she prepared three sets of documents: (a) a share purchase agreement to transfer the shares; (b) a preliminary or provisional agreement for the future repurchase agreement; and (c) the repurchase agreements themselves.

Ms Stalevskaya’s evidence is that she liaised with OMG, in particular its lawyer Mr Vasiliev and his junior Ms Vasilenko, in relation to the preparation of the documents. She recalls:

“I should say that Mr Vasiliev and Ms Vasilenko did not make any complaint about the arrangements and they were not hostile at any stage. At least from their conduct, I had no reason to believe that Mr Arkhangelsky was unhappy with the arrangement.”

That evidence was not contradicted, and I accept it. However, Dr Arkhangelsky suggested that he had little, if any, input to the draft repo documentation. That may be true as regards his personal involvement: but, as in the case of the Memorandum, contemporaneous email exchanges indicate that OMG, through Messrs Vasiliev and Berezin, and a lawyer, Ms Vasilenko, was kept fully involved. It seems clear, for example, that on 29 December 2008 Ms Stalevskaya emailed Mr Vasiliev the share purchase (‘repo’) agreements.

It is an important curiosity that the agreements provided not for the Bank, but for others (the “Original Purchasers”) to be the counterparties and transferees of the shares which were the subject of the repo arrangements. However, the identities of the Original Purchasers of the shares in the repo transactions (named in the next paragraph), were not hidden from OMG: they were identified on the face of the share purchase and repurchase agreements.

These agreements, the authenticity and validity of which was not challenged, and which set out the particular obligations between OMGP or GOM and the particular share transferee, comprised the following:

I address in more detail later (see paragraphs [924] to [960] below) the curiosities relating to these arrangements (and especially the apparently absolute nature of the sales, and the interpolation of the Original Purchasers in place of the Bank). Suffice it for the present to say that it is the Counterclaimants’ case that they were devised by Mrs Malysheva, and always intended by her and Mr Savelyev, to be the means of wresting away control of OMG from Dr Arkhangelsky and obtaining access to the value of the underlying businesses as well as the pledged assets.

The Original Purchasers (see paragraph [367(2)] above as to their identity) were companies supposedly owned by Mr Mikhail Smirnov, the CEO of the Renord-Invest

Mrs Malysheva had known Mr Smirnov and Mr Zelyenov for many years, and they were well-established clients of the Bank. It is not disputed that it was Mrs Malysheva who chose the Original Purchasers for the purposes of the Memorandum and repo arrangements.

It was her evidence in the BVI Proceedings (in a witness statement dated 30 December 2011 which was introduced into the evidence in these proceedings under a Hearsay Notice dated 28 August 2015) that:

“The Bank holds no direct or indirect ownership interest in the Original Purchasers.”

The Bank’s case is that it was expedient for it to arrange for the Original Purchasers to act as transferees of the shares (which were not listed securities) for a number of accounting and commercial reasons, not least the fact that if the Bank held the shares itself then it would have needed to consolidate Western Terminal and Scan in the Bank’s own financial statements. (I come back to this in paragraph [933] below.)

As previously noted, there was no written record of the relationship between the Bank and the Original Purchasers nor of the basis and terms on which they held the relevant shares. I think it fair to say that the Bank’s presentation as to the legal nature and commercial rationale of the arrangements between the Bank and the Original Purchasers has varied over time, the Bank being consistent only in its reticence; and much focus was accorded to it at trial.

Mrs Yatvetsky (formerly Ms Goncharuk), the legal advisor to the Renord-Invest Group, who (it will be recalled) was called to give evidence when Mr Smirnov became indisposed, described the position of the Original Purchasers as, in effect, holding the ring between the Bank and OMG until OMG could pay back its debts. She said:

“… if you are looking at the very start of this arrangement, Renord was a guarantor for the Bank, as it were, it was holding those shares, and it was a sort of security to make sure that the assets owned by those companies will not be lost, nothing will happen to the assets. On the other hand you can also say that they were holding those shares also on behalf or in the interests of Oslo Marine Ports until such time as the Morskoy Bank story began. After it began, what happened was that Mr Arkhangelsky was in breach of the terms and conditions of the memorandum. Had that not happened, had all the liabilities been extinguished, the shares would have been transferred to Mr Arkhangelsky.”

Dr Arkhangelsky’s evidence was that he did not know who owned or controlled the Original Purchasers, but that he “assumed that it was the Bank’ because “the whole purpose of the transaction as far as I understood was to ensure that the Bank’s security was protected”. His evidence was:

“The effect of the transaction, as I understood it, was that the Bank would receive temporary ownership of the companies, but I and my directors would retain control of the companies in the interim and with ownership being returned either once the security had been enforced. (I am aware that the Memorandum refers to repayment of the loans being the trigger for the return of the shares, but I would not have regarded that as materially different, as there was no reason to believe that the security would not be sufficient to redeem the loans.) The purpose of the transfer of ownership, as Mr Savelyev represented it to me, was therefore simply in order to give the Bank temporary control over the companies and comfort that it would be able to enforce its existing security. I did not intend or understand that the Bank or anyone else would acquire full ownership of the companies if there was a default, although I understood clearly that by relinquishing the ownership of the shares I was exposing myself to the risk of a raid. That was precisely why I was so aggrieved at Mr Savelyev's demand for the shares to be transferred.”

Dr Arkhangelsky’s case is that he was misled as to the reasons for the introduction of the Original Purchasers, which he now believes was in reality part of the alleged ‘raid’ and indeed the first step in the appropriation by Renord-Invest and thus (amongst others) Mr Savelyev and Mrs Malysheva, of the assets of OMG.

The Subsequent Purchasers, who acquired the relevant shares from the Original Purchasers in late March/early April 2009, were also part of the Renord-Invest Group. I return to the dispute as to the ownership and role of the Original Purchasers and the Subsequent Purchasers later.

Continuing the chronological sequence, Ms Blinova recorded that in January 2009 the OMG companies sent the Bank formal letters, signed by their general directors, and purportedly dated 18 December 2008, requesting amendments to the terms of the relevant loans.

The letters are of importance especially in that the extensions requested are not uniform:

I did not understand these letters to be denied, or Ms Blinova’s account as above described to be contested. As the Claimants were quick to point out, the terms of the letters are difficult to square with a previous understanding of a uniform extension of repayment dates to June 2009, especially since Dr Arkhangelsky never objected to them.

As to the terms of the restructuring agreements as executed:

Thus, in broad terms, if the loan was due to be repaid in the first half of 2009, before June 2009, the Bank was prepared to defer interest payments until the date of maturity; if the loan was to be repaid in the second half of 2009, the Bank was prepared to defer

In short, as Ms Mironova said:

“pursuant to different loan agreements, depending on their initial terms, different deferrals were agreed, both on interest and principal repayment.”

The extensions provided for by these agreements, even though selective, provided a lifeline to OMG and Dr Arkhangelsky: default was otherwise inevitable. But it is worth remembering that they suited the Bank also. In that regard, there is no doubt that the Bank was keen, perhaps (as Dr Arkhangelsky maintained) desperate, to ensure that there was no OMG default to be reserved for at year-end (2008). The agreements, backdated as they were to the end of the year, were required and relied on by the Bank to avoid the need for such reserves.

The Defendants contend that this was the occasion also, not for the amendment, but for the introduction, of documentation for personal guarantees, prompted by a review of the existing documentation. The Defendants’ contention is that it was only at the stage of this review that the Bank focused on the fact that no such guarantees were in place, and the Bank determined to rectify the position. It was put to Ms Blinova in crossexamination that the documents were “fabricated in January 2009 at the time there was restructuring of OMG indebtedness, and backdated”, slipped into the loan records, but were never actually signed by Dr Arkhangelsky. Ms Blinova denied this and stuck by her written account.

To complete the repo arrangements, in early January 2009, stock transfer forms relating to the agreements described above, and providing for the legal transfer of the relevant shares to the Original Purchasers, were registered by the Bank with the Federal Tax Service, and only then (under the Russian law) was the transfer of the shares to the Original Purchasers legally effected.

In his witness statement, Dr Arkhangelsky stated that during this time he “continued to look for additional funding” to make repayment of its loans to the Bank. He recounted, in notably general terms, the fact that his meetings with “a very large number of banks all of whom were interested in doing business with the Group” continued in the new year (2009).

More specifically, he referred to a meeting with BNP Paribas in Paris in January 2009 “to discuss technical aspects of the project”, expressing also his belief that:

“Had it not been for the Bank’s actions…a mandate would have been signed shortly afterwards to enable BNP to start moving towards financial completion in or around the third quarter of 2009.”

He acknowledged that OMG was even in some difficulty in finding the money to pay the monthly retainer fee of €25,000 which BNP proposed (see paragraphs [202] to [209] above), but his line was that he expected cash flow soon to improve. Further, he told me:

“If it had been necessary to borrow the money to pay BNP’s retainer and other fees then this is what I would have done…

…

…I have no doubt that I would have been able to raise short-term financing from one or more of these banks to enable us to engage BNP to get the financing of Western Terminal across the line.”

It is worth pausing there to consider whether that was so: whether, in other words, Dr Arkhangelsky had any realistic prospect of short-term refinancing, or whether the reality was that he was entirely dependent on whatever time or funds he could get from the Bank. That obviously goes to the issue of whether he ever had any realistic prospect of avoiding default, and that in turn is clearly relevant both to whether the Bank engineered that default whereby to trigger the repo arrangements and to the whole case alleging an illicit ‘raid’.

As to this, Dr Arkhangelsky also contended that even if “long-term financing” was not forthcoming, he “would have arranged replacement short-term funding” with V-Bank. In his witness statement for trial he went so far as to say:

“I believe it is therefore virtually certain that Vozrozhdenie [VBank] would have provided funds to pay off the Bank's loans in mid-2009 pending the completion of the refinancing.”

If this was Dr Arkhangelsky’s belief, it was a triumph of hope over reality. The reality was that V-Bank, in the credit crisis, was simply not extending new funds in early to mid-2009, and there was never any prospect of it refinancing the loans from the Bank. Dr Arkhangelsky, under cross-examination, was constrained to admit as much:

“… we have quite big limits with them already, and there were not a question at that time of substitution of Bank of St Petersburg loans by the loans from V-Bank. So we were speaking about comparatively big amounts, and in the situation of crisis, as I already just a few minutes ago told you, that none of the privately owned banks in the middle of the crisis didn't want to increase their exposure and the new loans -- new, big loans.”

OMG already owed V-Bank at least RUB 2 billion at this time.

At the end of 2008 and beginning of 2009 OMG’s financial position continued to deteriorate. According to Ms Mironova, by early 2009 no payments of any substance were being made into OMG bank accounts, which were monitored by the Bank.

More particularly:

In this dire situation, in late February 2009, PetroLes sought to extend both the First and Second PetroLes Loans for a year from their expiry dates on 5 March 2009 and 26 March 2009 respectively and to defer interest payments until 28 June 2009. Interest under each loan had been deferred until maturity under the agreements made pursuant to the meeting of 25 December 2008.

Thus:

The Bank has pointed out that the fact that the requests were to extend interest payments for the extended loans from the old expiry dates until 28 June 2009 was not consistent with any alleged general six-month moratorium which had been agreed in late December 2008. On the contrary, the Bank contended, they were positively inconsistent with it because they amounted to a request (i) to extend the loans by a year (to March 2010); and (ii) to defer interest payments for three months on the new extended loans (until the end of June 2009). I return to this when discussing the issue as to the true nature of the moratorium.

As it is, the request was first considered within the Bank by the MKK. The MKK approved both requests and sought approval likewise by the BKK. The meeting of the BKK took place on 2 March 2009, presided over by Ms Volodina (with, amongst others, Mr Belykh also present).

The minutes of the meeting of the BKK meeting held on 2 March 2009 are not entirely clear, which has led to a dispute between the parties of detail but potentially some importance as to why the request was ultimately refused.

According to both Ms Volodina and Mr Belykh, the extensions of the repayment dates were both refused, save only that it was resolved to extend the First PetroLes Loan for a short period of days until it was coterminous with the Second PetroLes Loan on 26 March 2009. Ms Volodina explained short extension as being designed to enable the question of any further extension to:

“be escalated to, and considered by, the Management Board as the most senior body within the Bank, as the appropriate body for a decision of this magnitude.”

However (and as Mr Stroilov put to both Ms Volodina and Mr Belykh in crossexamination), the minutes themselves record an agreement to extend the deadline for the payment of interest to 20 June 2009, and to provide some extension beyond 26 March 2009 for the Second PetroLes Loan also.

Neither Ms Volodina nor Mr Belykh offered any explanation of the drafting, simply ascribing it (respectively) to a “technical mistake” and “clumsiness” for which Ms Volodina suggested the person concerned should be “punished” (a word which may indicate something lost or confused in translation, but may equally offer some insight into the way the Bank was managed).

Mr Stroilov, on the other hand, has submitted that there was no mistake in the drafting, only a misrepresentation afterwards concocted to disguise the truth that the BKK did approve the extension and that the intervention of the Management Board is suspicious. I return to this later: see paragraphs [1006] to [1009] below.

In any event, the issue as to the extension of the First PetroLes Loan was considered too significant to rest at Investrbank branch level or with the BKK, and it was referred on to the Management Board of the Bank for a final decision.

The Management Board met on 4 March 2009. Mr Savelyev presided. Ms Volodina was present (amongst 9 others). It appears that the meeting lasted some five hours, though Mr Savelyev suggested that this was because “the Bank had problems with many other borrowers” as well as OMG.

The Management Board’s decision, which is recorded as having been unanimous, was to deny any further extension of the two PetroLes loans. As a result, unless there was in place the 6-month moratorium which the Defendants assert, the First PetroLes Loan fell due for repayment.

As further described below, PetroLes did not make repayment on the due date. The Bank sent a notice of default to PetroLes on 6 March 2009.

Although also careful to point out that it did not need any excuse or justification not to extend the loans, the Bank advanced a number of contextual reasons for the Management Board’s decision, all undermining, in its view, the Defendants’ reliability, and in particular the following.

First, it pointed out that Dr Arkhangelsky had previously given assurances that OMG was to receive a RUB 300 million timber payment in January/February 2009; but no such payments materialised.

Secondly, it suggested that it had further been influenced by its discovery of tax and criminal investigations into Dr Arkhangelsky, alleging tax evasion and sham transactions.

Thirdly, according to Ms Volodina, she had heard from her contacts at Rosselkhozbank and VTB Bank that they and other banks were experiencing problems and losing patience with Dr Arkhangelsky and his companies and that OMG was in default with V-Bank.

Fourthly, Mr Savelyev and Ms Mironova placed emphasis on the fact that at some point in February 2009, the Bank found out that Dr Arkhangelsky had failed to disclose that the vessel ‘Tosno’, which had been pledged as security for the Second Vyborg Loan, had been arrested in the port of Tallinn in December 2008 for non-payment of bunkering charges.

Ms Volodina (who was present at the relevant Management Board meeting) summarised the Bank’s perspective on the position by this time in her oral evidence:

“On 5 March, the PetroLes loan matured, therefore the client came to the branch and asked whether that loan could be further extended for a further period of time.

Now, we looked into this and, based on the solvency position of the client and whether or not he was able to perform his obligations, unfortunately he was a male fide borrower, not only with respect to the Bank, but also with respect to his -- the crew, his seafarers on the vessel that had been pledged. Therefore I told the members of the board that I do not believe that we can extend this loan. We had tried to accommodate the client on a number of occasions, yet he had not fulfilled his obligations, not a single time.

We worked with other clients, we restructured many, many of the loans for other clients. We restructured the interests. Many times we moved to accommodate our clients. He had given many promises with respect to the cash flows, to the proceeds, they were not realistic with respect to refinancing via other banks, and also by that point in time it became clear that he had problems with other lenders as well and, therefore, in terms of extensions of any loans, this was simply not viable. This was not something that could be done.”

Dr Arkhangelsky rejected this account, both in general and by reference to the particular reasons advanced by the Bank for denying any extension of the PetroLes loans. He specifically denied that he had sought to hide the fact of the arrest of the ‘Tosno’. He claimed that, on the contrary, he had openly discussed the vessel’s arrest with Ms Borisova, Ms Prokhor and Mr Platonov when it occurred, and he added that, in his belief, he had mentioned the matter when he met Mr Savelyev in December 2008.

As to the Bank’s suggestion that it had relied on concerns about his tax affairs, he contended, as Mr Stroilov put to Mr Guz and Ms Volodina, that the relevant investigations had taken place in 2007, had been publicised at that time, and had not been proceeded with. Mr Guz was constrained to accept that the tax investigation was not at all a significant factor in the Management Board’s decision and Ms Volodina retreated to the point of relying not so much on “a criminal investigation at some point in time” but rather on “the totality of all the factors.”

In the submission of the Defendants, the events of March 2009 were neither random nor reactive; they were part of a concerted plan, whether (as is their primary case) it was hatched in December 2008 or at about this later time (March 2009).

In that connection, Dr Arkhangelsky recorded in his witness statement for trial the “ominous sign” (indicating, in his perception, a raid in preparation) that both Western Terminal and Scan had received a number of visits from the Original Purchasers asking for information including bank statements, accounts, tax returns and the like. He pointed to the fact that the extension of the PetroLes loan had been approved by the MKK, the BKK and the Committee for Management of Assets and Liabilities as demonstrating that the Management Board, in taking an opposite view, had some different agenda.

Mr Stroilov put to Ms Volodina in cross-examination that the “real reason” why the Bank decided not to extend the First PetroLes Loan was that by now (March 2009):

“Mr Savelyev and Mrs Malysheva intended to appropriate OMG assets which had been transferred under the repo deal.”

She answered:

“I don’t have information in this matter, and it’s unlikely that Mr Savelyev could have made such a decision, as far as I know my boss.”

Mr Stroilov repeated substantially the same question when cross-examining Mr Savelyev, who answered as follows:

“No, this is not true. The Bank was never interested in toxic assets, and in various pledges, because I personally, and the Bank’s management, always focused on the Bank itself. That is the main asset that we control all together, that we look after all together, that is the priority project and I have always criticised shareholders that work at the Bank and are involved in some construction projects or some side line businesses not related to the Bank….I never wanted to blur the focus. I never wanted to own the assets that Mr Stroilov had in mind. It’s not interesting for me from the start.

I confirm again before the court that we are only interested in one thing: to maximise the return of our funds from the sale of the pledged property. That is always legal when the Bank is selling its pledges and wants to get the maximum amount from their sale. This is exactly the only thing I meant.”

The reference to “toxic assets” is intriguing in light of the Lair valuations indicating that the value of the pledged assets very considerably exceeded the amounts loaned; and it was the Bank’s case that it was not until considerably later than this, in July 2009, that it received reports from another valuer, Agentsvo Delovyh Konsultantsy LLC (“ADK”) which cast serious doubt as to the reliability of Lair’s reports. To my mind, that reference smacks, at best, of hindsight, since at the time, the Bank’s valuations of the assets very considerably exceeded the amounts loaned.

The Bank’s pattern of seeking to embroider by reference to collateral factors its reasons for its decisions tended, to my mind, to detract, rather than fortify, what it had advanced as the true basis for the Management Board’s decision, which was its doubt as to OMG’s credit-worthiness.

Overall, I gained the impression that the Management Board did have a rather different perspective and agenda than had the MKK and the BKK: the one was looking for reasons to work a cross-default, the others did not wish to precipitate anything so major. But I do not consider that the difference is of itself sinister; and it can be explained, as indeed the Bank sought to explain it, as a decision which would trigger general default was one only the highest level of authority within the Bank could ultimately take.

That too, however, is for further discussion in the context of my determination both as to the Bank’s general proposition that “any other bank would have acted in the same way” and as to the true purpose and the use ultimately made of the repo arrangements.

There is considerable uncertainty as to what the real chronology is as regards the Bank’s discovery that it was under-secured, just as there is dispute as to what its reaction was to that discovery.

According to the evidence of Mr Belykh, it was not until after OMG began to default on its loans in March 2009, bringing the imminent prospect for the Bank of having to rely on and enforce its security, that he focused on the valuation reports prepared by Lair on which the Bank had relied; and it was not until nearer July, when Ms Mironova circulated (by email attachment) ADK’s reports to Mr Skatin and Mr Belykh, that the Bank’s concerns as to the value of the underlying security crystallised.

Similarly, Ms Mironova indicated that it was not until, at earliest, some time after May 2009 that ADK was commissioned to review Lair’s valuations; and it is the case that the emails by which she circulated the ADK reviews are dated early July 2009.

However, although, on the basis of this evidence, the Bank maintained that it was not until July or so, when Ms Mironova circulated (by email attachment) ADK’s reports to Mr Skatin and Mr Belykh, that its concerns as to the value of the underlying security crystallised, the date on each of the ADK reports is stated to be 12 January 2009. No explanation for that was offered or was evident.

In all these reviews, ADK concluded that the valuation reports by Lair had significantly overvalued the relevant property, not only by reference to eroded values following the 2008 crisis, but also at the time.

Further, although neither of them felt able to say when it was, both Mrs Mironova and Mr Belykh confirmed that by that time they had together undertaken a site visit of Western Terminal which much discomforted them, since the site seemed barely to have been developed at all, and at that time the weather was wintry with snow on the ground. This suggests late winter or early, rather than late, Spring.

That site visit by Mr Belykh and Ms Mironova prompted considerable concern on their part. Mr Belykh described his impressions as follows:

“I remember that the land in question was not at all what we had imagined based on the valuation reports. For example, there was a project for the development of a railway at the port and it had been described to us as if it was almost ready for use. What we saw on the actual land was an approximately several metre long railway that went from one small hut to nowhere.”

A working group within the Bank then produced an internal report on the valuation of security that was provided for the Vyborg Shipping loans. The report outlined in detail deficiencies in the reports provided by Lair for the three vessels and for the land owned by Western Terminal and the land owned by Scandinavia Insurance. The working group concluded that the market value of the pledged property was materially overstated in all the valuation reports produced by Lair.

According to Mr Belykh (who had some valuation training and experience himself), when the general director of Lair (confusingly, a Mr Alexander Smirnov, unconnected with Mr Smirnov, the owner of Renord-Invest), and its head of immoveable property valuation, Ms Svetlana Chevdar, were summoned to the Bank to speak to the Lair reports (quite when is not clear, but sometime in the latter half of 2009):

“they were vague in their responses and I had to interrupt them a few times in order to find out the truth. It transpired that Lair had valued the assets used by OM[G] as security on a future discounted cash flow basis, but the income projected was completely unrealistic”.

Ms Mironova described in her witness statement the way she reported to Dr Arkhangelsky the Management Board’s decision in March 2009 to refuse to extend the First PetroLes Loan as follows:

“I called Mr Arkhangelsky on the same day at around 6pm or 7pm, during my drive home. I remember the conversation because it was quite emotional, with accusations and insults from him; I pulled over and stopped my car, and recall that it was a difficult discussion. He did not make personal accusations, but he was quite unhappy with the decision. In response, I asked him about the arrest of one of Vyborg Shipping's vessels and the failure to pay turnover into OMG's accounts with the Bank. He refused to discuss this.”

Dr Arkhangelsky was dismissive of this account. His answers in cross-examination offer some insight into his attitude and, I would comment, his habit of either belittling or demonising those he perceives to be against him:

“Q. Now, Ms Mironova is right, isn't she, in that paragraph, when she describes what --

A. No, it's completely not true. I think the dates -- I think I was in Switzerland participating in the conference and I don't think that I would be even able to reply -- even if anybody called me, I would not be able to reply to that.

Q. So is it your evidence that you did not speak to Ms Mironova on the telephone on or around 4 March 2009? A. Yes, absolutely.

Q. Did she call you at any other time around that date to tell you the decision of the management board -- A. No.

Q. -- on 4 March –

A. No. No. We hadn't had any personal contacts, good personal contact here, so when you see her you would understand that she is rather strange and ambitious person, young and ambitious person. So, you know, she's not my style of people I want to speak to, and not sympathetic to that type of people. And for me, her, she was a rather low level of people, so -- I mean in the Bank, so she was not even a head of the Investrbank department, but she was under that. So I assume that it had to be in case such a phone call could be -- it should be at least Mr Belykh who was participating in all this management board, or Mr Platonov, who was the head of Investrbank by that time. So I had a rather good relationship with Mr Platonov, I had been knowing him from different banks, we had a beer together from time to time. So I think in case such a big trouble occurred, he would be definitely telling me or Mr Belykh. So I don't think that Ms Mironova is really telling the truth, considering how active she was participating in BVI and these proceedings. I think she's really following her personal interests in this.”

Be that as it may, and although Ms Mironova sought to paint a more regretful and measured stance, there is little doubt that the Management Board of the Bank had by now decided in principle to call in all its OMG loans across the board.

In accordance with the Bank’s usual practice in relation to bad debts, Investrbank set up a working group to consider how best to recover sums owed to the Bank. Further, in the context of various impending defaults, and the prospect of bad debts, Investrbank had to prepare to post reserves, and accordingly Ms Blinova drew up a note setting out the possible levels of reserves required.

From March 2009 (and if there was no general or 6-month moratorium in place) OMG defaulted on each of its loans from the Bank as they fell due, as set out in more detail below.

The Bank’s planning appears from an email exchange between Ms Mironova and Mr Guz on 11 March 2009:

“Greetings Vladislav Stanislavovich,

Analysis of Oslo Marine Group loan agreements evidences the following:

As of now:

-

we can declare default under the second loan for Petroles Ltd. for the amount of RUR 80 million (the maturity date is 26.03.09)

-

also due to non-registration of the mortgage agreement for one of LC Scandinavia credits for the amount of RUR 145 million (the BKK decision to extend the mortgage agreement registration period should be cancelled) we can demand early repayment, and then on the next day declare default on one more of their loans for the amount of RUR 450 million

-

Furthermore, V.D. Arkhangelsky is the surety for all LC Scandinavia Ltd. loans, so we can put the claims forward to him as the surety, and if he fails to comply within 5 days we can declare default on his personal loan of RUR 130 million.

-

also there is a surety from SO Scandinavia for LC Scandinavia Ltd. loans, which we can also address the LC Scandinavia Ltd. loan repayment claims to. However SO Scandinavia do not have their own loans (except for the discounted bill for RUR 65 million, but we cannot call it for early repayment as it is subject to the law on bills of exchange instruments and it can only be paid on maturity date – January 2010). However we can still initiate legal collection from SO Scandinavia as they are a surety.

-

at the same time we can declare default on Onega Ltd. loans for amount of RUR 431.8 million (as the financial position of their sureties – SO Scandinavia and Arkhangelsky – have become worse)

26 March 2009:

-

The Vyborg Shipping Company Ltd. loan in the amount of RUR 310 million is approaching maturity. There is an option to extend it for 2 years. If we decline extension, then we will declare default on all VSC Ltd. loans for the total amount of RUR 2.1 billion.

Thus we can put forward the claims for all Oslo Marine Group loans by the end of March.

Please confirm the suggested model.

Sincerely yours,

Kristina Borisovna Mironova”

Mr Guz replied:

“I agree. Please affirm this with the legal and credit directorates.”

By letter dated 25 March 2009, the Bank wrote to Dr Arkhangelsky in relation to the default under the First PetroLes Loan, seeking to resolve any questions concerning enforcement against the pledged assets so as to avoid any court action. There was no response.

According to the Bank, it was at about this time that the Bank received further information about the arrests of other OMG vessels pledged under the Vyborg loan agreements, for non-payment of bills and crew wages and salaries.

It is not quite clear when the Bank was informed of the arrests of ‘Kolpino’ and ‘Gatchina’. Ms Volodina thought it was in “February to March” but could not be precise. However, she was more certain that:

“…at the latest I would have heard about this issue when Ms Mironova forwarded an email to me from Bergen Bunkers relating to the arrest of Kolpino on 30 March 2009.”

Dr Arkhangelsky claims to have told the Bank about the arrest of ‘Tosno’ in December 2008. However, the first record of a communication from him about the arrests is a letter of 3 April 2009 to Mr Savelyev. The letter refers to the seizure as having taken place in Tallinn on 11 December 2008 despite “repeated offers to settle debt”. It also refers to the seizure of ‘Gatchina’ in La Pallice, France in “early March” (2009) before OMG had received “any prior warning…as to any existing debt” and to the seizure of ‘Kolpino’ “under the very same maritime claim that had previously been used to seize the OMG Tosno vessel”.

The way that letter is written suggests to me strongly, and I find, that Dr Arkhangelsky had not previously informed the Bank, and was not aware at the time that the Bank already knew of the arrests. Having depicted the arrests as having been without warning and in breach of the International Law of the Sea Conventions, Dr Arkhangelsky ended on a determinedly optimistic note in the last paragraph:

“Taking into account the situation that has unfolded, the Company is taking all necessary measures of a financial and legal nature to overcome the difficulties that have arisen. Implementation of these measures will allow it to normalise the operation of its vessels by the end of June 2009, in particular, the satisfaction of accounts payable and collection on accounts receivable within the shortest period of time, as well as working with its customer base while taking into account the current economic environment on the sea shipping market (search for new customers, improvement of conditions stipulated by existing contracts, and costs optimisation).”

This optimism was, at best, blind: it was entirely detached from reality, as I think Dr Arkhangelsky must have appreciated.

Ms Mironova described her view of these events in her witness statement as follows:

“On 4 April 2009 Mr Arkhangelsky sent me and Ms Borisova an email that attached a letter to Mr Savelyev dated 3 April 2009. He informed Mr Savelyev of the arrests of the three vessels and stated that everything would be resolved by June 2009. By this point I no longer had any trust in Mr Arkhangelsky, and I did not believe his statements about the prospects of OMG's financial recovery. He now admitted that Tosno had been arrested on 11 December 2008, which he should have notified to the Bank at the time. He also admitted that Gatchina and Kolpino had since been arrested. By this time I believed that there was no prospect of Mr Arkhangelsky or OMG repaying their debts.”

Although the sequence of later events is not altogether clear and in important aspects disputed, the Bank’s resolve to proceed to call a default and to insulate and then perfect its control over its security, and especially the assets of Scan (at Onega) and Western Terminal was by now fixed.

According to the Bank, it was its conclusion that default across the OMG was all but inevitable despite Dr Arkhangelsky’s efforts to disguise the scale of the group’s difficulties, that prompted a review of its security arrangements. This included, and indeed focused especially on, urgent consideration as to how the Bank’s position might be strengthened if and when, after default, Dr Arkhangelsky sought to avoid enforcement, as the Bank anticipated he would.

The formulation and coordination of the Bank’s response was entrusted, probably by Mr Savelyev (given his overall control, her position and their frequent collaboration), to Mrs Malysheva. In effect, she took over from Mr Guz and his subordinate, Mr

It was in this context that Mrs Malysheva turned for advice and assistance to SKIF and Mr Sklyarevsky, and other associates from the past. Mrs Malysheva’s introduction, and the central role she and her associates played, undoubtedly brought about what is said by the Counterclaimants to be a manifestation of, and an important milestone in, the conspiracy they allege: see further as to this paragraphs [961] to [969] below.

There were strong antecedent connections between all the main actors brought in to act for the Bank in relation to OMG’s default.

Mr Sklyarevsky was an ex-colleague of Mrs Malysheva from days when she worked at the AVK group of companies (“AVK”), once one of the Russian Federation’s largest financial consultants and brokerage firms and the “number one fixed income instrument operation in Russia” (according to Mr Sklyarevsky). Mr Smirnov had worked for the AVK group of companies too. Mr Smirnov and Mr Sklyarevsky worked at AVK Securities LLC and Mrs Malysheva at the parent company CJSC AVK. They had known each other very well for years.

Mrs Yatvetsky also had worked at AVK. So too did a Mr Lestovkin, who it will be seen later became Director-General of an entity called ‘Nevskaya Management Company

AVK’s founder was a Mr Kostikov, who in 2000 had become chairman of the Federal Commission on Financial Markets, a state official equivalent to a cabinet minister.

Mr Stroilov, who focused considerable attention on the AVK connection, describing the AVK “veterans” as “a bit of a mafia”, suggested that AVK was “simply a vehicle for Mr Kostikov’s corruption”. He referred (and put to Mr Sklyarevsky and Mrs Yatvetsky in particular) a newspaper article (in a publication named ‘Finans’) after Mr Kostikov had left office and AVK had collapsed which suggested that AVK’s income had been derived, in effect, from extortion and that it collapsed when the means of extortion ceased in about 2006 on Mr Kostikov’s removal from office.

In greater detail, it was said that Mr Kostikov and AVK operated a corrupt licencing scheme, using his quasi-governmental or regulatory powers, which in effect required market operators to pay high fees for licences as a condition of being permitted to operate, and that Mr Kostikov used these fees to fund AVK and other personal interests. Mr Stroilov suggested that “everyone on the market understood that you have to pay AVK in order to get speedy permissions from the government for various things”. He went on to justify the line of argument and questioning on the basis that:

“…what I suggest is that if you have a remarkable number of businessmen claiming to be independent from each other, all involved in this case…and there is a remarkable proportion of AVK veterans among them, then if I can show that they have got a common record of involvement in corruption, that increases the inherent probability of their involvement in a conspiracy of this kind now…”

Both Mr Sklyarevsky and Mrs Yatvetsky firmly denied any such involvement, and rejected the depiction of AVK as a vehicle for fraud and of those who had worked for it as a “mafia”.

Although it relates more properly to the Counterclaim which I consider separately below, I should make clear immediately that neither the newspaper article nor any other material advanced as ‘evidence’ came close to justifying the description, still less a finding on the basis of something akin to guilt by association of some predisposition or tendency to corruption amongst the individuals concerned. However, I do accept (as indeed I understood both Mr Sklyarevsky and Mrs Yatvetsky to acknowledge) that the association between Mrs Malysheva, Mr Smirnov, Mr Sklyarevsky and Mrs Yatvetsky was and (it seems) remains exceptionally close, though Mr Sklyarevsky sought to emphasise that “business is business” and on business matters they did sometimes disagree.

These interests and association may not signify anything untoward either in the association or in the strategy; but they do seem to me to invite enquiry, not least because as matters developed conflict of interest opened up between the Bank as banker on the one hand and, on the other hand, Renord-Invest Group and those beneficially interested

What Mr Stroilov called “the AVK mafia” had other connections and business associations in relation to both SKIF and Renord-Invest, and thus the Original Purchasers and the Subsequent Purchasers.

In 2006-2008, Mr Sklyarevsky owned 50% of the shares in SKIF, with his coshareholder being a Mr Alexander Ved (“Mr Ved”), yet another ex-colleague from AVK, holding the other 50%; but Mr Ved sold his shares to a Mr Evgeny Kalinin (“Mr Kalinin”), now finance director of Renord-Invest, in about September 2008.

Mr Kalinin was at that time a director of Renord-Invest, which it will be remembered was, supposedly at least, owned and controlled by Mr Smirnov. Mr Smirnov had been CEO of AVK between about 2000 and 2006. Mr Smirnov was until 2008 a manager at the Bank: Mrs Yatvetsky thought he was a corporate finance director.

As previously mentioned, it also appears that Mrs Malysheva’s husband (Mr Vladimir Malyshev) was a co-founder (with Mr Smirnov) of and a 75% shareholder of record in Renord-Invest until March 2008. Mr Smirnov was a holder of record of the remaining 25%.

Mr Sklyarevsky acknowledged that SKIF and Renord-Invest “sometimes did business together” but rejected any suggestion of any closer relationship, still less joint control or ownership.

Similarly, both Mr Sklyarevsky and Mr Smirnov, and also Mr Savelyev and Mrs Malysheva, rejected any suggestion that SKIF, Renord-Invest and the Bank and its associated companies (see below) were in effect run together as constituent elements of a single business, ultimately beneficially owned by Mr Savelyev and his “loyal friends”.

I did not find their denials persuasive. I return to the issue later.

These associations also spread into a number of entities involved later in the story. Thus, for example, whilst he was at the Bank, Mr Smirnov joined with Mrs Malysheva in setting up an investment business (according to Mrs Yatvetsky, in competition with the Bank) undertaken through Nevskaya Management Company, a company in which SKIF also was involved.

It seems likely that with Mrs Ivannikova, Mrs Malysheva and Mr Smirnov jointly owned (and may still own) a company called Linair, a principal shareholder in Nevskaya Management Company.

Mr Stroilov suggested that, in reality, Mr Vladimir Malyshev held as nominee for his wife: she described him in a press article as an “IT technician” and his only known connections with investment business are his marriage to Mrs Malysheva and his shareholding in Renord-Invest. Mr Stroilov also suggested that, given Mrs Malysheva’s position as a top manager of the Bank at the time, and the practice of using Bank’s managers as nominal shareholders of various companies, it is all the more likely that Mr Savelyev or the Bank were the beneficial owners.

Mrs Malysheva’s husband ‘sold’ his shareholding at a nominal consideration in March 2008 to Trak LLC (“Trak”) and Barrister LLC (“Barrister”) which were, according to Mr Smirnov, both entities owned by him.

Further, Mrs Malysheva’s son (Mr Igor Malyshev) was a substantial shareholder in Baltic Fuel Company, which ultimately became the owner of Western Terminal through Kontur LLC (“Kontur”), and Nefte Oil LLC (“Nefte Oil”).

As indicated, the relevance of these entities and the associations behind them is principally to the later story: but it is also of relevance to date their emergence in the chronology.

Acknowledging that the chronology is “somewhat clouded and disputed”, the Defendants’ Closing Submissions identified the following events in the Spring and Summer of 2009 as demonstrating the pattern of conduct adopted by the Bank, which (it is their case) was enabled by calling a cross-default across the Group in breach of the alleged moratorium (as they perceived it) and was directed towards the appropriation of the assets and business of Scan and Western Terminal:

Accepting that the chronological sequence may be imperfect, I address each such ‘event’ with small changes in the sequence to reflect my own view of the more likely chronology.

At some time in the period from 20 March 2009 to 6 April 2009, the Original Purchasers transferred their respective Scan shares which were the subject of the repo arrangements to the Subsequent Purchasers for (in each case) a nominal consideration. Sevzapalians retained the Western Terminal shares.

The Subsequent Purchasers who acquired shares in Scan pursuant to such transfers from the Original Purchasers (see paragraph [367(2)] above) were:

I address later a dispute as to the true ownership and/or control of SKIF, the Subsequent Purchasers and the Renord-Invest Group.

It is common ground that there were never any formal contractual arrangements between any of the Subsequent Purchasers (including SKIF) and the Bank as to the terms on which they held such shares, just as there were none between the Bank and the Original Purchasers.

The timing of the decision to transfer Scan shares from the Original Purchasers to the Subsequent Purchasers is uncertain. This bears on the Bank’s case that one of the justifications for the transfers to the Subsequent Purchasers related to its concerns about the Morskoy Bank loan mentioned in paragraph [473(4)] above, which on the Bank’s case was improper: see paragraphs [502] to [516] below.

The transfer agreements appear to have been made (and the documents are dated) on various dates between 20 March and 6 April 2009. However, Mrs Yatvetsky’s evidence under cross-examination was to the effect that the transfers were not registered until some time later, probably in May 2009. Thus, according to her, the Original Purchasers

It is clear from Mr Sklyarevsky’s evidence that, at least from mid to late March 2009, he and SKIF were directly and routinely involved in what he described as the “business restructuring” of OMG.

He presented his involvement in the sequence of steps in April to August 2009, which together with Mrs Malysheva he was principally responsible for orchestrating, as essentially defensive, with the aim of protecting the Bank’s existing security. His line was that all that was done was made necessary by his and the Bank’s perception that Dr Arkhangelsky had evinced, and occasionally expressed, his intention to resort to any available means of delaying, and if possible defeating, the Bank’s recovery efforts.

According to Mr Sklyarevsky’s witness statement, it was principally his work which unearthed (during a visit to Morskoy Bank) the “revelation that [Dr Arkhangelsky] had managed to obtain a loan on behalf of Western Terminal when he did not even own Western Terminal [which] caused me serious concerns about the way in which Mr Arkhangelsky was acting” (as to which see below); it was his report on this matter which prompted the decision at a meeting with Mrs Malysheva and Mr Smirnov that “Mr Arkhangelsky could no longer be trusted” and that to protect the assets of Scan and Western Terminal, the management of both should be changed to “protect the bank’s security and…force Mr Arkhangelsky to the negotiating table.”

In all this, Mr Sklyarevsky denied any personal interest or benefit. His evidence was that he agreed to his and SKIF’s participation “to assist the Bank” without any formal agreement, either as regards the share transfers to SKIF (see below) or his own remuneration, relying only on what he described as their “good relationship.”

Mr Sklyarevsky denied any material participation in the subsequent appropriation and realisation of OMG’s assets and businesses, both pledged and unpledged, claiming that it was Renord-Invest that “led this process” and that he was “quite put out at the time because I considered I had more experience in this field.” He acknowledged, however, that he was until April 2011 the sole owner of Mercury LLC (“Mercury”), which was much engaged in the asset disposal process, though he sought to make clear that its involvement was at the behest and on behalf of Renord-Invest (with, according to Mr Sklyarevsky, his consent as its owner) and that he had then sold it to Renord-Invest; and he rejected therefore any allegation of conspiracy or involvement in a fraudulent dissipation of OMG assets as “totally untrue.”

Dr Arkhangelsky, on the other hand, viewed Mr Sklyarevsky’s and SKIF’s introduction as further evidence of the commencement in earnest of a classic “raid”. He based this in part also on his perception of Mr Sklyarevsky as “a well-known Russian raider” who was “notorious for [his] role in unlawful takeovers of businesses and assets”.

Turning more specifically to the details of Mr Sklyarevsky’s involvement, Dr Arkhangelsky tended to associate (and blame) Mr Sklyarevsky for the repo arrangements as a whole; but Mr Sklyarevsky disclaimed knowledge of, or interest in, the original repo transactions with the Original Purchasers, though he said that he did recall that he “was aware (from Mrs Malysheva) that companies belonging to Mr Smirnov or Mr Zelyenov held the shares for the Bank.”

However, Mr Sklyarevsky asserted familiarity with the concept of repo transactions as being a structure “used by Russian banks at the time was one way by which banks could make sure their security was effective.” He explained:

“If there was a “repo” arrangement and a temporary transfer of ownership, then this prevented a borrower from transferring the ownership of their assets or otherwise obstructing a lender, until the borrower’s obligations were fulfilled. A “repo” prevented hostile shareholders from blocking the realisation of security in the event of default, which is quite easy to do in Russia.

I also understood why the Bank used third parties to hold the shares on its behalf in the “repo” arrangements. Due to Russian banking controls that were in place at the time, if the Bank had purchased the shares in the relevant OMG companies and put them on its own books, then their value would have been deducted from the Bank’s overall capital.”

Mr Sklyarevsky acknowledged his considerably greater involvement in the transfers of Scan shares from the Original Purchasers to the Subsequent Purchasers in March/April 2009 (not least, since SKIF was directly involved as a Subsequent Purchaser). He stated in his witness statement that he understood “the key motivation” behind the transfers of Scan shares to the Subsequent Purchasers to have been to enable “the Bank’s security to be further protected by making it more difficult for Mr Arkhangelsky to unwind the transfers.”

As to the relationship between and involvement of SKIF and Renord-Invest, Mr Sklyarevsky told me that “Mr Smirnov and I agreed that SKIF would do the legal work, whilst Renord-Invest would provide the new management.” It is clear from his witness statement that thereafter SKIF, Mr Sklyarevsky assumed responsibility for the control of those companies, though it took some time. His evidence was:

“In June 2009, almost two months after the directors of Western Terminal and Scandinavia Insurance had been changed and almost a month after the directors had been registered we finally got operating control over Western Terminal and partially over Scandinavia Insurance.” [My emphasis]

It is also clear that Mr Sklyarevsky was later directly involved in the Gunard Lease (see paragraphs [579] to [581]; and [1050] to [1066] below), which he described as a means of retaining control of the land even if they should lose control of the company (see paragraph [1057] below):

“some form of an additional insurance mechanism in case we were to lose in court…”

Mr Sklyarevsky sought to present himself also as wishing to be an intermediary or ‘honest broker’ between Dr Arkhangelsky and the Bank. He made some play in his evidence of his wish, once he became involved, to see how he could assist in resolving what appeared to him to be the communication breakdown between Dr Arkhangelsky and the Bank. He presented the need for this in cross-examination:

“Problematic debt is very conflict-ridden, and it is very difficult to talk to one party only. It will lead to further conflict. My concern was that Mr Arkhangelsky was not engaging in such negotiations…”

As to what he wished to discuss he explained:

“I believed that the parties should meet and keep on performing their obligations or reach another agreement. I would have initially focused on the options available, including who might be interested in purchasing OMG’s assets or what investment could be made to increase their value; I wanted to meet with Mr Arkhangelsky to get his input. Despite numerous attempts I never managed to meet with Mr Arkhangelsky which in all my experience of working with banks in relation to distressed banks [sic] was unique.”

Dr Arkhangelsky rejected this benign presentation of Mr Sklyarevsky’s intentions and activities. As to Mr Sklyarevsky’s purported efforts to build bridges, Dr Arkhangelsky stated in his 19^th witness statement:

“I do not recall any attempts by Mr Sklyarevsky to contact me. If there were such attempts which I subsequently forgot about, in any event I had no means of knowing that he sought to contact me on behalf of the Bank. As is usual for a business in trouble, OMG at that time was constantly contacted by all sorts of dubious characters offering to solve all our problems (including, but not limited to, police persecution and the Bank's hostile actions) for a very modest fee. Naturally, I would pay no attention to such offers.”

Dr Arkhangelsky stressed that the Bank never informed him at any time that Mr Sklyarevsky was acting with its authority either in the steps to take over Western Terminal and Scan or in his alleged attempts to negotiate. On the contrary, the contact point given to Dr Arkhangelsky only two months before was Mr Savelyev.

The parties are similarly at odds as to why Dr Arkhangelsky and Mr Savelyev did not meet either. Each blames the other.

Dr Arkhangelsky pointed out that he continued to visit Investrbank’s office every few days, as Ms Blinova confirmed: so the Bank had no difficulty in contacting him; and his evidence was that he repeatedly sought to contact Mr Savelyev to clarify what he perceived to be a misunderstanding or a fraud by a third party, but that Mr Savelyev evaded such contact, and did not reply to correspondence.

Under cross-examination, Mr Savelyev accepted that the correspondence did seem to confirm that Dr Arkhangelsky had indeed sought to meet him personally, without success. However, he said, he had tasked his deputies to meet him and, had Dr Arkhangelsky genuinely wanted to meet the Bank in order to find a solution to OMG’s default, then he would have done so, but he did not. Mr Savelyev went on to suggest that Dr Arkhangelsky could have met any of his deputies, but chose not to do so.

Mr Sklyarevsky’s oral evidence under cross-examination was as follows:

“…the logic underlying what the Bank was doing was quite simple. The banks never chase up borrowers who are in a position of default. It's always a defaulting borrower who comes to the Bank and proposes solutions to the problem. It was not a problem that was created by the Bank, it was a problem that the borrower created for the Bank, therefore, I fully understood Malysheva's position. She said that: it's not me who owes money to Arkhangelsky, Arkhangelsky owes money to the Bank, so she expected him to take certain steps to settle the problem.

Now, whom he met and whom he visited and how many times, I simply do not know, I am afraid. All I know is that the decision maker with the Bank on this particular matter was Mrs Malysheva, she was in contact with Mr Arkhangelsky, and there was a breakdown in communication for whatever reason.

Moreover, what Mr Arkhangelsky has been doing is quite different from what other defaulting borrowers have been doing, because those people spend hours, they spend nights in the Bank, knocking on the Bank's door, trying to meet people, trying to find a solution to their issues. So, to be honest, the way Mr Arkhangelsky behaved was completely illogical.”

Given the size of the debt and the shortfall, Mr Savelyev’s apparent refusal to meet personally, and Mr Sklyarevsky’s insistence that it was for Dr Arkhangelsky to be a supplicant to the Bank, did strike me as surprising; and in the case of Mr Sklyarevsky’s evidence it chimed oddly with his protestations of the need to get together to talk.

The Bank eventually fell back onto claiming that the issue is not of much material relevance, save that it shows Dr Arkhangelsky’s desire to do whatever he could to

I have already touched on Mr Sklyarevsky’s evidence as to his discovery of the Morskoy Bank loan of RUB 56.5 million which Dr Arkhangelsky had procured Western Terminal to take out at the end of March 2009 (see paragraph [483] above).

As to the nature of the loan, according to Morskoy Bank:

“On 27 March 2009, taking into account the data on the business status of LLC "Western Terminal" provided bу Berezin А. О. and intention to create the рrореr security of the obligations performance, including personal guarantee of Arkhangelsky V. D. it was resolved to grant to LLC "Western Terminal" а loan of RUR 56 500 000 for 12 months at the credit committee meeting of the Applicant.

On 30 March 2009 а loan agreement No. 03-СП/09-КЮ was signed (the "Loan Agreement") between the Applicant as а Lender and LLC "Western Terminal" as а Borrower for the working capital financing, including conducting current production activity and berth repair works.

…

According to the Loan Agreement, the Lender provided to the Borrower а loan in the amount of RUR 56 500 000 (fifty six million and five hundred thousand) for the working capital financing. The Borrower obliged to герау the loan amount until

29 March 2010 and рау the interest thereon.”

The Morskoy Bank loan agreement was signed on behalf of Western Terminal by its then Director-General, Mr Vinarsky, on the basis of an OMGP shareholder resolution which was signed by Dr Arkhangelsky.

As Dr Arkhangelsky acknowledged and accepted, such a loan required shareholder approval; but it was not approved by Sevzapalians, which had become a 99% shareholder of Western Terminal pursuant to the repo arrangements already described in early February 2009.

In his second witness statement for the trial, Dr Arkhangelsky stressed that Morskoy Bank had been lending to OMG for several years, “always in the form of letters of exchange”. He sought to portray the Morskoy Bank loan not as an exceptional or objectionable event, but as an urgent and necessary expedient to replace existing loans necessary for the conduct of its business in its ordinary course, to prevent further harm

Dr Arkhangelsky elaborated on this as follows:

“…In view of OMG’s financial difficulties, I was able to negotiate a restructuring of that indebtedness, which would be replaced by one regular loan given to Western Terminal for a longer term. To do so was, amongst other things, OMG’s obligation under its Memorandum with the Bank, where we undertook not to stop the commercial activities of Western Terminal and not to worsen its commercial position. A default on OMG’s obligations to Morskoy Bank would obviously be a breach of that.

It was, of course, also a term of the Memorandum that the Original Purchasers would not interfere in the day-to-day commercial activities of Western Terminal. They were not real shareholders but merely held the shares on trust, under the ‘repo’ arrangements as a form of additional security. Therefore, the agreement of Sevzapalians was not necessary for the loan agreement between Western Terminal and Morskoy Bank.”

Dr Arkhangelsky also sought to clarify that the Morskoy Bank loan was secured on property belonging to his wife, a plot of land in the Gatchinsky area, which he stated was suitable for “elite hotel building and worth between 10 and 20 million US dollars.”

Dr Arkhangelsky was less forthcoming about the actual use made of the moneys borrowed. Put shortly, the loan was advanced for Western Terminal’s ‘working capital’ purposes, but it was not so applied: the loan was used for the benefit of another OMG company, LPK Scan. Dr Arkhangelsky in effect admitted it was not for the benefit of Western Terminal, but for the ‘group’.

The circumstances surrounding the Morskoy Bank loan would subsequently lead to criminal proceedings being commenced against Dr Arkhangelsky and an Interpol notice (which in turn became the basis of an extradition request when, as described later, Dr Arkhangelsky fled to France). The complaints were based on the proposition that Dr Arkhangelsky had no right or authority to borrow on Scan’s behalf since Sevzapalians, as 99% shareholder (further to its repo purchase), had not authorised the loan. I elaborate on this in paragraphs [592] to [596] below.

For present purposes, the relevance of the Morskoy Bank loan is that it was invoked by the Bank, not only as supporting its decision to call a default, and rely on its security, but also as the justification (on the Bank’s case), or the contrived and ex post facto excuse (on the Defendants’ case), for the steps taken in early April 2009 to remove Dr Arkhangelsky as Director-General of Scan and Mr Vinarsky as Director-General of Western Terminal and to effect transfers of the shares in Scan from the Original Purchasers to other companies in the Record-Invest Group in order in both cases (Mr Sklyarevsky told me) “to protect the repo transaction”.

In that regard, the essential dispute, which bears both on the credibility of the Bank’s witnesses (and especially Mr Sklyarevsky), the reasons for the transfers to the Subsequent Purchasers, and the real objectives of changing the management of Scan and Western Terminal, is as to whether Mr Sklyarevsky’s discovery and revelation to the Bank of the Morskoy Bank loan took place before the transfers and the resolutions to remove Dr Arkhangelsky and Mr Vinarsky, so as to explain those steps, or whether the Bank has simply been exploiting the issue as to the Morskoy Bank loan as an opportunistic excuse.

Whereas Mr Sklyarevsky’s evidence was that both decisions were taken in early April in response to the Morskoy Bank loan, the Counterclaimants’ case is that such decisions pre-dated the Morskoy Bank loan of 30 March 2009 and had nothing to do with it:

The date on which Sevzapalians first determined to set in motion the process for the removal of the then Directors-General in Western Terminal and Scan is of some importance. The point was disputed; but the evidence is really all one way, and the date revealed is 10 March 2009.

I say that because: (a) it was not suggested to Dr Arkhangelsky that he was wrong about this, (b) no witness for the Bank could substantiate any other date and the Bank resorted instead to denying its importance, and (c) it is to be noted that the only dispute really is as to the date on which the notices convening the meetings were sent out, not the date on which Sevzapalians’ proposals were first made clear.

In these circumstances, it seems to me to be clear, and I find, that Sevzapalians put in motion the removal of Dr Arkhangelsky before the issue in respect of the Morskoy Bank loan became apparent; and that issue cannot, therefore, have prompted or justified those removals.

The removal of Dr Arkhangelsky and Mr Vinarsky was an obviously hostile act which signified a settled intent on the part of the Bank to deploy the control over OMG that it had obtained via the repo arrangements.

It is perhaps not surprising that Dr Arkhangelsky should have perceived and portrayed his and Mr Vinarsky’s removal after the transfers to the Subsequent Purchasers and the introduction of Mr Sklyarevsky as being the first manifest step in a ‘raid’:

“Starting in March 2009, the Bank suddenly began to pursue an extremely aggressive and intensive campaign against the Group, involving demands for payment, court proceedings, the seizure of Western Terminal and Scan, police raids, and the disposal of the Group's assets.”

On Dr Arkhangelsky’s analysis, the sales to the Subsequent Purchasers were part of the same ‘raider’ strategy. Far from being confined to steps which a bank could be expected to take, acting in its own interests, but legitimately as a responsible creditor, Dr Arkhangelsky painted a picture of the Bank as an aggressive and unscrupulous ‘raider’, stopping at nothing to secure its objectives. I accept that it was his perception that the steps taken to remove both him and Mr Vinarsky were all part, and lurid examples, of the same ‘raiding’ tactics.

Mr Sklyarevsky explained in his witness statement that it was Mrs Malysheva who at the end of March 2009 “instructed us to change the management of Scandinavia Insurance and Western Terminal” on the basis that, in “her opinion, this would protect the Bank’s security and would force Dr Arkhangelsky to the negotiating table”. Mr Sklyarevsky perceived her to be and describes her as “the decision maker on this particular matter”. In his cross-examination Mr Savelyev’s evidence was to like effect:

“She was in charge of this borrower; she had oversight of that borrower, and she was dealing with this on her own.”

It seems to me clear, and I find, that the decision to remove and replace Dr Arkhangelsky and Mr Vinarsky was made by Mrs Malysheva, as part of the overall strategy she, with those she had brought in and especially Mr Sklyarevsky and Mr Smirnov, had been developing to take control of all the OMG assets. As will already be apparent, I do not consider that it was the Morskoy Bank loan issue which promoted the decision: that issue was in reality more in the nature of an opportunistic basis of justification than a catalyst.

As to the mechanics, under Russian law, Dr Arkhangelsky and Mr Vinarsky could only be removed as (respectively) Director-Generals of Scan and Western Terminal at shareholders’ meetings duly convened and held. The constitutional rules of each company required 20 days’ notice for such a meeting, though Mrs Yatvetsky told me that under the Russian law, all the shareholders acting together may waive notice. (That

According to the evidence of Mr Sklyarevsky, such meetings were held on or around 7 April 2009; and this is not in dispute. Mr Sklyarevsky stated in his witness statement that he personally notified OMG’s counsel, Mr Vasiliev, of the fact and business of the meeting, though he was not sure exactly when he had done so.

The Bank’s evidence and submissions were notably (and intriguingly) reticent, if not completely silent, as to the identity of the appointees as Directors-General in place of Dr Arkhangelsky and Mr Vinarsky.

The only witness on the Bank’s side (Mr Sklyarevsky) who addressed the changes made did not identify the replacements, though he did clarify that the new management was provided by Renord-Invest (which is itself of some interest, given that Renord-Invest (and Sevzapalians) had been presented as having purely nominal roles).

In fact, the replacement for Mr Vinarsky as Director-General for Western Terminal was

Mr Chernobrovkin was at the time also Director-General of Kontur, part of the Baltic Fuel Group supposedly (according to the Claimants) owned by Mr Smirnov, but said by the Counterclaimants to be in reality part of the Renord-Invest Group and/or ultimately controlled by Mr Savelyev. As will be seen in due course, Kontur, some three years later, successfully bid for the assets of Western Terminal: and (as also elaborated and tested later) the Defendants and OMGP alleged that it was from as early as March 2009 that Mr Smirnov was “already interested in using Western Terminal assets for his own projects”.

In his witness statement, Dr Arkhangelsky identified (without elaboration) his purported replacement at Scan as being a Mr V.V. Kuvshinov (“Mr Kuvshinov”). Mr Kuvshinov was not mentioned by any of the Bank’s witnesses, nor in any of the Bank’s submissions (written and oral). I must assume (from Mr Sklyarevsky’s evidence that management was to be provided by Renord-Invest) that he also was an employee of Renord-Invest.

The period between April and August 2009 was characterised by the following main strands of activity:

As indicated by the paragraph references above, I elaborate briefly on these events in turn in the next paragraphs, but will need to return to expand on certain aspects of them in the context of the Counterclaim.

After the refusal of an extension to the First PetroLes Loan and OMG’s resulting default, the Bank proceeded with the cascade of demand and, in the absence of response, default notices.

There is a dispute as to whether the demands, and especially those relating to the disputed Personal Guarantees, were validly served or notified; Dr Arkhangelsky alleges that they were not. I address this dispute in paragraphs [547] to [548D] below. The references in the next following paragraphs reflect the Bank’s case and must be read with the caveat that Dr Arkhangelsky has disputed service, as well (as previously indicated) as the authenticity of the guarantee documentation.

Leaving aside the alleged moratorium, the First Vyborg Loan came up for repayment on 26 March 2009. Vyborg Shipping requested an extension on the First, Second and Third Vyborg Loans until 28 June 2009. The request for an extension was refused. Accordingly, the Bank emailed Dr Arkhangelsky requesting repayment.

On 27 March 2009 the Bank drew up a notice of demand which was sent to Vyborg Shipping. It also drew up and sent a notice of demand in respect of Dr Arkhangelsky’s (disputed) personal guarantee. Ms Blinova emailed him that demand on 1 April 2009.

The email also attached demand letters under the (alleged) Scan guarantee and personal guarantee, and asked for repayment. Ms Blinova’s evidence was that she also did everything she could to contact Dr Arkhangelsky, but to no avail.

Leaving aside the alleged moratorium, the Second Vyborg Loan was due for repayment on 15 April 2009. No repayment was made. On 16 April 2009, the Bank drew up a notice of demand which was sent to Vyborg Shipping. It also drew up and sent a notice of demand in respect of Dr Arkhangelsky’s (alleged) personal guarantee.

Likewise leaving aside the alleged moratorium, the Third Vyborg Loan was due for repayment on 28 April 2009. The agreement provided that the Bank was entitled to make a demand for repayment if the borrower was in default of its other lending obligations to the Bank. Accordingly, in view of its default under the First Vyborg Loan, Vyborg Shipping was also in default under the Third Vyborg Loan.

On 14 April 2009, the Bank drew up a notice of demand which was sent to Vyborg Shipping. No repayment was forthcoming. On 22 April 2009, the Bank drew up and sent a notice of demand in respect of Dr Arkhangelsky’s (alleged) personal guarantee, which it followed up with a further notice on 29 April 2009.

The Fourth Vyborg Loan was not due for repayment on 17 July 2009. However, in view of the notice of default under the First and Second Vyborg Loans, on 20 April 2009 the Bank drew up a notice of demand which was sent to Vyborg Shipping. No repayment was forthcoming.

On 29 April 2009, the Bank drew up and (at least according to its case) sent a notice of demand in respect of Dr Arkhangelsky’s (alleged) personal guarantee.

Leaving aside the alleged moratorium, the First Onega Loan was due for repayment on 27 June 2009. Under the agreement, the Bank was entitled to demand repayment if the financial position of Onega deteriorated and the sums entering the settlement account at the Bank fell below certain minimum levels. Onega’s revenue did fall below the minimum level which it needed to maintain.

On 22 May 2009, the Bank drew up a notice of demand which was sent to Onega (and did the same in respect of the Second Onega Loan). No repayment was forthcoming. On 2 June 2009, the Bank drew up and sent a notice of demand in respect of Dr Arkhangelsky’s (alleged) personal guarantee.

In respect of the additional agreements, the Bank had sought security from OMG, but experienced repeated difficulties in trying to register various mortgage agreements. In particular, LPK Scandinavia failed to register the mortgage agreement dated 26 February 2009 over the real estate it had pledged as security for the 2008 LPK Scandinavia Loan. As a result, LPK Scandinavia was in default of its obligations.

On 3 June 2009, the Bank drew up notices of demand both under the 2008 LPK Scandinavia Loan and Dr Arkhangelsky’s (alleged) personal guarantee.

The (alleged) additional agreement for the Personal Loan had extended the date for payment of interest until 28 June 2009. Dr Arkhangelsky (who, it will be recalled, denied that any such loan had been extended to him personally) made no payment and was accordingly treated as being in default.

According to Ms Blinova, on 30 June 2009, the Bank’s case is that it drew up and sent a notice of demand to him, which it followed up on 7 July 2009. Also according to Ms Blinova, the Bank drew up and (according to its evidence) sent a notice of demand to Scan, which it alleged was a guarantor of the Personal Loan on 6 August 2009.

The Bank’s case is that once OMG had defaulted it sent notices, not only to the relevant borrowers, but also the relevant guarantors (Scan and Dr Arkhangelsky). Ms Blinova’s evidence in her witness statement, which was not challenged, was as follows:

“I prepared all the notices of demand on the basis of information in the Bank's records, including information recording Mr Arkhangelsky's address, understand that Mr Arkhangelsky has alleged that the notices of demand were not sent, or were sent to the incorrect address. This is not right. The address for Mr Arkhangelsky that I typed on the demands under the Vyborg Loans corresponded to the address that appeared in the guarantee agreements. I remember that some of the demand letters in respect of the Vyborg Loans were returned to the Bank. When this happened, I checked the position and realised that there had been a typographical mistake in Mr Arkhangelsky's address, I checked the Bank's records, corrected the mistake, and resent the relevant notices.

I clearly recall that all the notices of demand were sent by registered mail. I am sure of this. One of my functions was to deal with problem debts and so I tracked the relevant postal notices confirming that the letters had been delivered and I put them on the credit file. I made every effort to make sure Mr Arkhangelsky was aware of the demand notices, and sent them by email and fax, as well as by post.”

In her oral evidence, Ms Blinova explained what she did:

“…I was sending these letters, and subsequently I would either receive a notification that the letter was delivered safely, or the actual letter would come back if it didn't work out to deliver the letter, then I would send the letter again.

So using all available methods, we endeavoured to notify a client, and all these matters, it's something I remember very well, because within the Russian proceedings the Bank's lawyers always asked me to provide a confirmation that I did my utmost to notify the client, and also we had to attach the postal slips.”

548A. The Defendants and OMGP deny that the Bank made any repayment demands and say that it “dishonestly fabricated letters demanding repayment in order to create spurious grounds for a claim under the fabricated “personal guarantees”.” In particular, although they did not press or even mention the point in their Closing Submissions, they alleged at trial that:

548B. Dr Arkhangelsky said that the following was “absolutely correct and true”:

“The Bank did not make any proper attempt to bring the claims on the guarantees to my notice either before or after it started proceedings in Russia in reliance on the guarantees. I never received any notices of demand under the guarantees. The notices of demand which the Bank claims to have sent went (if they were sent at all) to an address in Ulitsa Dobrolyubova (Dobrolyubov Street), as opposed to my actual address which was on Prospekt Dobrolyubova (Dobrolyubova Avenue). Ulitsa Dobrolyubova is a real street and it is therefore unlikely that I would have received anything sent to that address. Moreover, at the time when it commenced proceedings the Bank was aware that I had left Russia, and it knew my address and contact details, but it did not make any use of them and merely served the documents at my former Russian address instead. To my mind, this suggests a lack of good faith and possibly an awareness on the part of the Bank that its claims on the guarantees were not justified.”

The Defendants’ initial approach was not to dispute their indebtedness, nor even initially to challenge the personal and Scan guarantees, or the Personal Loan; it was rather to dispute valid service of the Bank’s proceedings, and to issue their own proceedings in the Russian courts to seek to regain or retain control of the OMG companies and their assets.

Thus, parallel to the Bank’s proceedings for judgments and enforcement of its loans, from early April 2009, a series of proceedings were commenced in the name of Mrs Arkhangelskaya and OMG in the Russian courts, both civil and criminal, with the objective of reversing the repo arrangements, contesting the removal of Dr Arkhangelsky and Mr Vinarsky, and bringing criminal charges against individuals in Renord-Invest and SKIF.

The Defendants portrayed these proceedings as necessary, and forced upon them as the only means of vindicating their rights and interests. The Bank portrayed them as part of a ‘war’ commenced by Dr Arkhangelsky in fulfilment of his threat to stymie recovery, and in a classic attempt to frustrate the Bank’s enforcement of its security rights, such as to justify the Bank’s further efforts thereafter to insulate OMG’s assets from what the Bank considered to be obvious stratagems.

Dr Arkhangelsky’s first affidavit in the BVI Proceedings set out in considerable detail the various challenges launched by OMG at his behest:

In her witness statement Mrs Arkhangelskaya described these proceedings compositely as follows:

“34.

On 8 April 2009 I, as shareholder of OMG Ports LLC, the Third Part 20 Claimant, filed a complaint with the Commercial Court of Saint Petersburg for the transfer of the shares of Western Terminal LLC to Sevzapalians LLC to be set aside (Claim No A56-18840/2009). I also filed a number of claims as shareholder of Group Oslo Marine LLC against the new shareholders of Scandinavia Insurance LLC at about the same time.

35.

At that time I did not closely follow the details of the claims, since I was being advised by various lawyers (some of whom were also acting for my husband and/or his companies) principally Yaroslav Vasiliev, Nikolay Erokhin and Yuriy Filippov. I understood that the basis on which the transfer was disputed was that the price paid for the shares by Sevzapalians LLC and the new shareholders of Scandinavia Insurance LLC was nominal.”

Focusing on the proceedings relating to the Western Terminal shares:

For the present at least, it is not necessary beyond that to rehearse the course or content of these various proceedings; but the following peculiarities may be noted:

Also of some importance, and in stark contrast to Dr Arkhangelsky’s rather different presentation of the purchase price paid for Western Terminal in offer documentation when he was desperately seeking financial support from Western banks (see paragraph [171] above), is that in the relevant proceedings OMG relied before the Russian courts on a purchase contract showing the purchase price as RUB 1,069 million (approximately US$ 40 million).

At about the same time as the commencement of the ‘war’, on 5 May 2009, Dr Arkhangelsky and Mrs Arkhangelskaya entered into a marriage contract under which he transferred some of his assets to her. By a document entitled a “Deed of Donation”, he made a further transfer to her in January 2010 of the shares in a Bulgarian entity called EOOD Petrograd (“the Petrograd shares”), which owned an apartment complex

Mrs Arkhangelskaya said that their purpose was to “safeguard my position and that of our children for the future”. Inevitably, perhaps, the Bank contends that this hints at precisely the ring-fencing of some of Dr Arkhangelsky’s assets so as to avoid them being used to satisfy his creditors and supports the Claimants’ concern that Dr Arkhangelsky is prepared to take whatever steps are necessary to evade his creditors.

The validity of the arrangements is thus in issue. This is another matter to which I must in due course return: see paragraphs [838] to [853] below.

It is not suggested that the Bank knew of the Arkhangelskys’ marriage contract until later; but on 8 May 2009, in parallel with OMG’s proceedings, and further to its notices of demand and OMG’s failure to pay (or even respond), the Bank commenced a series of proceedings in Russia (and in the case of the pledged vessels, in the court of the countries where they were found) to obtain judgment against the relevant OMG companies. Ms Mironova explained:

The goal took time to achieve; and to maintain an albeit approximate or loose sense of chronology, I think it is more convenient to deal separately in a later section with a description of the proceedings brought (including for the arrest of vessels pledged as security) and their ultimate result: see paragraphs [604] to [636] below.

At about the same time, and in a curious reflection of the Arkhangelskys’ steps to ‘protect’ their assets, the Bank itself took steps with a view to ‘protecting’ Scan assets from the threats which it apparently considered were posed by the possibility of court judgments against it, in the proceedings brought by the Defendants in respect of the Scan shares acquired by the Original Purchasers and then the Subsequent Purchasers. Those proceedings were being heard by the Russian courts in mid-June 2009.

Justifying this by reference to those proceedings, the Bank’s Closing Submissions confirm that the Bank considered giving its consent to Scan to transfer its assets to CJSC Nazia (as indicated above, one of the Subsequent Purchasers and another RenordInvest company), subject to the Bank’s pledges over those assets.

These steps were, of course, premised on the legality and effectiveness of the repo arrangements with Sevzapalians (in the case of Western Terminal) and the Original and Subsequent Purchasers (in the case of Scan), and they depended on the effectiveness of the Bank’s control over those parties (Sevzapalians and the other Subsequent Purchasers).

Although, in the event, no such transfer was effected, the Defendants portrayed these transactions, actual and proposed, as representing a blatant, concerted and reprehensible attempt to end-run the decisions of the Russian courts (which at the time were invariably going against the Bank in the proceedings brought by the Defendants) by insulating or putting beyond the reach of OMG the pledged and other assets of the OMG. I return to that too in the context of the conspiracy claim: see paragraphs [1045] to [1066] below.

The Bank contended that it was “in the context of OMG’s proceedings in the Russian courts in the summer of 2009, in which for a time OMG appeared to be successful, that the Bank considered again how best to protect its security interests in the OMG assets.” Mr Sklyarevsky recalled in his oral evidence that:

“Mrs Malysheva was quite upset and frustrated; that we had lost in those two instances.”

There seems to me to be no real doubt that, from the summer of 2009 onwards, Mrs Malysheva and the Bank, with Mr Sklyarevsky and Sevzapalians, were determined to take any steps available to them, deploying such state connections as they could call on, to make quite sure that Dr Arkhangelsky’s exclusion from OMG and the Bank’s means of appropriating its assets could not be undone.

Despite the Bank’s protests that it acted only within the law, I am in equally little doubt that some of these steps included actions of an intimidating kind, especially when Dr Arkhangelsky and Mr Vinarsky dared question the legal propriety and effectiveness of their removals.

Thus, on Saturday 20 June 2009 employees of Sevzapalians arrived at Western Terminal’s premises at about 8.00am, accompanied by a strong contingent of St Petersburg riot police together with representatives of two security companies instructed by the Bank.

The video footage (apparently taken by a Western Terminal employee) left me in no doubt that the police and security people took control in a manner that brooked no opposition. There was no prospect of, and no safe sense in, opposing them. The Bank, through Sevzapalians, was thus enabled to take full control of the premises and operations of Western Terminal, excluding both Mr Vinarsky and Dr Arkhangelsky from any further direct involvement.

In their Closing Submissions, the Claimants sought to justify the operation as being necessary to enable access to corporate information and accounts to which RenordInvest and SKIF were entitled but had been denied; and to dismiss the

Given the plain and obvious uncertainties as to the validity of the process of removal there is, at least in the perception of this Court, something unsettling both about the ability to call for the deployment and the actual use of such methods. That is especially

There is also, again at least in the perception of this Court, something unsettling about the ease with which it seems that the Bank/Sevzapalians were able to commandeer such a force, to do their will in such a manner at the weekend, apparently without a warrant. At the least, as it seems to me, it encourages less sceptical review of the Defendants’ contentions that the Bank, principally through Mr Savelyev, had official contacts in the police, whether through Gen. Piotrovsky and Lt. Col. Levitskaya or otherwise, and with Mrs Matvienko (who, as mayor of St Petersburg, controlled them): and see paragraphs [1067] to [1074] below.

Two further matters reinforce this. First, as previously mentioned, both Dr Arkhangelsky and Mr Vinarsky had filed criminal complaints with the Kirovsky police department alleging that their removal as Directors-General of Scan and Western Terminal were illegal, leading to the issue in May 2009 of orders initiating criminal proceedings and confirming their “victim status”. During the pendency of such criminal proceedings it would have looked even stranger for Sevzapalians to seize Western Terminal. The way in which, without notice or explanation save that Sevzapalians had made representations, the criminal proceedings were suddenly closed days before the seizure by order of the Chief Investigator for St Petersburg and the St Petersburg region has added to the suspicion of coordination between the Bank, Sevzapalians/SKIF and the authorities. And secondly, that also chimes with the admittedly hearsay evidence given by Dr Arkhangelsky that he was told by the person with line responsibility for the proceedings that Gen. Piotrovsky had personally intervened to order to “kick the case into the long grass.”

In addition, Mrs Malysheva, Mr Sklyarevsky and the Bank turned their attention to other less physical options to make sure that their position could not be undone or circumvented, whatever might be the result of Mrs Arkhangelskaya’s proceedings.

The first of the options described was either to consent to Western Terminal transferring its assets to SKIF, subject to the Bank’s pledge over those assets, or to have some form of lease agreement with SKIF in respect of those assets. The submissions record that no such transfer or entry into any lease agreement happened (which is not in dispute).

Another potential option explored was for the Bank (as pledgee) to consent to a lease agreement over the Western Terminal assets between Western Terminal and another Renord-Invest company called ‘Gunard Enterprises Ltd.’ (“Gunard”). This was the option adopted, through the offices of Gunard’s new Director-General.

The Bank’s Closing Submissions record that for the Bank, the Gunard Lease proposal provided a further level of protection for the Western Terminal assets in the light of two principal concerns. These are described as having been as follows:

The Gunard Lease was signed on 20 August 2009. Its terms were plainly uncommercial: US$20,000 rent per month, with the entire rent payable at the end of the term (49 years, later reduced to 30 years on Renord-Invest’s request when the Bank gave consent to the lease in November 2009). The time would begin to run after the state registration of the lease, which apparently never took place. Gunard was entitled to take control of the assets three days after the lease agreement was signed, i.e. on 23 August 2009.

The provisions of the Gunard Lease are, on any view, extraordinary. The efforts of the Bank’s counsel to dismiss criticisms of it were not convincing. I elaborate on this later: see paragraph [1060] et seq below.

Whether or not the Gunard Lease was a stratagem to end-run any adverse judgment setting aside the repos, or to manipulate values, as the Counterclaimants allege, is part of the Counterclaim, and I return to it in that context: see paragraphs [1050] to [1066] below.

Moving back in the chronology, in early June 2009, Dr Arkhangelsky had left Russia (although he subsequently returned for a short visit in July). His evidence was that he did so in fear, and to protect him and his family, even at the price of increasing the risk to any remaining OMG assets (since it would be all the more difficult to pursue protective proceedings from abroad).

According to Dr Arkhangelsky, he was prompted to leave by warnings from a friend of a friend, the tenor of which was that Gen. Piotrovsky was reported to have given an order to arrest him and put him in prison.

In Dr Arkhangelsky’s own words (in his witness statement):

“Confronted with this information and the growing appreciation that if I remained in Russia I would probably be imprisoned, I decided that I had to leave Russia. I therefore travelled to Bulgaria via Vienna the next day. Julia was in France at the time and flew briefly back to St Petersburg before joining me in Bulgaria. Needless to say, leaving Russia only compounded the difficulty of pursuing legal proceedings there and protecting the remaining Group assets, but by this point my priority was my and my family’s safety.

We remained in Bulgaria until September 2009 when we moved to Nice. We chose Nice because we already owned an apartment there, which we had bought in June 2008.

Apart from a one-day trip to Moscow which I made on 20 July 2009, to meet with the chairman of Sberbank, German Gref, to discuss re-financing the Group, I have not returned to Russia. I have no doubt that if I were to travel there now I would be immediately imprisoned, or possibly even killed. Indeed, I was told by Mr Mikhail Nazarov, one of the lawyers representing me in Russia, that he met regularly with Lt Col Levitskaya who had advised him that if I dropped my complaints against the Bank and returned to Russia I would only serve a limited prison sentence of three to six months. However, if I did not return to Russia the Bank would arrange for me to be killed in France.”

The Bank rejected this version of the reasons why Dr Arkhangelsky left Russia as “an invention to support the conspiracy case”.

The Bank suggested a number of difficulties with Dr Arkhangelsky’s version, including that: (a) he actually left Russia to go on a family holiday in Bulgaria, which was their usual holiday place, (b) he apparently saw no difficulty in returning to Russia for meetings in July 2009, (c) he continued to maintain links with the Russian state and speak at Russian conferences, and (d) he also continued to seek to control his businesses.

In the light of these points, Dr Arkhangelsky somewhat modified his version to maintain that his decision to leave was not final really until late 2009.

The impression Dr Arkhangelsky eventually sought to create was that, after leaving St Petersburg, and having hoped for some months to persuade the Russian state that he was being victimised by ‘raiders’, he eventually, and reluctantly, concluded that the St Petersburg authorities and the Russian state were in it together, and by the latter part of 2009 had concluded that he and his family were in real danger and that there would be no realistic hope of safe return.

These rival versions are addressed further in the context of the conspiracy case and the Counterclaimants’ allegation as to official and state connivance in that conspiracy: see paragraphs [1075] to [1090] below.

For the present, all I need add as to the events in the summer of 2009 is that at about the time or in the wake of Dr Arkhangelsky’s departure from Russia, and in what, I have little doubt, he perceived to be confirmation of the warnings he had received, (a) Lt. Col. Levitskaya caused the opening (on 19 June 2009) of a criminal case in relation to LPK Scan in relation to alleged non-payment of VAT (a well-known tactic in cases such as this); (b) the Bank wrote to Gen. Piotrovsky on 15 July 2009 encouraging investigation of Dr Arkhangelsky for alleged fraud in connection with the Personal Loan; and (c) the very next day, there was a police raid at OMG’s headquarters, which Dr Arkhangelsky described in his 16^th witness statement on the basis of what he said was the eye witness account of Ms Lukina. On the basis of her account, he stated that the raid was personally attended by Lt. Col. Levitskaya with special forces claiming to be acting on the directions of Mrs Matvienko; and (so was his evidence):

“Nearly all the documents, computers and servers were removed. The offices of the Group’s lawyer, Mr Vasiliev, were also raided.”

Further, according to Dr Arkhangelsky, the July 2009 raids were challenged in the courts and held to be illegal. However, according to him:

“these decisions were ignored by the authorities and the majority of the documents, servers, computers and hard drives that were seized were never returned.”

It seems likely that another factor informing Dr Arkhangelsky’s decision to move his home and family away from Russia was the commencement in September 2009 of criminal proceedings against Dr Arkhangelsky for alleged fraud in connection with the Morskoy Bank loan, which I have mentioned above (see especially paragraphs [502] to [510] above), and which had already provided the alleged justification for the Bank’s active intervention in the affairs of Western Terminal, and (in part) the Gunard Lease (see paragraphs [577] to [581] above).

The basis of the complaint was an allegation of fraud. As previously indicated, the fraud alleged was that, when at the end of March 2009 Dr Arkhangelsky had procured the Morskoy Bank loan on the basis that he owned the company through OMGP, this was not the case because Sevzapalians, supposedly as 99% shareholder, had not authorised the loan. It apparently being a requirement of Russian corporate governance law that such consent be obtained, consent was obtained from OMGP, but not from the relevant Original Purchaser, Sevzapalians. It was alleged, on that basis, that Dr Arkhangelsky had sought to borrow on a knowingly false basis and on the basis of false or forged documents.

Dr Arkhangelsky’s case is that Sevzapalians’s consent was not required, as it was (as he perceived it) not a genuine shareholder but merely a ‘special company’ holding the

There are very curious features about the Morskoy Bank proceedings, both civil and criminal, and even more so as regards the extraordinary nature of the evidence compiled with the assistance of the Bank or its employees in its support: I shall return to this in the context of the conspiracy claim: see paragraphs [1091] to [1115] below.

But the following features may be noted here, since they are of particular relevance to the Bank’s position that it had nothing to do with the extradition request which was their ultimate result:

An immediate consequence of that finding against him and the request for his extradition was that on 14 May 2010 an International Arrest Warrant or Interpol ‘Red Notice’ was issued, and Russia applied for Dr Arkhangelsky’s extradition from France.

On 4 June 2010, Dr Arkhangelsky instructed French lawyers, and in particular Mr Ameli (see paragraph [92] above), to make a request for political asylum. This was submitted on 1 July 2010.

On 18 November 2010, Dr Arkhangelsky was initially arrested and imprisoned for two weeks until released on bail.

The extradition request was ultimately refused by the Investigation Chamber of the Court of Appeal in Aix-en-Provence on 10 November 2011. In its judgment, that court rejected Dr Arkhangelsky’s claim that the indictment was brought for inadmissible political purposes, but it upheld the other objections to it.

The court concluded that: (1) there were serious doubts with regard to the fairness of the criminal proceedings in Russia, (2) the indictment documents lacked proper particularisation and credibility, (3) extradition would disproportionately infringe his

It is Dr Arkhangelsky’s case that: (1) the Bank used its close connections to the political elite in Russia (especially through Mrs Matvienko) to manipulate the enforcement authorities to bring a fabricated case, (2) it was the Bank that thereby was the true instigator of the complaint, its adjudication and the extradition request which followed, and (3) it was and is the Bank that sought his extradition as part of the conspiracy he alleges: see further paragraphs [1075] to [1090] below.

The Bank entirely denies this. The issue is further addressed below in the context of the role of Mrs Matvienko and Mr Savelyev, and the conspiracy claim.

Pausing the chronology there (at the date that Dr Arkhangelsky’s exile was complete) I turn next to the various proceedings brought by the Bank to enforce their loans and their security (including for the arrest of vessels pledged). As foreshadowed in paragraphs [560] to [561] above, this was a long process, and so that I can also describe their result the next section spans a long period. Where judgment in the relevant proceedings was followed by recoupment out of cash funds, or where there was no extant security, I explain that in this section; but I think it is more convenient to deal in a further section with the intricate and even more protracted process of realization of pledged and other assets which later followed.

As to the First Vyborg Loan:

As to the Third Vyborg Loan:

In respect of the Fourth Vyborg Loan:

As to the First Onega Loan:

As to the 2008 LPK Scandinavia Loan:

As to the Personal Loan:

In addition to the OMG loans in respect of which the Bank makes its claim, OMG owed the Bank a large number of other sums under other OMG loans. While these other OMG loans are not part of the Bank’s claims in these proceedings, it is nevertheless necessary to consider them because: (i) the Defendants and OMGP accept that, to the extent their Counterclaim succeeds, they must give credit for OMG’s indebtedness to the Bank (“the group’s debts”) as a whole; and (ii) some of these loans concern the realisation of security over real estate at Onega Terminal, in respect of which the Defendants and OMGP make their Counterclaim.

The First and Second PetroLes Loans were secured by: (i) pledges over five lots of real estate at Onega Terminal owned by Scan; (ii) a Scan guarantee (in respect of the Second PetroLes Loan); and (iii) a personal guarantee from Dr Arkhangelsky (in respect of the First PetroLes Loan).

Five lots of real estate at the Onega Terminal were sold at public auction on 26 October 2009. The bidders were Russian bodies corporate called ‘Solo LLC’ (“Solo”) and ‘Kiperort LLC’ (“Kiperort”), both said by the Counterclaimants to have been part of the Renord-Invest Group. Solo was the successful bidder and paid in total RUB 207.3 million (including VAT). The Bank applied this to the sums owed under the First and Second PetroLes Loans.

As to this:

As to this:

The Bank also entered into three loans with Scandinavia Leasing, one of which was secured by a pledge over the ‘Pechora’. Certain sums are still owed.

On 1 February 2010, the Bank obtained judgment from the Petrogradsky Court against Scan, Scandinavia Leasing and Dr Arkhangelsky in the sum of RUB 152.9 million. The ‘Pechora’ was the subject of a finance lease between Scandinavia Leasing and Baltdraga, pursuant to which Scandinavia Leasing agreed to sell the vessel to Baltdraga in exchange for the provision of sums to the former. The Bank has not been able to realise any security under the ‘Pechora’ because of Baltdraga’s interest in the vessel.

I turn to the long process of enforcement straddling the period from 2009 through 2012. The key procedures in relation to these enforcement proceedings brought by the Bank were (as summarised by Ms Mironova) as follows:

All three vessels pledged as security (‘Gatchina’ (which was security for the First Vyborg Loan), ‘Tosno’ (which was security for the Second Vyborg Loan), and ‘Kolpino’ (which was security for the Third Vyborg Loan)) were sold at auctions for very substantially less than their valuation by Lair at the time of the relevant Vyborg Loan. Thus:

The sums recovered by the Bank in the insolvency process relating to Vyborg Shipping were very small.

Scan had a number of creditors. Scan filed for bankruptcy, and an administrator/receiver was appointed by the court in 2011. The Scan receiver arranged for Scan’s real estate assets at Pravdy Street to be sold by public electronic auction in August 2012. The auction is reported in the receiver’s report dated 24 October 2012.

As to the auction:

The auction was organised by the receiver appointed in respect of Scan. There is no allegation that the receiver was somehow involved in the alleged conspiracy. It was advertised and conducted electronically.

In cross-examination, the Defendants and OMGP appeared to challenge the auction on the sole basis that the Pravdy Street building should have been sold ‘as a whole’ rather than in six lots. This point has no substance: but I return to explain this in paragraph [1509] below.

All the land sales were through public auction under Russian law, discussed at paragraphs [1277] to [1304] below.

In summary, the process of realisation of five lots making up the Onega Terminal assets, and the Sestroretsk Assets, started in October 2009, was as follows:

Carrying forward in the history of the land at Onega Terminal, after its acquisition by Solo:

This sequence of steps ultimately leading to the purchase by ROK No. 1 Prichaly of the combined Onega Terminal land mirrored a plan set out in a document entitled the ‘stage plan’ (the “Stage Plan”). There is a dispute between the parties as to the purpose of the Stage Plan, as implemented. I address the Stage Plan, which the Counterclaimants contend, taken together with inexplicable features of the auction sales, unmasks the conspiracy they have alleged, in paragraphs [1332] to [1338] below.

Under the Fourth Vyborg Loan, those parts of the Western Terminal assets comprising berth SV-15 and a 73,000m² land plot were pledged to the Bank. The mortgage agreement agreed the value of the real estate for the purposes of the pledge to be RUB 1.286 billion.

At one point in the course of the trial, Dr Arkhangelsky floated the suggestion (for the first time) that the “intention of the parties” had been that the Western Terminal land plot pledged to the Bank, which had been registered with one cadastral number, was to be “split” into two, supposedly because the land plot was “excessive” security for the Fourth Vyborg Loan. This suggestion had never appeared in any pleading or witness statement of Dr Arkhangelsky. It was not seriously pursued and seemed to me inconsistent with the documentation. I do not accept it, and have proceeded on the footing that all of the plots registered with one cadastral number were intended to pledged.

The processes adopted for the realisation of the Western Terminal assets pledged to the Bank were on any view convoluted, and were preceded by the Gunard Lease arrangements, themselves curious and which the Counterclaimants allege were intended artificially to lower the value of the land. Further, there is an interplay between

These enforcement processes can be summarised as follows:

Not least since Kontur was the auction purchaser of Western Terminal and it and Baltic Fuel Group now control and operate its business and assets, the questions as to the ownership of Kontur and Baltic Fuel and the mode of their acquisition of the Western Terminal assets is of considerable interest: both are matters of substantial dispute especially in the context of the Counterclaim and I return to their peculiar features in greater detail in that context: see paragraphs [1226] to [1242] below.

The Arkhangelskys’ personal assets, namely an apartment, car parking space, and certain chattels comprising the contents of the apartment, were sold by the court bailiff. The chattels were transferred for sale on 20 October 2011.

The bailiff sold at public auction the following:

The particulars of debt due to the Bank as at 7 September 2015 in respect of the underlying loans for which the Personal Guarantees were given or for the Personal Loan, are set out in Schedule A to the Re-Amended Particulars of Claim.

The Bank calculates that as at 7 September 2015, the sums owing to it in respect of the loans in issue and for which the Bank claims against Dr Arkhangelsky are:

I turn to discuss in more detail the Bank’s substantive claims and Dr Arkhangelsky’s defence to them.

Leaving aside for the present the question of set-off if the Counterclaim is established, and despite the complexity and detail of the factual material as I have sought to summarise it above, the Bank’s primary claim is a relatively straightforward one against Dr Arkhangelsky for payment under the Personal Guarantees and the Personal Loan.

The Bank has secondary claims, brought also by Mr Savelyev, for declarations that neither it nor Mr Savelyev was party to any such conspiracy as the Defendants have alleged by counterclaim. They accept that declaratory relief is discretionary: but the Bank and Mr Savelyev maintain that such relief is the only means of clearing their names and reputation.

The Bank also claims against Mrs Arkhangelskaya for relief requiring her to account and turn over to the Bank assets which they allege she received from her husband otherwise than for full consideration and to defeat or delay the Bank’s claims.

The Bank’s primary claims raise the following principal issues:

Plainly issue (4) is the other side of the coin of the Counterclaim, save for the discretionary aspect. I therefore discuss it in that context rather than in the context of the Defence. I shall deal in turn with each of the other three issues.

The dispute as to whether Dr Arkhangelsky was required by the Bank to, and did indeed, sign the Personal Guarantees is the centrepiece of the Claimants’ principal claim.

The Bank makes its claims against Dr Arkhangelsky as guarantor under the following alleged agreements:

In addition, the Bank claims that Dr Arkhangelsky signed Loan Agreement 0035-0801759 (the Personal Loan).

As to the documents which Dr Arkhangelsky disputes:

In addition to his claims that each of the above 28 documents were forged, Dr Arkhangelsky also appeared to dispute other documents (such as internal OMG authorisations), but his case in that regard was never definite or defined: and it was not pleaded.

There is no dispute that the Bank extended to Vyborg Shipping, Onega, and LPK Scandinavia the underlying loans in respect of which its case is that Dr Arkhangelsky gave the Personal Guarantees.

The terms of each of the Personal Guarantees provided for the obligations under it not to cease to be effective until “after the Principal Obligation has been discharged in full.”

By Special Terms and Conditions (as so described) it was recorded and provided that the guarantor:

“agrees with the following changes in the Principal Obligation secured by this guarantee:

(a)

Changes of the interest rate and interest payment period (increase or decrease;

(b)

Changes in penalty amounts for late discharge of the Debtor’s loan repayment and interest payment obligations (increase or decrease);

(c)

Changes of the loan maturity period;

(d)

Changes of the Lender under the Principal Obligation.”

Dr Arkhangelsky’s pleaded case is that he did not sign the Personal Guarantees (or indeed the Personal Loan) and is not bound by any of them.

Until recently, he unequivocally denied that he had entered into such agreements and alleged that his apparent signatures had been forged by or at the instance of the Bank. This was his case also in the BVI Proceedings.

In his 16^th witness statement for trial, however, Dr Arkhangelsky stated that he had “no memory whatsoever of entering into or signing any of these guarantees, or the personal loan agreement, or any of the other disputed documents that have been considered by the handwriting experts”.

He set out the following reasons why “until recently” he was “sure that none of them could be genuine”:

On such basis, Dr Arkhangelsky says that previously he was “confident” that he had not signed such agreements and that they were “in all probability forgeries”.

However, in his 16^th witness statement, made shortly before and for the purposes of the trial Dr Arkhangelsky modified his evidence as follows:

“More recently, however, my attention has been drawn to a number of disclosed documents which refer to my having given or agreed to give guarantees to the Bank. I have no recollection of signing any of these documents either, but realistically, I recognise that the Bank is unlikely to have forged such a large number of documents merely in order to contextualise the original forged guarantees, and that it is possible that I did in fact sign the documents (albeit not at the signing ceremonies). Most of them belong to an extremely busy, difficult and stressful period of my life, when I would typically sign a large pile of documents every day that was simply given to me by a secretary. I was generally so busy that I would sign whatever documents my employees asked me to sign without reading them properly or even at all, on the assumption that documents would not have been prepared without my instructions or agreement.

That being the case, I have reconsidered whether I might also have signed the guarantees and the personal loan agreement. While I still have great doubts on the matter I have to accept that it is possible that I may have done.”

Notwithstanding the above, Dr Arkhangelsky says that he is:

“still convinced that the signatures on the addenda to the personal guarantees are not mine, and that neither is the signature on the instruction dated 28 November 2008 to transfer RUB 130 million to the account of Regata LLC at Energomashbank.”

Mr Stroilov, on behalf of Dr Arkhangelsky, his wife and OMG (whom I refer to in this part of this judgment as “the Defendants”), expressly acknowledged the hurdle they would need to overcome in terms of the inherent improbability that a lending bank would fabricate documents, and especially so many such documents. He further acknowledged that, as a matter of “common sense”, a defence based on forgery of such documents in circumstances of massive default would almost inevitably be met with a substantial degree of scepticism.

However, Mr Stroilov submitted that what he termed “these stereotypical assumptions” could and should be displaced in the circumstances of this case, in which, so he submitted (and I quote from the Defendants’ written opening argument):

The Defendants thus relied principally on circumstantial evidence and inherent probabilities; they portrayed the handwriting expert evidence as mainly inconclusive, and as lending little support to either side’s case.

The Claimants contend that the evidence shows beyond any real doubt, and certainly on a balance of probabilities, that Dr Arkhangelsky did sign the Personal Guarantees and Personal Loan, and the relevant additional documents.

The Bank relied not only on the “common sense” of the matter and the inherent improbability of it having engaged in such wholesale forgery, but also on:

The Bank maintained that its typical practice was to obtain personal guarantees from borrowers, especially in respect of large amounts, and that in this regard Dr Arkhangelsky was no different from any other borrower.

According to the Bank, while the ‘primary’ form of security for any loan was the pledged asset, the ‘secondary’ form of security would, though not invariably, typically consist of guarantees providing further security to the Bank: in particular, a personal guarantee was considered important and was ordinarily required because it showed the personal commitment of the individual behind the business to stand behind his business and repay any loan.

Ms Blinova, Ms Shabalina, Ms Kosova and Mr Belykh all testified that this was indeed the Bank’s standard practice.

Ms Volodina stated that the Bank:

“did not always require personal guarantees from the owners of corporate borrowers, but it was commonplace and not an unusual requirement, in particular when a customer asked for restructuring of facilities”.

Mr Savelyev expressly rebutted Dr Arkhangelsky’s allegation that Mr Savelyev told him the Bank would not insist on personal guarantees as untrue. Mr Savelyev’s evidence was:

“Mr Arkhangelsky says in paragraph 234(2) of his statement that at one of my ‘early meetings’ with him, I ‘specifically told [him] that the Bank would not insist on [him] personally guaranteeing the Group’s liabilities’. This is completely untrue. Not only were there no such meetings, but I never discussed with Mr Arkhangelsky the question whether he would have to give a personal guarantee. Mr Arkhangelsky’s allegation otherwise is a total fabrication.”

The Bank’s case is that Dr Arkhangelsky’s provision of personal guarantees for the loans which the Bank extended to OMG is not surprising, and that his contention that he would not have contemplated any such thing is contrived. Dr Arkhangelsky was the guarantor in other loan agreements with other banks.

Ms Shabalina recalled that she had mentioned the requirement for personal guarantees to Dr Arkhangelsky and that there was never any suggestion that Dr Arkhangelsky objected to or had not signed personal guarantees. But she could “no longer now recall” whether she saw him signing any such documents.

Indeed, of the Bank’s witnesses only Ms Blinova gave evidence of actually seeing Dr Arkhangelsky signing any personal guarantee.

Ms Blinova added to her evidence that it was standard practice for the Bank to require a borrower to give a personal guarantee for large loans: first, that she had prepared guarantee documents for the First, Second and Third Vyborg Loans; secondly, that she did not recall Dr Arkhangelsky or anyone else on behalf of OMG ever raising any issue as to the provision of such guarantees; and thirdly, that she recalled seeing Dr Arkhangelsky signing guarantees, although she could not now recall which particular guarantees. She explained that Dr Arkhangelsky would come to the Investrbank office to sign documents, but documents were also signed at the OMG offices and then returned quickly to the Bank. She added:

“…although I cannot now recall Mr Arkhangelsky signing particular guarantees in my presence, since he did sign in my presence standard documents that were needed for loans, I am sure that that must have happened. I do recall him signing at least one personal guarantee and one guarantee from Scandinavia Insurance in my presence, although I could not now (given the passage of time) identify the particular document - at the time, I was far more focused on the details of the mortgages or pledges that were offered. This is because the mortgages and pledges required coordination between the Bank and OMG. By contrast, I do not recall any issues being raised by OMG in relation to the guarantee.”

The impression I formed was that none of the witnesses, including Ms Blinova, had any clear and reliable memory of Dr Arkhangelsky having signed one or more particular guarantees; and that their evidence was more in the nature of assertion that as, to their knowledge, the Bank would have required a personal guarantee he must have done so.

This is in line with the evidence of Mr Belykh as follows:

“…from my meetings (referred to above) and conversations with Mr Arkhangelsky where we discussed OMG's business plans and financing needs, it is clear to me that Mr Arkhangelsky was not only familiar with OMG's borrowings with the Bank but was ultimately responsible for any decision by OMG to obtain a loan from the Bank. It would be inconceivable in my view that any OMG company would enter into a loan without Mr

Arkhangelsky's express approval of its terms, including the security to be provided. At no point in my discussions with him, or otherwise (as far as I know) when the OMG loans were agreed, advanced or renewed did Mr Arkhangelsky suggest that he had not provided the personal guarantees required under those loans that required them, in circumstances where he was aware of the terms of the loans. As such, the Bank had no doubt that Mr Arkhangelsky had provided the personal guarantees required.”

This was echoed by Mr Guz:

“I distinctly remember that in return for the loans OMG was seeking in 2007 and 2008, companies in the group were able to provide security and Mr Arkhangelsky was willing to provide personal guarantees. I cannot remember for sure whether this was discussed in any of my meetings with him, although I suspect it was probably mentioned in at least one of them, but the provision of such personal guarantees was entirely usual and I would certainly have been told (and would expect to have remembered) if there had been any problem with the provision of a personal guarantee by Mr Arkhangelsky.”

Any finding as to whether Dr Arkhangelsky did sign the Personal Guarantees must thus predominantly be based on circumstantial and expert evidence. This to some extent is in contrast with the position relating to the Personal Loan, where Ms Patrakova also recalls taking the documents to Dr Arkhangelsky and him signing the contractual documents in front of her.

The circumstantial evidence is substantial and includes a very large number of contemporaneous documents referring to the Personal Guarantees and Personal Loan. The evidential record includes many Bank resolutions from all levels (MKK, BKK, and Management Board), reports and OMG analyses, credit investigations and so forth, which expressly refer to Personal Guarantees and a Personal Loan.

The Claimants contend that, if Dr Arkhangelsky’s pleaded defence were right, then all such documents must have been created or tampered with in some way so as to refer to agreements which were not entered, and that this is simply not credible. But they also contend that parts of the documentation, and in particular, internal OMG Debt Schedules, “conclusively dispose of the forgery allegations”.

The internal OMG Debt Schedules, which were disclosed by the Defendants only in July 2015, appear to record the salient details of OMG’s borrowings from various banks, including the Bank. More particularly:

There is no doubt as to the authenticity of the OMG Debt Schedules; and there can be no real doubt that Dr Arkhangelsky was aware of them. For example, the September schedule was attached to an email dated 25 September 2008 from Mr Daniil Dubitskiy, OMG’s business development manager, to Mr Keith Parker in the OMG ‘London office’. Dr Arkhangelsky was copied into the email.

Under cross-examination, Dr Arkhangelsky acknowledged that he had seen at least the September schedule before, but he had no convincing explanation as to why the document recorded that he had given personal guarantees for OMG loans:

“Q. So it suggests, doesn't it, from this schedule, that you have given a personal guarantee for that loan? A. No.

Q. Why do you say that?

A. Because as far as I understood, this table was done by employees, not by their own record, because we haven't had any such record, but from the information the banks produced. So nobody [had] really been taking care and checking documents.”

I cannot accept this attempt at an explanation. I agree with the Bank that it is implausible because: (i) OMG itself drew up the schedule; (ii) OMG plainly had its own records of the details of the loans which it had received; (iii) Dr Arkhangelsky’s explanation necessarily relies on the Bank having ‘fabricated’ its records to show personal guarantees before the date of any alleged conspiracy; (iv) other banks must also have fabricated their records; and (v) such fabricated bank records must have been provided to OMG, and yet no one at OMG noticed the fabricated references to guarantees.

Likewise, I cannot accept Dr Arkhangelsky’s attempts to minimise the evidential significance of the documents by marginalising the status of those who had compiled it, suggesting that Mr Dubitskiy was not a “specialist in finance”, but a “low level, low quality employee”, and that he was “absolutely sure” that the “materials [were] being provided by the banks”.

I agree with the Bank that these points do not assist Dr Arkhangelsky:

The documentation itself also refers to the fact of personal guarantees. Thus:

Further, there is a record of Dr Arkhangelsky, as Director-General of GOM, signing the decision authorising Scan to give the Scan guarantee for the amendment to the First Onega Loan. This authorisation is not disputed. If there were no Scan guarantee, Dr Arkhangelsky would never have signed such an authorisation.

The Defendants’ last resort was to say that there are also Bank internal documents concerned with the underlying loans which do not refer to guarantees or are not otherwise consistent with the provision of the guarantees. They relied in particular on the fact that sometime in November/December 2008, Ms Mironova caused to be prepared a word document setting out calculations for the reserves and the security for the OMG debts, and an Excel spreadsheet listing the OMG debts, including the terms of the loans and the subject and value of various assets available as security. The spreadsheet does not list some of the Personal Guarantees. Ms Mironova said that this was a mistake: she was not cross-examined on this.

Mistakes or curiosities, the omissions do not seem to me to begin to outweigh the references above cited.

In addition to all this, the Scan Guarantee was also supported by a number of direct debit agreements between Scan (signed by Dr Arkhangelsky), the Bank and third party banks, pursuant to which in respect of the Scan Guarantee the Bank could recover monies from Scan’s account at those banks. In particular:

Dr Arkhangelsky struggled to find a plausible explanation under cross-examination; but notwithstanding Scan’s entry into the direct debit agreements, Dr Arkhangelsky first sought to dispute that he signed the Scan guarantee agreement to which each direct debit agreement related:

“A. I never signed guarantee documents. You are probably referring to these three-party agreements, or – these three-party agreements I could sign, yes, because I couldn't see any difficulties.

Q. Even though they referred to a Scan guarantee?

A. Yes, if they are referring to the documents which is not existing, what is the problem of signing that, if the Bank asks me to do so and if the Bank tells me that my loan would be cheaper for me?”

Thus, in relation to the Fourth Vyborg Scan direct debit agreement, his evidence was:

“Q. But your evidence is that it wouldn't really matter, because you hadn't signed the guarantee agreement; is that right? A. Absolutely.

Q. So you could deny subsequently that you had entered into the guarantee, although you had signed and sealed a direct debit agreement in relation --

A. Absolutely. Absolutely. As I explained you before, I've been quite flexible to an enquiry of the Bank, and they were explaining me that it would be more comfortable and more easy for them to handle my file, I could sign the documents which I was not considered to be an important documents. Like, for example, this three-party agreement.”

While Dr Arkhangelsky accepted that he did sign direct debit agreements for the guarantees as well as the GOM authorisations for the guarantees, he said he did so because they did not have any ‘legal consequences’. This is not easy to follow. He put Scan under a liability in respect of each Scan Guarantee.

Dr Arkhangelsky then fell back on an argument that he only signed the direct debit agreements to assist the Bank in establishing a documentary trail sufficient to justify it not making reserves, but that it was always understood that the documents were there for show and not for substance.

In his oral evidence, Dr Arkhangelsky referred to discussions with both Mr Savelyev and Mr Guz in which the Bank allegedly needed guarantees for the purposes of its reserves, as a result of which Dr Arkhangelsky said that he signed some agreements (such as direct debits), but not other agreements (such as the guarantees). The passages below illustrate the burden (and confusion) of his answers under cross-examination:

“Q. I think you said you had discussions with Mr Savelyev and Mr Guz -- A. Yes.

Q. -- to do with reserves?

A. Yes.

Q. And they told you what: just sign them and we will never see [sue] you on them; or --

A. No, no, no. What they'd been telling me, that there are standard sets of documents in the Bank, like the agreement you shown us today. That these documents, they done once by the Bank, by the legal department of the Bank, and all these contracts, loan agreements and so on, they should not be changed. So they do it on an automatic level, and then I don't need to sign guarantees as long as I am a big client, first of all; secondly, that most of the assets which belongs to me anyhow, or most of the assets are already mortgaged to the Bank, so everybody understood the lack of necessity. So what is the value to give a personal guarantee for billions if I don't have any assets -- personal assets, let's put it this way. So they said, okay, that I need to sign some strange documents like three-party agreements with the other banks, but as long as it's not having any consequences, any -- as long as it doesn't result in anything, so then it couldn't create a problem for anybody.

Q. So Mr Savelyev and Mr Guz --

A. Yes.

Q. -- told you that you could just sign direct debit agreements?

A. Yes.

Q. And, what, that you didn't need to sign any of the guarantee agreements?

A. Yes, absolutely, that was the agreement from the very beginning, from my first two meetings with Guz and Savelyev, that I would get loans without any personal or corporate guarantees.”

Mr Arkhangelsky then added:

“I am absolutely sure, and actually the Bank was quite clear on that, I mean that time, that we have our own files, our -- I mean OMG group had our own loan files and the Bank, they were manipulating the reserves in the Central Bank, and the Bank was producing their own in-house documents, and I've been told many times by Mrs Volodina, Savelyev, Guz, Belykh,

Shabalina, and afterwards, Mironova, that I should not intervene in their in-house work because they were telling me many times that they are manipulating the reserves and the Central Bank supervision and Central Bank regulation, and if they do their inhouse files the way they think it should be, then it would be less reserves, and loans to OMG group would be cheaper. So I've been quite reluctant to that, so I thought that they are big boys and they know if it's a bribe or if it's a corruption with Central Bank by the Bank of St Petersburg, or it's any other crime against shareholders, but it was not my case. My case was to develop my group of the companies and get loans at a comparatively cheap price. So that's why I was aware that they are fabricating documents for their own purposes. But as long as I was not a subject to -- and I was not involved any how in this, so I kept my eyes closed.”

These allegations of manipulation of reserves and criminal breach of banking and accounting standards, none of which the Defendants had ever made before and which later were adapted by Dr Arkhangelsky into a wider allegation that the Bank had “always been quite proud that they play games with”, and was able to and did ‘bribe’ the Russian Central Bank, were supported only by Dr Arkhangelsky’s assertion of “Knowledge. Knowledge. My knowledge”, and some suggestion that he had heard this from “Mrs Volodina, from Savelyev, from Guz and others…openly telling”. The allegations were not pleaded, and (except for a further short reference in paragraph [706(1)] below) I do not think it necessary to say any more than that there was no sufficient basis for their assertion.

In the present context of assessing whether Dr Arkhangelsky has any real answer to the Bank’s contention that the Direct Debit Agreements conclusively demonstrate that Dr Arkhangelsky agreed to and did commit Scan to the Scan guarantees, it may be noted further that:

A third tack taken by Dr Arkhangelsky was a suggestion that the agreements had no effect in any event because Scan’s accounts at these third party banks were, apparently, empty:

“A. I don't remember this particular document, but it might be the case that among thousands of documents which I signed for the Bank of St Petersburg, considering the necessity to have documents for the Central Bank regulation and the reserves, I could have signed that, considering the fact that it doesn't have any real obligations on me; it doesn't imply any obligations on myself or my companies.

Q.

But it does, doesn't it? You are signing on behalf of Scan Insurance. You are signing a right for various deductions to be made from a Scan Insurance bank account, aren't you?

A. Yes, but I can't see any problems, because all these bank accounts, they've never been in operation, so it was empty accounts and I couldn't see any problems or difficulties. And I was absolutely aware that, even if I signed such document, it would not have been really working.

Q. Each of these three documents refers to the Scan guarantee, doesn't it?

A. Maybe, yes.

Q. But when you signed these documents, were you not concerned that you appeared to be signing a document referring to a guarantee that, on your case, had never been entered into? A. No.

Q. You were not concerned?

A. No, because I've been asked by the Bank that they need such documents and they need such things to be formally done, even if the guarantee is not existing.

Q. Why would the Bank need a direct debit agreement executed if, in fact, they were never going to --

A. Because it's the easiest point to check for the Central Bank.

Q. Is your evidence that you weren't concerned about signing these direct debit agreements?

A. Direct debit agreements, no, because I was absolutely aware that it doesn't have any influences or any consequences afterwards. Especially on accounts which have never been in operation.

Q. So you were comforted by the fact that there would never be any money in these accounts which could then be debited?

A. No, theoretically they could be, but, you know, the rule, if they needed such agreements, formally it had to be done on all accounts the company has. So I couldn't see any difficulty to sign that, and that could be easily traced by the Central Bank, even if they can bribe -- if the Bank of St Petersburg can bribe Central Bank, but having any enquiries to these banks would create trouble for them. So I couldn't see any difficulties for myself to signing that, if the Bank of St Petersburg was asking me to do so.”

For comprehensiveness I should mention briefly a yet further tack adopted by Dr Arkhangelsky during his cross-examination: this was to float the suggestion, again unheralded in the pleadings or his 19 witness statements, but given some apparent substance by a passage in Ms Volodina’s witness statement (para. 63), that the Personal Guarantees were created as part of the restructuring of OMG’s debts in December 2008 because the Bank discovered that none was in place, resolved to make good the deficiency and then backdated and executed the relevant documents with a forged signature.

As indicated, there is some support for the suggestion in Ms Volodina’s witness statement, where she appears to place the identification of the need for guarantees in the context of the restructuring and states this:

“I recall that, in the context of the restructuring, the Bank required personal guarantees from Mr Arkhangelsky to be in place. I believe that this was considered to be necessary to show that Mr Arkhangelsky was acting in good faith and would stand behind the obligations of his companies.”

Mr Stroilov did not cross-examine Ms Volodina on this point, preferring presumably to rely on that evidence rather than query it. However, he did then cross-examine Ms Mironova on the relevant paragraph of Ms Volodina’s witness statement, as follows:

“Q. I’m not suggesting it is, but what Ms Volodina’s evidence suggests to me is that as of December 2008, some or all of the personal guarantees were missing, and then the Bank required for them to be put in place: isn’t that a fair reading of that evidence?

A. My Lord, I cannot tell how to interpret this evidence. Mrs Volodina should be addressed about this. But as of December 2008, all the loans with respect to which we had sureties [sic] from Mr Arkhangelsky, they were issued as at the time when the loans were extended, but certainly not in December 2008…

Q.

Ms Mironova, isn’t the truth that it was only at that point that you were told by your superiors that personal guarantees must be in place, and then you have arranged for them to be put in place and backdated, like a lot of other documents?

A. This is absolutely out of line with what happened…and this is confirmed by the fact that every loan agreement dating back to 2007 and 2008 at the very beginning, personal guarantees by Mr Arkhangelsky were clearly stated.

Q. And isn’t it the case that in that period, as part of putting all the documents in place, you caused Mr Arkhangelsky’s signatures on the alleged personal guarantees to be forged?

A. My Lord, the Bank never engaged in any forgery of any signature of Mr Arkhangelsky or any other gentleman.”

The propensity of the Bank to backdate documents in order, for regulatory and accounting purposes, to present as completed that which had been agreed in principle but not yet finalised, is apparent from the restructuring documentation itself. But for all the reasons previously identified, and despite some misgivings as to the reliability of the Bank’s oral evidence in this regard, I do not think that either Ms Volodina’s evidence or the other contextual matters are sufficient to establish the Defendants’ serious allegation of forgery, which would involve a finding of complete fabrication of so many documents. That conclusion is supported by a number of further considerations.

Though inconsistency is not of itself probative of either version, it is notable that in the various enforcement proceedings brought by the Bank against Dr Arkhangelsky and Scan in Russia in 2009 and 2010 (long before the proceedings in the BVI and then in this jurisdiction) Dr Arkhangelsky did not raise any issue as to the authenticity of the various Personal Guarantees, though he did contend (unsuccessfully in the event) that the signature on various of the Additional Agreements was not his.

Thus, for example, Dr Arkhangelsky defended the claims against him for repayment of the Fourth Vyborg Loan, the 2008 LPK Scandinavia Loan and the First Onega Loan not on the basis that he had not signed the original Personal Guarantee or that such a guarantee was fabricated, but on the basis that the original Personal Guarantee was void because of an alleged material change in the underlying loan obligation between the Bank and the primary borrower (for example, in respect of Vyborg Shipping, when the Bank increased the interest rate for the loan from 15.25% to 16.25% per annum).

The Claimants made the point (a fair one, as it seems to me) that if Dr Arkhangelsky had never signed any Personal Guarantee or Scan Guarantee, then once the Bank commenced proceedings in respect of such guarantees, it would be expected that his first reaction should have been one of shock, and his first objection should have been that he never signed any such documents. Dr Arkhangelsky never came up with a convincing explanation why that was not the initial reaction expressed by him or by his representatives on his behalf. In broad terms, he pleaded his absence from Russia and consequent loss of reliable contacts, faithless lawyers deaf to his instructions, pressure from “the Bank’s policemen” and ultimately that the proceedings in Russia were “unimportant”; but, in my view, none of these explanations carried conviction.

Although it was part of Dr Arkhangelsky’s case that he did not sign any of the relevant guarantees in this case that it was his practice never to give personal guarantees to any bank, there is evidence that he gave guarantees to a number of banks, including Svyaz Bank, Morskoy Bank and V-Bank.

In particular:

Thus, the available circumstantial evidence appears to me to be inconsistent with Dr Arkhangelsky’s assertion that he never gave any bank any personal guarantees, which I reject accordingly. That further undermines his case that he did not sign the Personal Guarantees.

Before turning to the expert handwriting evidence, I should note three short further specific points in relation to Dr Arkhangelsky’s pleaded position that he did not sign the Personal Loan.

The first is to note that in his 16^th witness statement for trial, he says:

“I note that the Memorandum refers to a personal loan having been made to me on or about 28 November 2008 in an amount of RUB 130 million, apparently expiring on 31 December 2008 but extendable for one year. I did not notice the reference to a personal loan at the time of signing the Memorandum and I have no knowledge of any such loan agreement, although as I explain below I accept now, in the light of all the disclosure that has recently come to light, that it is possible that I did sign such a document.”

Secondly, and as with the Personal Guarantees, a large number of documents, in addition to the Memorandum itself, refer to the Personal Loan. For example, on 19 December 2008 Ms Blinova emailed OMG, copying in Dr Arkhangelsky, referring to its upcoming repayments, and in particular specifying the Personal Loan. She reminded him on 26 March 2009 that a further mortgage over the Western Terminal assets, which had been proposed for the extension of the Personal Loan, had yet to be finalised. Other documents show the Bank arranging with OMG the security in respect of the Personal Loan.

Thirdly, it is of interest that in the Russian proceedings to enforce against the Personal Loan, Dr Arkhangelsky admitted he received the sum, but alleged that it had been removed from his account without his consent.

I turn to the handwriting expert evidence, with the initial acknowledgment on my own part that what at the early interlocutory stages of the proceedings before trial I envisaged as being central in the disposition of the claim, and engendered a great deal of interlocutory heat and expenditure, was eventually revealed to be somewhat peripheral, and in the end, either undisputed or inconclusive.

Indeed, ultimately, Dr Arkhangelsky eventually appeared to concede that he could have signed the relevant documents, although he did not withdraw his pleaded case that they were forgeries, and in his oral evidence occasionally sought to resurrect that case.

I consider that I should nevertheless to describe the parameters of the dispute, and summarise the difficulties that have surrounded its exegesis.

The Claimants instructed Dr Giles and the Defendants instructed Mr Radley as their respective experts on the examination of documents and handwriting. Each has more than 30 years’ distinguished experience in the field and is well known to and highly regarded by the courts in that context.

Dr Giles provided three reports for trial dated 25 April 2012, 10 February 2014 and 22 July 2015 respectively. The elongated time frame reflects not only the tortuous process prior to trial, but also the delays on the part of the parties in reaching sufficient clarity as to what documents were in dispute and what comparators could be agreed.

Mr Radley provided one statement, dated 21 August 2015. However, the Defendants had previously instructed another expert, Mr David Browne (“Mr Browne”), another well-known expert, whose report dated 11 February 2014 was also in evidence. Mr Browne was replaced as the Defendants’ expert by Mr Radley with my permission in 2015 in light of the Defendants’ concerns that Mr Browne may have adopted a flawed methodology in selecting comparators.

Dr Giles and Mr Browne also produced a Joint Statement dated 28 March 2014 after a meeting between them on 12 March 2014. This too was in evidence.

There were originally 28 documents allegedly signed by Dr or Mrs Arkhangelsky which they denied signing and which thus were in dispute, to which were later added 11 Scan guarantees and other agreements which were disputed by the Defendants. These became known as the “‘File A’ documents”.

To assess the issue of their authenticity a number of originally agreed ‘comparators’, known as the “‘File B’ documents” were provided and examined; but on 2 April 2015, the Defendants said that documents [B1]-[B8] should be excluded from the expert analysis because the Defendants no longer accepted them as genuine, and instructed their expert, Mr Radley, not to consider them.

A large number of other documents showing the Defendants’ signatures were in “File C”. File C contained 47 documents which the Defendants identified they could potentially have signed, but which they were not prepared to accept that they did sign.

On 2 April 2015, the Defendants produced a further set of documents, known as “File F”. The Claimants were, in effect, prepared to include these documents as comparators.

At the height of this dispute as to the comparators, in early May 2015 the experts produced an agreed memorandum. It said:

“Dr Giles understands that Mr Radley has been instructed by Messrs Withers to disregard the eight comparator documents [B1]-[B8] in his examinations as these are not accepted by his clients as genuine. The signatures on documents [B1]-[B6] are the only long form Arkhangelsky signatures which have been included as comparators. The removal of these particular signatures [B1-B6] means that there will be no signatures of this type available for comparison.

The additional documents now produced in File F contain examples of the short form of signatures used by Mr Arkhangelsky (previously identified as not genuine by Mr Brown) and recent signatures. If the comparators are restricted to signatures [B9]-[B16] and [B21] along with File F documents this will mean that the only signatures available for comparison are either in the short form, in the Identity Card type form or recent signatures. The recent signatures of Mr Arkhangelsky do appear to be different from those from the relevant period in 2008 and 2009 and are, therefore, of no assistance to us.

Dr Giles is not convinced that this restricted group of comparators [B9-B16, B21 and File F represents the true range of variation to be found in Mr Arkhangelsky’s signature at the relevant time. We are both aware, having had forty years of experience in the forensic examination of signatures, that it is not uncommon for comparators to be manipulated in an attempt to mislead the expert either into reaching an incorrect conclusion or from being able to reach any conclusion at all. We emphasise that it is essential to this examination that a complete range of undisputed signatures of Mr Arkhangelsky covering all the forms of his signature from the relevant period should be available to both of us for comparison and these documents would have to be acceptable to both parties. In the absence of such an agreed set of undisputed comparators it will be impossible for us to try to reach any sensible conclusion regarding the questioned documents. Even with further known writings, a meaningful opinion on this type of very basic signature (which must be regarded as susceptible to simulation) cannot be guaranteed. The quality and quantity of appropriate comparison material will be of significance in this regard.”

Both experts agreed, therefore, that the simplicity of Dr Arkhangelsky’s admitted signatures made it at once easy to forge and yet difficult to establish whether it was forged, at least without admitted comparators of quality and in quantity.

On 24 June 2015, the Defendants’ solicitors referred to 17 further documents from the Claimants’ disclosure which were signed by Dr Arkhangelsky, but which they said they were considering with Dr Arkhangelsky to see “which additional documents may need to be added to the ‘disputed’ list”.

Even at trial there remained an unresolved dispute between the parties as to the set of ‘agreed’ comparators.

I have rehearsed this tortuous (“chequered” as the Claimants put it) course of the disputes between the parties as to what should be taken as the comparators for the exercise concerned for two more substantial reasons than a recording of the unsatisfactory and ultimately inconclusive interlocutory battles. The first reason is that the consequence of the failure to bring finality to an approved list of comparators has inevitably reduced the reliability and value of the expert analyses and evidence. The second reason is to provide the context for the Claimants’ allegation that Dr Arkhangelsky’s prevarication in agreeing comparators has been deliberate and intended to frustrate the expert analysis, and the Defendants’ counter-allegation that it was the Claimants who sought to tie the exercise to an inappropriate selection of comparators and then refused to engage in an effort to obtain more reliable comparators from independent third parties, and insisted on using documents held by the Bank. That second issue could be of material relevance both in the assessment of credibility, and in assessing the Counterclaimants’ allegation that the Claimants fabricated the guarantees as part of the conspiracy against them: and see paragraphs [903] to [908] below.

In her 2014 report, Dr Giles found “strong positive evidence” that Dr Arkhangelsky signed the following:

Dr Giles found “positive, albeit weak evidence” that Dr Arkhangelsky signed a previous (September 2008) Additional Agreement to the First Onega Personal Guarantee.

She noted that the Personal Loan contained a number of signatures, including those in the ‘agreed comparators’, but also a “simplified form” which appeared on other documents. Therefore, she found “positive, albeit weak evidence” that Dr Arkhangelsky also signed:

Dr Giles considered that there was “only weak” evidence that Dr Arkhangelsky signed Additional Agreement No. 2 to the Personal Loan.

In respect of the four Additional Agreements to the Vyborg Personal Guarantees, she described her findings as “inconclusive”.

Dr Giles’s analysis of the Scan guarantees proceeded on a different set of ‘agreed comparators’ which removed documents [B1]-[B8]. Dr Giles found “positive, albeit weak” evidence that Dr Arkhangelsky signed the First Onega Scan guarantee. As to the signatures on the Vyborg Loan Scan guarantees, the evidence was “inconclusive”.

In relation to other questioned documents, concerning Scan guarantees in respect of OMG loans not in issue in the proceedings, her findings were “inconclusive”, save for the Scan guarantee to the 2007 LPK Scandinavia Loan where there was “positive albeit weak” evidence that the signature was genuine.

In her 2014 report, Dr Giles found that there is “strong positive evidence” that Mrs Arkhangelskaya signed:

In respect of the Loan Agreement with Dr Arkhangelsky, she considered that the evidence is “inconclusive”.

Dr Giles considered that there was “strong positive evidence” that Mrs Arkhangelskaya did not sign any of the four consents to the Vyborg Loan Personal Guarantees, or the consent to the Personal Loan. Dr Giles noted, however, that these signatures:

“…take a form consistent with these being attempts by Vitaly Arkhangelsky to produce a simulation of the signature of Julia Arkhangelskaya.”

Dr Giles commented on the change in comparators as follows:

“The range of signatures now comprising the “agreed comparators” is more restricted than used in my previous examinations.

The previous “agreed comparators” [B1] – [B6] are similar to the signatures on the questioned Suretyship Agreements dated 17th April 2008 [A36] and 28th March 2008 [A39] and on the Contracts of Guarantee [A32, A33 and A35]. I found strong positive evidence to support the view that these signatures [B1 – B6, A36, A39, A32, A33 and A35] were all written by a single individual.

This group of signatures [B1 – B6, A36, A39, A32, A33 and A35] are similar to signatures on a number of other documents which I have examined in this matter, including a Loan Agreement dated 28th November 2008 [A21] which also bears signatures in a style similar to that of a number of the “agreed comparators” now provided.”

Further, in relation to the Personal Loan, in addition to her comments in her 2014 report, Dr Giles made the following observations in respect of the change in ‘comparators’ which Dr Arkhangelsky had sought:

“…the signatures on the Loan Agreement dated 28^th November 2008 [A21] are of two types: signatures on the first page and on the signature page of this document [A21] are of the more complex form seen on the other documents listed above, but the remaining signatures are of the simple form seen on the File F documents.

If all of the signatures on the Loan Agreement [A21] are simulations then the person producing the simulations has done so in two different forms on the same document. Further, the more complex of these forms is a form of signature which apparently is never used by Mr Arkhangelsky.

The simple forms of signature on the Loan Agreement [A21] are consistent with being a genuine signature of Mr Arkhangelsky, albeit the possibility that these are simulations cannot be excluded. However, if these simple signatures [A21] are indeed simulations they would be derived from the simple style of Mr Arkhangelsky’s signature as seen on the documents in File F. This begs the question as to how the more sophisticated signatures on the first page and the signature page of this document have come into being since it is difficult to explain these signatures by means of simulation and there is, based on the “agreed comparators”, no feasible model for this signature.

I have remarked in my report dated 10th February 201[4] that a more credible explanation of the form of signatures on this Loan Agreement [A21] is that the simple signatures are a form of initialling as compared to the more complex signatures applied to the first page and as the main signature on the signature page. This situation would be more likely to occur in a genuine document than in one which bore simulated signatures. If this explanation were to be accepted then it would follow that the “agreed comparators” now provided do not demonstrate the full range of variation in Mr Arkhangelsky’s genuine signatures.”

Mr Radley, who as explained above was instructed not to consider documents [B1][B8], identified five styles of Dr Arkhangelsky’s signature. His view is that all the disputed signatures are of a “very basic nature”, and due to their variability, “susceptible to being copied pictorially”. He finds that one style, “Style 5”, is different from the comparison materials.

On his analysis, as regards Dr Arkhangelsky:

As to Mrs Arkhangelskaya, in his opinion:

The expert evidence was thus, in broad terms, inconclusive and undoubtedly rendered less reliable by the lack of comparators of the longer form of Dr Arkhangelsky’s signature.

I accept and find that it was the Bank’s usual practice to require personal guarantees in the case of corporate borrowings, and I reject Dr Arkhangelsky’s suggestion that the Bank through Mr Savelyev (or anyone else on its behalf) agreed to and did depart from that practice in this particular case.

I accept that there is every good reason for such a requirement to bring home and personalise the risk of borrowing large sums by bodies given the benefit of limited liability, and that the fact that Dr Arkhangelsky’s wealth apparently lay in the companies themselves was no reason to depart from it. Indeed, the fact of personal liability may also be calculated to deter or discourage the controllers of companies from contriving to take moneys out of the borrowing companies whereby to diminish recourse.

I also accept the evidence of the Bank’s witnesses as outlined above that the requirement for personal guarantees was made expressly clear to Dr Arkhangelsky, who cannot have been surprised given that, according to his own lawyer, Mr Ameli, his arrangements with other lenders also appeared to include them.

As to the Scan guarantees, intra-group, inter-company guarantees are common-place and have an obvious commercial rationale. Further, the fact that they were entered into by Dr Arkhangelsky on Scan’s behalf is further and even more strongly supported by the arrangements made for direct debit arrangements which are premised on their existence and which Dr Arkhangelsky admits to having signed, and by the authorisation signed by Dr Arkhangelsky for the First Onega Loan.

In these circumstances, I consider that I should proceed on the basis that the burden is on Dr Arkhangelsky to demonstrate that the personal and corporate guarantees apparently signed by him and prima facie authentic were not so. In my judgment, Dr Arkhangelsky has failed to discharge the burden of demonstrating that the signatures on the relevant personal and corporate guarantees are forgeries and not his own. Indeed, I consider it is plainly more likely than not that the signatures are his own.

This conclusion accords with my general impression of Dr Arkhangelsky as a buccaneer, “the “ultimate chancer” as the Claimants put it, whose confidence in his own abilities and determination to succeed caused him to take on risks that he did not contemplate would eventuate and which were the necessary price of raising the enormous sums that he borrowed from the Bank (and others also). Further, he is not a man for painstaking detail or care: it would be quite in character for him to have either signed the relevant documents without regard to their effect if the worst transpired, since he would have regarded that as remote, or even without regard to their content, so long as the immediate objective of bank lending was secured.

I also suspect that Dr Arkhangelsky persuaded himself early on that he had been wronged by the Bank and Mr Savelyev, and the other parties to what he perceived then to be a conspiracy to rob him of his corporate empire, and that he was justified in using any tactic or device to prevent them completing the robbery.

In the case of the Personal Loan, plainly on any footing Dr Arkhangelsky’s signature was required. I am in no doubt that it was provided. I accept the Bank’s evidence and find that Dr Arkhangelsky desperately needed the money to cover OMG payments due at the end of November, and a personal loan was recommended to him by the Bank as the quickest and most efficient way of achieving this: and see paragraph [288] above.

I am also satisfied and find that the contemporaneous evidence shows that Dr Arkhangelsky did sign, and was aware of, the Personal Loan:

Mr Stroilov, relying on Dr Arkhangelsky’s oral evidence that any signatures were accidental, sought to persuade me that Dr Arkhangelsky, if he had signed any of the documents at all, had only done so “unintentionally as part of a large heap of documents he had to sign.” I do not accept this. Not only did the suggestion seem empty, but it is also, to my mind, was contradicted by the contemporaneous documents referred to above, and especially by the OMG internal debt schedules prepared by OMG employees, of which I find Dr Arkhangelsky must have been aware.

The Claimants urged me in those circumstances to find further that Dr Arkhangelsky had always appreciated that he did sign the relevant documents, and his case to the contrary in all its guises and various jurisdictions was a contrivance, deploying a gambit oft-used by borrowers at the time. Professor Guriev agreed with the Bank’s expert Mr Turetsky that:

“…there was abundant practice during the financial crisis amongst security providers to challenge the provision of security, especially if such security was provided by entities other than the borrowers themselves. Grounds for challenging security included absence of corporate approvals, forgery, absence of corporate benefit, missing co-signatures from the chief accountant, third party rights to the property, absence of legal title to the property, and so on.”

I suspect the truth to be that Dr Arkhangelsky, who (it is my impression) is not focused on details or paperwork, and whose general world view, with himself at its centre, does not focus on any peripheral detail, could not (at least initially) remember, and gradually convinced himself that he was being victimised and that it was fair for him to take the benefit of the documentary doubts.

In this and other contexts, I suspect that Dr Arkhangelsky convinced himself that in the ‘war’ a certain carelessness as to the true position was commonplace, justified and necessary to correct what he had convinced himself was an unfair and manipulated imbalance between borrower and lender, especially having regard to his perception that there were also malign and self-interested political influences in play against him.

In my assessment, that may explain why he did not originally deploy the forgery allegation in his case in the Russian courts, and why (as submitted by the Claimants) he appears to have manifested no shock or surprise when the Bank commenced proceedings to enforce the guarantees. The allegation was part of his armoury and he deployed it when it became necessary, without any real or careful deliberation as to its truth. That is not honest.

Not until the accumulation of evidence against him, and after extensive prevarication in the choice or acceptance of comparators, did he accept (though not unequivocally) that he might have signed the disputed documents, or some of them, mistakenly; and his efforts to resuscitate his case of forgery under cross-examination confirmed me in my feeling that by then it was an expedient adopted in the knowledge that it was without feet in fact, and dishonest accordingly.

I suspect that Dr Arkhangelsky did not want the matter to be put to unequivocal test and that this fuelled the dispute as to comparators, which ripened into a familiar interlocutory pattern of intransigence. However, I find it difficult and ultimately unnecessary to determine whether the drawn-out dispute as to the comparators was a deliberate tactic on the part of Dr Arkhangelsky, or when it became so. In view of the Claimants’ own reluctance to permit further comparators in documents entered into with an independent third party, neither side comes out untarnished. I prefer to reach my decision on other grounds.

At trial, Dr Arkhangelsky’s oral evidence in relation to the Personal Guarantees and the Personal Loan persuaded me only that Dr Arkhangelsky at one and the same time appreciated the danger, in terms of its potential impact on the court’s assessment of his credibility, of abandoning his case on forgery, but also the weakness of his case in seeking to maintain it. He veered from absolute denial of signature to grudging acceptance that perhaps he might have signed accidentally, and back again. He was consistent in nothing but inconsistency.

His resort to unpleaded allegations, such as that the guarantees were contrivances to help the Bank manipulate its reserves, smacked of desperation and not conviction or substance; and his suggestion that the documentation was never intended to be given any legal effect and was signed for show did not impress me as even potentially plausible.

Similarly, his efforts to deny that the OMG debt schedules were reliable by depicting his own employee (Mr Dubitskiy, OMG’s business development manager) as a “low level, low quality employee”, confirmed the impression of someone prepared to throw in any accusation or excuse to deflect a straight question and avoid a straightforward admission, relying (in effect) on the proposition that, such is the scale and extent of corruption in Russia, and the participation or connivance of enforcement officers and others in it, anything is possible.

It was clarified during the trial that the authenticity and validity of the spousal consents was not, under the relevant Russian law, a pre-condition of the enforceability of the Personal Guarantees or other arrangements to which they related. Rather, the importance to the Bank’s case of the spousal consents was the submission that, if Mrs Arkhangelskaya signed the spousal consent to which a Personal Guarantee relates, then it must follow that Dr Arkhangelsky himself signed the Personal Guarantee for which it was given, there being no credible reason why Mrs Arkhangelskaya would have signed the spousal consent unless her husband had asked her to do so, which he only would have done had he signed.

The Bank relied on the documentation as it appeared to be, and on what it claimed to be its standard practice. This, as set out in its internal regulations, was to require a spouse to provide a spousal consent in relation to each personal guarantee (although, as referred to above, this was not a legal requirement).

Mrs Arkhangelskaya denied ever having signed any such document. As in the case of the evidence regarding the signing of the Personal Guarantees themselves, the direct evidence that Mrs Arkhangelskaya herself signed such spousal consents is weak.

For example, there is no documented record of signature separately from the documentation, such as might be expected in an orderly bank. Further, the Bank’s witnesses were hesitant in claiming any real memory of Mrs Arkhangelskaya having signed. While such consents should strictly have been signed in the presence of a member of the Investrbank staff, the evidence was that in reality that did not always happen in the case of Mrs Arkhangelskaya. Ms Blinova explained:

“I remember Mrs Arkhangelskaya coming to the Bank to sign documents but since she was the wife of one of Investrbank's most important customers and because we trusted Mr Arkhangelsky, Investrbank was sometimes willing to receive documents that were sent by her or on her behalf which contained her consent (so as to be helpful and for the Arkhangelskys' convenience). For the consents that I countersigned saying that the declaration was made in my presence, I cannot now be sure that Mrs Arkhangelskaya did sign each of the individual spousal consents in front of me. I am sure, however, that in respect of any personal guarantee, spousal consents were sent to Mr Arkhangelsky's office at OMG and even if Mrs Arkhangelskaya did not sign them personally at the Bank then the documents certainly came back signed in the name of Mrs Arkhangelskaya.”

Against that, Mrs Arkhangelskaya was adamant that she had never, consciously at any rate, signed such a consent. Her presented demeanour was one of shock at the very thought. For example, in relation to the first Vyborg consent, she said:

“For 310 million? You must be kidding, sir. That is a guarantee using my money. I did not have such funds at that point in time. How could you guarantee something with the funds you haven't got?”

Similarly as to the Third Vyborg consent:

“Well, because this involves a large amount of money and it is generated by BSP and it is my personal guarantee, I think, so I do not know whether I signed this or not. I must have seen this some time in the past, but I do not recall signing this.”

However, she also acknowledged that she sometimes felt she had to sign documents for the purpose of her husband’s business or simply because her husband required her to do so. She accepted that she knew that the Bank was lending significant sums to OMG companies, and that she provided the Bank with her own details. Mrs Arkhangelskaya told me that she never really questioned her husband’s business activities. She accepted that she sometimes had to sign documents at 3am:

“Sometimes I simply have to trust him.”

Once again, the disputed issue whether Mrs Arkhangelskaya did sign spousal consents depends for its resolution on her own evidence and circumstantial and expert evidence.

The assessment of Mrs Arkhangelskaya’s own evidence is more than usually difficult because (as it seems to me) her shock and horror at her and her family’s predicament is transparently genuine, and her belief that she simply cannot in all sense and reason have signed documents which appear to have increased their exposure is, by now, deeply ingrained.

I think this is why she demonstrated a certain truculence in the witness box, which may well also have been the product of depression and anxiety; and an evasiveness and refusal to commit to an answer which may simply reflect her fear that she is caught up in something she does not fully comprehend or accept, in which she is terrified of further prejudicing her young family, and from which she can find no safe exit.

I have considerable sympathy for Mrs Arkhangelskaya in her predicament and in her concerns for her young family. However, my assessment is that at the time of the relevant events in 2008 she neither knew nor wanted to know quite what her husband was up to; and she rather blindly deferred to his requirements. In reality, I do not think Mrs Arkhangelskaya has the faintest idea whether or not she signed these consents.

I think it more likely than not that she did; but if I am wrong about that, I consider it far more likely that Dr Arkhangelsky mimicked or simulated her signature than that the Bank did. That is indeed the possibility canvassed and to some extent supported in the expert evidence, at least as regards the four spousal consents relating to the Personal Guarantees for the four Vyborg Loans. In that regard:

I find further that Dr Arkhangelsky’s evidence that he had never seen any of the spousal consents was untrue, and calculated to seek to neutralise the obvious logic that if she or he had signed spousal consents to the guarantees he must also have agreed to the Personal Guarantees themselves. That finding further supports the conclusions I have reached above, both as to whether he signed the relevant documents and as to his true state of mind.

I accept that the Bank was lackadaisical in its approach in respect of the relevant documentation, probably because it too regarded the primary security for the borrowings as having a value well in excess of its exposure, and the guarantees as being more than a salutary reminder to the borrower rather than a reliable source of recourse. The lack of proper or comprehensive records, and the lack of direct evidence of actual signature, left it open to the hackneyed but reckless defence to which Dr Arkhangelsky resorted. This is particularly surprising given the sums involved and its own evidence to the effect that in Russia borrowers habitually do resort to any available tactics to defeat or delay claims for repayment.

However, even if the Bank may have contributed to its exposure by its own carelessness, that is ultimately beside the point: the documents were signed by Dr Arkhangelsky, for himself in the case of the Personal Guarantees and the Personal Loan and on behalf of Scan in the case of its guarantees, and he and Scan respectively became bound by them. I so find.

The evidence in relation to the additional agreements apparently entered into (according to their date at least) in late December 2008 in order to reflect the restructuring of the principal sums is less strong circumstantially, and inconclusive according to the expert evidence. Dr Arkhangelsky denies that he entered any additional agreements in relation to any Personal Guarantee or the Personal Loan.

Although framed as a denial, the burden was on Dr Arkhangelsky to demonstrate that what appeared to be his signatures on the additional agreements were not placed there by him and are forgeries accordingly. I do not consider that Dr Arkhangelsky carried that burden. Indeed, in all the circumstances of denials in respect of the original agreements that I have concluded were plainly false, and having closely observed Dr Arkhangelsky under cross-examination, I consider that on the balance of probabilities Dr Arkhangelsky did sign the additional agreements, just as in my view he plainly signed the original guarantees.

Accordingly, I find that Dr Arkhangelsky remained bound as a guarantor in respect of the relevant loans, as did Scan, notwithstanding the alterations of the underlying indebtedness effected in late December 2008 and early 2009.

Further, I accept Professor Maggs’s ultimately unchallenged evidence of Russian law to the effect that under that law, if the Personal Guarantees in their original form were binding on Dr Arkhangelsky, then they would remain binding on him even if an amendment was not signed by or on behalf of Dr Arkhangelsky.

If the underlying loan agreement was itself amended, which is the case here, then the guarantor’s liability would depend on whether he had given the relevant consent to the change in the guaranteed obligation, which would be required if there was an increase in liability or other unfavourable consequence for the guarantor.

On the basis of my conclusion that Dr Arkhangelsky signed and remained bound by the Personal Guarantees and the Personal Loan, it is strictly unnecessary to adjudicate the Russian law arguments which the Bank advanced with the objective of demonstrating

Given that my conclusion is based on findings of primary fact after a detailed exegesis at trial, it might be hoped to be excessively cautious to address arguments which are only in point if such findings were to be reversed. In any event, having found as a fact that Dr Arkhangelsky did sign the disputed guarantees and the Personal Loan, I do not think it appropriate to enter into a discussion as to what would be the position under Russian law if the signatures were not his but the signatures of an attorney or other person authorised by him or whose act was subsequently ratified by him.

However, out of an abundance of caution and since it is an issue of fact, I shall briefly address what, in my view, would be the position under Russian law if (contrary to my findings) there was no binding agreement at all between the Bank and Dr Arkhangelsky in relation to the Personal Guarantees or the Personal Loan.

In those circumstances, the Bank submits that it would have a claim against Dr Arkhangelsky under the general torts provision in Article 1064 of the Russian Civil Code (“Article 1064” and “RCC”) for the loss it has suffered.

Article 1064 provides as follows:

“Article 1064. General Bases of Liability for the Causing of Harm

1.

Harm caused to the person or property of a citizen and also harm caused to the property of a legal person shall be subject of compensation in full by the person who has caused the harm. A statute may place a duty for compensation for harm on a person who is not the person that caused the harm. A statute or contract may establish a duty for the person who has caused the harm to pay the victim compensation in addition to compensation for the harm.

2.

The person who has caused the harm is freed from compensation for the harm if he proves that the harm was caused not by his fault. A statute may provide for compensation for the harm even in the absence of fault of the person who caused the harm.

3.

Harm caused by lawful actions shall be subject to

compensation in the cases provided by statute.”

The elements of a claim under Article 1064 were summarised as follows by Andrew Smith J in Fiona Trust v. Privalov [2010] EWHC 3199 (a case in which the Bank’s expert in these proceedings, Professor Maggs, also gave evidence) at [94]-[95]:

“[L]iability under article 1064 requires (i) harm, (ii) causation, (iii) fault and (iv) unlawfulness... There is no significant issue about what constitutes fault or unlawfulness for the purposes of article 1064. The defendants pointed out, and I accept, that, while intentional actions that cause harm are unlawful (unless permitted by a legal provision), payments made in legitimate business transactions are not unlawful, and a person cannot be said to be at fault on that account. However, it is not disputed that the requirements of fault and unlawfulness would be satisfied if the claimants succeeded in establishing dishonesty, the sole basis upon which they pursue the claims. The significant issues about article 1064, if Russian law applies, concern the requirements of harm and causation.”

In my judgment, if (contrary to my findings) the Bank proceeded without obtaining signed personal guarantees, it has only itself to blame and no claim would lie under Article 1064 because nothing that Dr Arkhangelsky did was causative of loss, unless it was induced to believe that Dr Arkhangelsky had indeed signed such agreements though in fact he had not. In the latter case, a claim would lie under Article 1064.

In respect of the Personal Loan, the Bank also makes a claim against Dr Arkhangelsky for unjust enrichment under Article 1102 of the RCC (“Article 1102”).

This provides:

“Article 1102. The Duty to Return Unjust Enrichment

1.

A person who, without bases established by a statute, other legal acts, or a transaction, has acquired or economized property (the recipient) at the expense of another person (the victim) shall have the duty to return to the latter the unjustly acquired or economized property (unjust enrichment), with the exception of the cases, provided by Article 1109 of the present Code.

2.

The rules provided by the present Chapter shall be applied regardless of whether the unjust enrichment was the result of the conduct of the acquirer of the property, the victim himself, third persons, or occurred against their will.”

Insofar as the Bank paid sums to Dr Arkhangelsky in the mistaken belief that he had entered into the Personal Loan, and he has been unjustly enriched by receipt of RUB 130 million, then I accept that under the RCC he would be liable to return the proceeds to the Bank pursuant to Article 1102.

That disposes of the first element of the Bank’s claim, in the Bank’s favour.

The question then is whether the Bank was entitled to enforce and call defaults when it did, or whether Dr Arkhangelsky can establish his case that Mr Savelyev promised, and the parties made, a legally binding agreement (what the Defendants describe as the “Moratorium”) in December 2008 that the Bank would not require payment of capital or interest under any of the loans until (at the earliest) the end of June 2009. This issue as to whether or not any such Moratorium was promised and/or agreed is relevant in a number of contexts.

The first context in which the issue is relevant is whether the Bank was entitled to call a default when it did, or whether the Moratorium precluded and rendered ineffective its purported demands for payment and the events of default which it called in consequence of non-payment. Those issues principally relate to the Defence, including the Bank’s computation of and claims for interest, and the Bank’s further claims for declaratory relief.

Secondly, however, the issue as to whether the Moratorium was promised and agreed (and if so whether it was enforceable) is also relevant to the claims of conspiracy (and whether, as he claims, Dr Arkhangelsky was in effect tricked into the repo transactions) and for breach of contract and abuse of right in the Counterclaim.

Given its centrality in both contexts, I turn to address the issue in some detail.

The twin pillars of Dr Arkhangelsky’s case that a six-month moratorium was promised by Mr Savelyev, and it was on the faith of that promise that Dr Arkhangelsky agreed to the repo arrangements for which the Memorandum provides, are that: (1) having in November sought a 3-year extension of capital repayments and a 1-year moratorium in interest payments, in December he asked for, and the Bank knew that the minimum he needed if his companies were to have any chance of restoring solvency was, a 6-month moratorium and the Bank either agreed to that or allowed him to proceed on the footing that it would agree to it; and (2) it would have made no sense for him to agree the repo arrangements (and, as he put it, “transfer all my shares”) on any other basis. Dr Arkhangelsky ascribes to undue pressure of time (and indeed coercion), alternatively, oversight or the stupidity of his staff, that the Memorandum itself did not incorporate this crucial term, but he maintains that the unrecorded promise should be treated as nonetheless binding.

When cross-examined (albeit not in his witness statement), Mr Savelyev admitted that at their meeting on 25 December 2008, Dr Arkhangelsky had asked him for a 6-month moratorium. His oral evidence was as follows:

“I do not deny, my Lordship, that Mr Arkhangelsky did request prolongation of all agreements for six months, but the Bank did not agree to do it for each loan and did not defer the payments for six months for all items.

In particular…I’m not sure whether I stated all the agreements in the memorandum, but for example, the personal loan agreements, the PetroLes agreements, are different. The dates there are different. One could understand that, one could see that, that the PetroLes loan only was for March. Therefore, overall, there were no such understandings reached, but there was such a request on the part of Mr Arkhangelsky, and we did extend part of the loans for six months.”

When questioned further his evidence was as follows:

“MR JUSTICE HILDYARD: Who was to determine which of the loans were and which were not to be extended to the end of June? You explained that there was a request from Mr Arkhangelsky; who was to determine, if it wasn’t agreed by you on 25 December, which ones were and which ones were not to be extended?

A.

My Lord, there should be a board decision, the board of the Bank. The collective intelligence should be at work here, and the board made a decision with regard to the maturity dates for these loan agreements with regard to time periods.”

He had earlier explained:

“Restructuring was with regard to each credit agreement separately. The Bank could not take all the credit agreements with different maturities, different amounts, and roll them all up into one moratorium of six months long. I also wanted to mention, with some specific loans we did not agree at all that we would provide any moratorium, for example, with regard to PetroLes.”

The evidence of Mr Guz (who was of course present at the meeting on 25 December 2008) was to like effect. Mr Guz said:

“…in this particular case, the major point was that the client wanted restructuring of his loans, but he didn't have any additional pledge of collateral, and what was being discussed whether the Bank would agree at all to make any restructuring, any prolongation, any rolling up and so on, or there was another opportunity to call a default right at the end of December. That was the major point.

Q. So the broad terms of the deal, as far as you are concerned was: no default in the end of December, you transfer the shares and then we will see, is that --

A.

No, no, no. No default at the end of December, transfer of the shares in exchange of the restructuring agreed with the borrower.

So this was the major point discussed as far as I can understand at the meeting.

MR JUSTICE HILDYARD: Restructuring for all the loans?

A. No. Some of the loans, because some of the loans were not mature at that date. So some of the loans were supposed to be restructured. Some of the interest payments were supposed to be rolled up, until the end of the maturity date, or some of them until the other date, and the other loans were not restructured, I mean, the repayment of the principal.

So there were no specific details. The details were supposed to be agreed with the borrower after the meeting.”

Although I remain unconvinced that Mr Savelyev had any reliable memory of what was said, and his reference to specific loans (the PetroLes loans) struck me as likely to be reconstruction after the event, the general thrust chimes with the lack of any reference to a general moratorium in the Memorandum, and also with what afterwards actually happened without objection on behalf of Dr Arkhangelsky (see below).

The absence of any provision or reference to a general 6-month moratorium in the Memorandum signed by the parties, which was intended to capture the principal elements of their agreement, though not of course conclusive, clearly supports the Bank’s case that none was agreed.

If there was, as Dr Arkhangelsky insists there was, a clear (in legal terms, collateral) oral agreement between him and Mr Savelyev for a 6-month moratorium which, in his perception at least, was the single most important aspect of the whole arrangement and the sine qua non of his agreement to enter into the repo transaction, it seems at least odd that it was not recorded in the document drafted in respect of the arrangements.

It is odder still that Dr Arkhangelsky did not immediately require amendment of the Memorandum or some further written accord to ensure that this vital matter, the centrepiece of the deal from his point of view, was defined and could not be disputed. On the Defendants’ case, the Memorandum failed to reflect the most vital aspect, and the whole nature of the arrangements was fundamentally misstated. Yet there is no record of any complaint at the time.

Dr Arkhangelsky’s response when this was put to him in cross-examination was that it was all a rush, he was given no opportunity to query still less amend the document, and in the end was effectively coerced into signing it without the benefit of legal advice or proper consideration of its terms.

Dr Arkhangelsky’s oral evidence was:

“… I've been under so huge pressure, so I haven't had any chance to go through the documents. So I [have not] had any chance under the personal threat by Mr Savelyev to argue about anything. So I was really afraid and I've been under huge personal pressure and family pressure, so I had to sign whatever I got.” [My interpolation]

He continued:

“I've been under so huge pressure and I've been under the threat, and the conditions were extraordinary, and I signed this document in the office of Mrs Malysheva, so I've been really afraid of me and myself and I haven't had any chance to get any advice from even in-house lawyers. So I had -- either I had to sign that or I would not survive during the Christmas holidays.”

I accept that Dr Arkhangelsky was indeed under very considerable pressure to have an agreement signed which was effective before the end of the year. But I do not accept that he was coerced, nor that he had to sign the agreement in the form proposed without proper consideration of its terms and without legal advice. After all, his case is also that the Bank itself needed an agreement just as much, if not more, than he did, to ensure that it was not required to make reserves on the basis of default at the end of the year.

As to legal advice, contrary to Dr Arkhangelsky’s oral evidence, it seems to me to be plain that OMG lawyers were closely involved in the preparation of the various documents. For example, on 29 December 2008, Ms Stalevskaya emailed Mr Vasiliev and Ms Vasilenko, OMG’s lawyers, in respect of a number of matters including, specifically, the “Memorandum”. In his oral evidence, Dr Arkhangelsky tried to suggest that this was reference to a different memorandum, but this appeared to me to be a panicked expedient:

“… It says memorandum, but it doesn't specify which particular memorandum and which particular text, and as far as I understood, no attachments, and as Mrs Stalevskaya said to you under cross-examination, there were different versions of possible memorandum.

Q. Yes, but the only document that was being considered at that time by the parties concerned, called "memorandum", was the 30 December memorandum, wasn't it? A. Yes. Yes.

Q. And it looks, doesn't it, from this e-mail, as if there was some exchange between the Bank and your lawyers concerning the memorandum?

A. I assume so, but we have not discussed the final version, because a final version of the memorandum I signed in the office of Malysheva, 30 December, and I signed the document she given to me. So not any looked on by the lawyers or anybody else, we haven't had a chance to do that, because I either had to sign or I had to create a problem to myself.

Q. Dr Arkhangelsky, do you want to revise your evidence as to -

-

A. No, I don't want.”

I do not accept that evidence: in my view, it was contrived in a desperate but untruthful attempt to muddy the waters and obscure the fact (as I find it to be) that OMG’s lawyers were given the opportunity to review the Memorandum, and did so.

Further, even if the fact that no general six-month moratorium (which is what the Defendants maintain the ‘Moratorium’ comprised) is anywhere contemporaneously recorded and the fact that (in my assessment) Dr Arkhangelsky resorted to a false expedient to explain the omission of any reference to it in the Memorandum, are not conclusive, the further fact that, thereafter, the OMG companies individually entered into additional loan-specific agreements extending the payment dates for the loans in different terms according to the specific repayment dates (as summarised in paragraph [381] above) tilts the balance further, and to my mind conclusively, against the Defendants’ case that a general, across-the-board, moratorium was established. The Bank submitted, and I accept, that the terms of these additional agreements are not consistent with any overall 6-month moratorium.

Although, when cross-examined, Dr Arkhangelsky sought to revive an argument that the additional agreements were not authentic, that argument had been formally withdrawn before trial and the relevant parts of the Re-Re-Amended Defence and Counterclaim disputing the additional agreements were struck through. Dr Arkhangelsky sought to contend that he did not understand the function of pleadings; and I have taken his status as a litigant in person into account. But the formal withdrawal of the allegation was clear, and even if (as Dr Arkhangelsky confirmed) the relevant correspondence was prepared by Mr Stroilov, I think I must take it as binding, especially given the arrangements between Mr Stroilov and the Defendants for him to represent them.

In any event, Dr Arkhangelsky struggled to find any coherent basis for any attack on the documents’ authenticity. He was reduced to saying that his case on the moratorium “had to be like this”, and confronted with the additional agreements said:

“It’s not possible…It’s not possible this. It’s not possible this.”

But that is as it was.

Mr Stroilov submitted that the Defendants’ and OMGP’s case on the moratorium derived assistance from the fact that the interest payments were, as it happened, in some cases deferred until the end of June. However, the Bank countered that the deferral was not because there was any alleged six-month moratorium, but simply reflects the fact that 28 June was the date before the Bank’s half-year financials and was thus a natural

Dr Arkhangelsky also sought to divert the questioning about the additional agreements by querying the internal Bank registration stamps, suggesting the OMG employees who signed the agreements were put under pressure by Lt. Col. Levitskaya or under the “control of the Bank”, or saying that he was not party to the agreements. I do not accept any of this.

Then in the last resort he sought to put the blame on other people. Thus:

“Definitely, agreement with the Bank was that all the loans are prolonged, so it would be completely stupid of me to make an agreement or memorandum unless I know that all the problems are solved, otherwise I cannot see any reasons for giving all my businesses to the Bank.”

He continued:

“My understanding, and strong belief, that the agreement was that all -- you know, it's the standard personal logic. If I given all my assets to the Bank in exchange to the prolongation of the loan, so each and every loan should be prolonged by the date agreed, and this manipulation and insinuation that if, whatever, from 25 loans, three were not prolonged, or two were not prolonged, where is the logic? I cannot understand that.

So I may assume that some of my employees were not good enough, so maybe they were misled…at that time, or they were simply stupid. But I absolutely believe that the moratorium been existing, otherwise I would not sign -- I would not sell to the Bank my companies for zero value.”

This was not accurate. Dr Arkhangelsky did receive extensions for interest payments and principal payments, and they were not of “zero value”. Such extensions, in accordance with the terms of the additional agreements, gave OMG a valuable breathing space or lifeline without which default before the end of the year was inevitable.

As to blaming his subordinates, that was not out of character: but I have not been persuaded of any fair basis for it. There is also an inconsistency in him seeking to blame his employees for something which on his own case he agreed personally with Mr Savelyev and which was not otherwise recorded. On a matter so important it was surely for Dr Arkhangelsky personally to ensure that he got what had been agreed.

During his cross-examination of the Claimants’ witnesses, Mr Stroilov, on behalf of the Defendants and OMGP, floated a number of new suggestions of factual contexts, put forward for the first time and without any evidential basis, to fit their ‘Moratorium’ case (or some variant of it) with the contemporaneous agreements. Thus:

In summary, in my judgment, the available evidence does not support the Defendants’ case that an across-the-board 6-month moratorium was promised by Mr Savelyev and agreed by the Bank in return for Dr Arkhangelsky’s commitment to the repo arrangements in December 2008. The lack of any reference in the Memorandum to such an important element of the overall deal, and the fact that Dr Arkhangelsky made no objection either to that omission or to subsequent written agreements inconsistent with an overall 6-month moratorium are, in my judgment, fatal to the allegation.

In reaching that conclusion I have had much in mind Dr Arkhangelsky’s main point that, without the alleged ‘Moratorium’, the repo arrangements exposed OMG to a ‘raid’ without any sufficient quid pro quo, and that it stands to reason that he would never have agreed such terms. But in my judgment, the truth is that Dr Arkhangelsky, by December 2008, was desperate. Unlike the Bank, he knew how serious the position had become (illustrated by the arrest of the ‘Tosno’, the deficits across the companies’ accounts, and his inability to fund the retainer proposed by BNP); and the repo was all he had left to offer to keep the Bank at bay.

My assessment is that Dr Arkhangelsky is a chancer with a belief that something will turn up in the end, so long as he can keep kicking the can down the road; and that he is capable of convincing himself in retrospect of things which have not in fact happened, and of denying any possibility that he personally may have made a mistake.

It may well be, in my view, that he has gradually persuaded himself that a general moratorium must have been finalised or treated as having been so. Alternatively, it may be that matters were left so fluid at the 25 December meeting and thereafter that the two sides had different views as to what had been agreed. Mr Savelyev struck me as someone adept at leaving an interlocutor feeling that he had agreed something without in fact committing himself.

Whatever may be the explanation, in my judgment, there is no sufficient evidence that Mr Savelyev committed the Bank to a general 6-month moratorium; and the documentation is flatly against Dr Arkhangelsky’s case. In all the circumstances, I find that no such moratorium was agreed.

In the light of that conclusion it is not strictly necessary for me to consider the Bank’s alternative case that even if the factual evidence could support some form of ‘agreement’ for a 6-month moratorium in the terms alleged, the ‘agreement’ would be flawed and ineffective as a matter of Russian law.

For comprehensiveness, however, I should summarise as shortly as possible what I consider to be the scope of the issues and my views and conclusions in that regard.

The Bank, relying also on the label “Memorandum”, as distinct from “Agreement” or “Contract”, submitted that the relevant document:

The Defendants submitted that none of these contentions is well-founded. In particular, it was submitted on their behalf that:

It seems to me to be plain that:

In all the circumstances, I would accept the Bank’s alternative case that even if the factual evidence could support some form of “agreement” for a 6-month moratorium in the terms alleged, the “agreement” would be flawed and ineffective as a matter of Russian law.

Dr Arkhangelsky’s contention that the Bank was “clearly in breach of the December 2008 Agreement” in refusing formal extensions of loans to PetroLes and Vyborg Shipping in March 2009 and then in calling in the loans as it did falls in light of my conclusion that no general 6-month moratorium such as he alleges was ever promised or agreed. The denial in the Amended Defence (at paragraph 21) that Vyborg Shipping, LPK Scandinavia and/or Onega defaulted in their debts and the plea that “the companies did not default as pleaded by the Claimants” was based on the alleged moratorium and falls away accordingly.

Similarly, the plea in paragraph 25 of the Amended Defence that the defaults were called “to create spurious grounds for claim under the fabricated ‘personal guarantees’” fails, both because (as previously held) the Personal Guarantees were not fabricated, and also because the Bank was entitled to call the defaults and was relying on its contractual rights and not spurious grounds in doing so: and likewise, in the case of the Personal Loan.

More generally, Dr Arkhangelsky’s contention that “he” (by which I take him to mean the relevant companies) are not “defaulting debtors” cannot be sustained.

Just as, if not even more, important from the Defendants’ and Counterclaimants’ point of view is the further consequence that the Defendants’ contention that the Bank tricked Dr Arkhangelsky into the repo arrangements and was not entitled to implement the repo transactions in reliance on contrived defaults it then called must fail also (unless, of course the repo arrangements are invalidated on some other ground, as to which see below).

Even if it could be established that the Bank had ulterior and self-interested motives in putting in place and implementing those arrangements, the fact remains that it flows from my findings that Dr Arkhangelsky agreed to them as the price of the Memorandum and the agreements that followed, without insisting on any general moratorium, and the Bank was contractually entitled to act as it did in implementing the repo agreements upon default.

Any claim in respect of the repo arrangements and their implementation can in such circumstances only be based on the theory that the repo arrangements were invalid or entered into pursuant to a conspiracy that renders them void or voidable; or that the repo shares were misused, in effect to steal Dr Arkhangelsky’s companies, in such a way as to confer a right of action on the Counterclaimants.

Those arguments, though relevant also to the Defence, are more conveniently dealt with in the context of the Counterclaim; and indeed, except for the claim relating to the Defendants’ marriage contract, all the remaining issues in the Defence seem to be addressed more conveniently in that context too. Those issues are:

Before turning to the Counterclaim, therefore, the remaining issue relevant to the Defence which I should deal with now is the Claimants’ claims to set aside transfers of assets from Dr Arkhangelsky to his wife under a marriage contract dated 5 May 2009 (“the Marriage Contract”). I have described the Marriage Contract and the Deed of Donation which followed it in paragraphs [557] to [559] above.

The Claimants allege that the purpose of the Marriage Contract and the Deed of Donation was to protect some of Dr Arkhangelsky’s assets from his creditors. They say that the agreement was designed to defeat the claims of Dr Arkhangelsky’s creditors, and the transfers were in effect shams. They claim that the transactions should be set aside under section 423 of the Insolvency Act 1986 (“Section 423”), on the basis that this provision may be given extra-territorial effect where there is sufficient connection with this jurisdiction, and/or Article 170 RCC. It is on this basis and by reference to these claims (as well as the more general declaratory relief that was sought against both Dr and Mrs Arkhangelsky) that the Bank joined Mrs Arkhangelskaya as a party.

It is clear that Section 423 may be given extra-territorial effect: see re Paramount Airways Limited (No. 2) [1993] Ch 223 and more lately, Erste Group Bank v. JSC VMZ Red October [2015] EWCA Civ. 379 at [116]-[119].

However, it is equally clear that for this purpose a sufficient connection with this jurisdiction must be shown. As Sir Donald Nichols V-C (as he then was) put it in the Paramount Airways case (endorsed in Erste Group by the Court of Appeal), the court has to be satisfied that, in respect of the claimed relief, the defendant is sufficiently connected with England for it to be just and proper to make the order against him despite the foreign element. The question is not strictly one of jurisdiction but of the discretion to exercise it or not.

Even taking into account the agreement for matters to be adjudicated in this jurisdiction, I do not consider that there is such a sufficient connection in this case. The alleged wrong was not committed here; and none of the relevant property is here or governed by or connected with this jurisdiction (and nor now are the Defendants except by this litigation). Further and in any event, I note especially from paragraph 80 of the Particulars of Claim that the Claimants disavow any claim to the Petrograd shares and the French properties, since those are the subject of proceedings elsewhere. This confirms the tenuous connection with this jurisdiction, and reinforces my conclusion that the plea is not one which it is just and proper should be adjudicated here.

But even if that were not so, I would not be minded to grant relief.

The relevant state of mind is that of the debtor/transferor (here, Dr Arkhangelsky) rather than the recipient (see Moon v Franklin [1996] BPIR 196), and what has to be demonstrated is that a material part of the purpose of the transferor in making the transaction was to defeat or delay his creditors (see Section 423(3)): it is not necessary to show that such was the dominant purpose, but purpose must be distinguished from effect or consequence, and the latter will not suffice: see IRC v Hashmi [2002] 2 BCLC 489, especially per Arden LJ at pp504-505. The focus (albeit not exclusive) on Mrs Arkhangelskaya’s state of mind was misplaced.

Her evidence, however, did corroborate her husband’s to the effect that the purpose was not to put property which belonged to him beyond the reach of creditors but to safeguard her pre-existing interest in certain assets acquired in her or joint names (including a flat that she told me she had owned since before their marriage). According to their evidence, in other words, it was in effect in the nature of a ‘post-nup’, the purpose of

The timing of the Marriage Contract invites concern, and suggests that at least part of its purpose might have been to ensure that creditors would be delayed or defeated in enforcing against the assets to which it related. But it has not been demonstrated to my satisfaction that those assets were Dr Arkhangelsky’s or that the purpose was to put his assets beyond their reasonably straightforward reach.

I therefore decline to make any order under Section 423 in respect of this claim.

That leaves, in respect of the Marriage Contract, the claim under Article 170 RCC. Professor Maggs (the Claimants’ expert on Russian law) referred in his Consolidated Report to “several differing legal regimes for setting aside transfers made to avoid payment of creditors including: (1) the special provisions of the Russian Law on Insolvency (Bankruptcy); (2) certain provisions of company law; and (3) general provisions of the Civil Code applicable where the obligor is not in bankruptcy proceedings.” He addressed only the latter, being the only one of those provisions prayed in aid by the Claimants.

Professor Maggs described the scope and effect of Article 170 RCC as follows:

“If the transfer is fictitious and exists only on paper and not in reality, such as a “sale” to evade creditors in which the owner never gave up possession of the property and never collected the price, the transfer arrangements can be undone on the basis of Paragraph 1 of Article 170 of the Civil Code. It provided:

Sham is asserted in paragraph 79 of the Re-Amended Particulars of Claim, but only on the alleged basis of a plea that the transfers were to defeat creditors and that “in the absence of full consideration being provided, all such transactions were shams and liable to be set aside…”.

That is not, in my judgment, on the basis of the approach of English law, a proper plea of sham; nor was the evidence such as or sufficient to support one. In the context of an allegation of sham (unlike Section 423) it is the collusive and dishonest intention of the parties to enter into documents which are not intended to be given their stated effect which is the gist. There is no proper or sufficient plea that Dr and Mrs Arkhangelsky shared the requisite collusive and dishonest intention to create a ‘mock’ or sham transaction; and the particular proof required of such intention was not established (and see Snook v London & West Riding Investments Ltd [1967] 2 QB 786 and ISIS Investments Ltd v Oscatello Ltd [2012] EWHC 745 as to the plea and proof required in English law). No different approach under Russian law has been asserted.

I dismiss the Marriage Contract claim, and with it the proceedings against Mrs Arkhangelskaya.

I have been left with the impression, reinforced by the somewhat incidental way in which the claim was advanced and the overlap with other pre-existing proceedings it involved, that the plea was introduced as the means of bringing Mrs Arkhangelskaya into the fray. This may be relevant to the question of costs, but also may provide an insight into the relentless nature of the Bank’s pursuit of the Arkhangelsky family.

I turn to the Counterclaim and the matters which I have previously indicated I determined would be more conveniently addressed in that context, including, I should add, the claims in the Re-Amended Particulars of Claim seeking declarations which to a large extent are in form the obverse mirror-images of the allegations in the

The conspiracy giving rise to the ‘claim for causing harm’ is described in the Counterclaim as ‘The Scheme’, and alleged in the round as follows:

“…the seizure of ownership and control of Western Terminal and Scandinavia Insurance took place pursuant to an agreement or combination between the parties involved to seize those businesses by unlawful acts and/or means (the “conspiracy”).”

Dr and Mrs Arkhangelsky, as ultimate owners of Western Terminal and Scan through OMGP and GOM, together with OMGP itself as the 100% shareholder of Western Terminal (together “the Counterclaimants”) bring their counterclaim as the victims of the harm alleged.

Although that is, if established, and subject to the application of the ‘reflective loss principle’ discussed further below, a recognisable form of action also under the English law of torts, the Counterclaimants seek to establish liability ‘for causing harm’ under Article 1064 of the RCC, as to which see paragraphs [785] to [788] above.

It is common ground that under the Russian law, the intentional causing of harm satisfies the requirement of fault. This includes a situation where the defendant knows that his actions will inevitably cause harm, whether or not he specifically desires the harm that his actions result in. Indeed, it also includes a situation where the defendant should have known it would cause harm and went ahead nevertheless.

If there are a number of causes leading to harm, the Court’s task is to identify which is the predominant one, “the main decisive basic circumstances which is a cause” (as described in a leading textbook). Or, as Andrew Smith J put it in Fiona Trust v Privalov [2010] EWHC 3199 (Comm.):

“The defendant’s action must be a direct or immediate cause of the harm.”

It is also common ground that once harm is established, it is presumed to have been caused unlawfully unless specifically justified in law by the person who caused the harm.

For the avoidance of doubt, it would not be a lawful justification for the Claimants to say that they or any third parties acted in accordance with contractual arrangements that they had entered into with OMG companies or others, in circumstances where they had acted dishonestly. As Professor Maggs confirmed, only the good faith enforcement of rights is sufficient to negate fault for the purposes of Article 1064:

“Q. And you give some examples in your consolidated report of lawful justifications for harm. At paragraph 147 you say that a lawful justification might be self-defence, fair competition or the good faith enforcement of property rights.

[…]

[W]here you refer to the good faith enforcement of rights, you would agree that it is not open to a defendant to plead a lack of fault if he has enforced his rights in bad faith?

A. It is unlawful under Article 10 of the Code to enforce your rights in bad faith.

Q. So if you enforce rights but in bad faith or dishonestly, that wouldn't amount to lawful causing of harm for these purposes; is that right?

A. That's correct.”

It is, in these circumstances, common ground between the Russian law experts that if the Counterclaimants succeed in proving their factual case as to the dishonest conspiracy to steal their assets, liability under Article 1064 is established.

In addition, Professor Maggs appeared to agree under cross-examination that steps taken intentionally to subject a pledged asset to some form of encumbrance to make it less attractive to potential buyers and/or reduce the pool of potential buyers and thus its realisable value would, if proven to be causative of harm, be wrongful, and actionable accordingly.

In my view, and although this was not expressly put, the same analysis may apply where the value of pledged assets under the same pledge is reduced by the way in which they are presented for sale: for example, if two assets in the same ownership, pledged under the same agreement in respect of the same debt and having together a marriage value in excess of their individual value are sold in separate sales for no good or sufficient reason. However, by the same token, assets which are subject to separate pledges in respect of different indebtedness may lawfully be sold separately, even if combining the assets in the separate pledges might yield a higher aggregate amount.

Similarly, there was no suggestion, and I would not consider it to be the case, that a pledgee is obliged to sell pledged assets together with other non-pledged assets in its possession or control under some different arrangement, even if the combined package might yield a higher aggregate amount.

In paragraph 9 of their written Closing Submissions, the Counterclaimants set out what they described as the outline of key findings which they submit should be made and establish their claim.

I set out below the findings sought, elaborated by reference to, and culled from, other parts of their Submissions:

The findings are sought by the Counterclaimants in order to establish from them an inference of fraudulent conspiracy as being their only reasonably likely explanation. The Counterclaimants accept that they have no evidence of an actual agreement amounting to a conspiracy. They say, in effect, that the findings of fact which they seek, if made, make good the gap. As to the origin of the conspiracy, the Counterclaimants put forward various case theories.

Further to a series of amendments in February 2016, the Counterclaimants’ final version of their claim as to the genesis, formation of, and persons involved in, the alleged conspiracy was put as follows:

This third iteration or alternative plea (introduced into the Counterclaim by a new paragraph 179A), is premised on the Counterclaimants having failed to prove any dishonest collusion before June 2009, and it focuses on the nature of the transactions undertaken thereafter, and especially the connections between the parties to them and their common ingredient or characteristic of (as the Counterclaimants would have it) gross undervalues.

In this last iteration, it is the Counterclaimants’ case that the transactions were contrivances of which the object was to establish the appearance of open market sales, and the differentials between the true values and the values struck were so extreme as to be inexplicable except by reference to, and thus themselves (especially given the connections between the parties) demonstrative of, fraudulent intent.

It should be noted, however, that although the third iteration of the conspiracy case is most reliant on it, the issue of value has been and remains at the heart of the Counterclaim in all its iterations. Indeed, as I see it, the various iterations differ materially only in the alternatives they offer as to the date when the same conspiracy to ‘raid’ the assets of the OMG companies was hatched, and in what events along the continuum after December 2008 may be relied on as demonstrating it.

Put another way, although the alternative claims as to the timing and constitution of conspiracy in either December 2008 or February to March 2009 are based on alleged agreements, in the end the Counterclaimants’ case in all its iterations was primarily based not on proving the fact and content of particular meetings, exchanges or correspondence, but on the inference of collusion and dishonest purpose as the only plausible explanation of the conduct of the Bank and its connected parties, and the transactions and events which occurred, at and after the relevant times (December 2008 in the case of the first iteration, February to March 2009 in the case of the second, and June 2009 in the case of the third).

The Counterclaimants thus ultimately base their case on inferring fraudulent conspiracy from all these factors in the round, and most especially the huge disparities between the sums realised in respect of the assets and their alleged true value, as being the only logical and plausible explanation for the fact patterns which the evidence discloses. This has always been an inherently difficult case to establish.

As to harm and loss, it is the Counterclaimants’ case that, whenever established (that is, whichever of the three iterations of their case is established), the conspiracy alleged has resulted in them losing assets having a value of some US$467 million.

This sum is calculated by reference to the value which the shares in Western Terminal and Scan would have had at the date of judgment plus the distributable income which the Counterclaimants would have received (or which the Claimants have or should have received) by virtue of their ownership and control of the shares between 31 December 2008 and the date of judgment: paragraph 181B of the Re-Re-Amended Defence and Counterclaim.

The Claimants reject every aspect of these claims, and seek to dismiss the Counterclaim as a fabrication of the Arkhangelskys. They submit that the wide-ranging allegations are as extravagant as they are false, and that there is no evidence at all to support any of the ‘conspiracy’ cases alleged. They somewhat exuberantly describe the claim as “one of the most remarkable fictions to come before the English Court”.

The Claimants contend that the measure of Dr Arkhangelsky and the merits of his case is that on his own evidence, the potential development of at least one asset (and perhaps others) was dependent on the payment of huge bribes, and that in respect of that asset (Western Terminal) he sought to raise finance on the basis of a monumental and shameless deceit of potential lenders.

They contend that he has contrived and advanced a fanciful case to obscure the truth as to why OMG could not meet its payment obligations in late December 2008 or thereafter: this (according to them) is that the OMG businesses were a mirage.

According to the Claimants, Dr Arkhangelsky ran, or at least presided over, a business which had no real business: a shipping fleet whose only ships were arrested for nonpayment of their bunkering charges, an insurance firm without any genuine clients, a ‘port’ at Onega Terminal which did not have its own berth, and a container port at Western Terminal which was in a state of such dilapidation that it required vast expenditure to enable it to function at all, which it never received.

The Claimants’ case is that Dr Arkhangelsky was in fact running a fraudulent ‘Ponzi’type scheme: he pledged all of OMG’s material assets to raise funds which the lenders thought were being invested in the OMG businesses but which instead (for the greater or most part) he funnelled to offshore entities for his own ultimate benefit, necessitating increasingly frantic efforts on the part of OMG to delay repayment and borrow more money to pay the interests charges which the businesses could not service.

It is the Claimants’ case that:

The Claimants accept that the repo arrangements were novel but contend that these were put in place as a necessary expedient to seek to give the Bank the means of control in the event of default and to enable the Bank to defeat Dr Arkhangelsky’s avowed aim of delaying the Bank’s recovery by any means available to him. Likewise, they say, the introduction of the Original Purchasers was necessary because the Bank could not take the repo shares onto its own books, but for no improper purpose.

The Claimants contend that Mrs Malysheva and Mr Sklyarevsky were introduced only when the Bank’s relationship with OMG was plainly foundering and likely to lead to default. They contend that the Bank had no real option but to refuse extensions of the PetroLes loans and that the various steps they took after the resulting cross-default, including the transfers from the Original Purchasers to the Subsequent Purchasers, the removal of Dr Arkhangelsky and Mr Vinarsky as Directors-General, and the imposition of encumbrances over OMG assets (such as the Gunard Lease) were similarly intended to insulate the Bank’s security and the repo arrangements from the Arkhangelsky’s efforts to undermine or invalidate them. They deny bringing improper pressure to bear with state assistance, as they deny any other impropriety.

The Claimants submit that the Counterclaimants “have not come even close to adducing the necessary evidential foundation for their allegations, or to proving each of the numerous agreements involving numerous parties, which are necessary for any part of the ‘conspiracy’ to get off the ground.” As they have put it in their Closing Submissions:

“On whichever version of the ‘conspiracy’ case they pursue, to succeed the Defendants and OMGP must show the agreement and involvement of a very large number of people, not only a large number of employees in the Bank, but also employees of Renord-Invest and of SKIF, St Petersburg law enforcement officers, Mrs Matvienko, Mr Piotrovsky, Russian judges, court bailiffs, employees of the Russian Auction House and other auctioneers. The list is implausibly long.”

The Claimants further submit that the fact that the conspiracy case in each of its iterations is a fabrication (on any of its alternate bases) is revealed by the lack of any substance, fatal they say to the claim, in what they depict as two of its key components: (a) the allegation of forgery; and (b) the allegation that Dr Arkhangelsky was somehow tricked or coerced into agreeing the repo arrangements made in December 2008 and the transfer of the Western Terminal and Scan shares as there provided.

As to the Counterclaimants’ alternative pleas of conspiracy at various dates along the timeline:

As to the Counterclaimants’ contention that conspiracy may be inferred in all the circumstances if the asset sales are shown to be at gross undervalues, the Claimants reject the reasoning entirely. They contend that it is not only based on a false factual premise (gross undervalue sales) but also circular. In paragraph 634 of their Closing Submissions they put their point in this way:

“…none of the assets was sold fraudulently at a gross undervalue. In any event, the reasoning is circular: the Defendants and OMGP allege the assets were sold at a gross undervalue; that ‘fact’ is alleged to ground the inference for the ‘conspiracy’; the conspiracy is alleged to be the sale of the assets at gross undervalue. Such a case is hopeless. Unless the Defendants and OMGP can (separately, without reliance on the inference from alleged ‘undervalue’) prove the ‘conspiracy’, there is no reason to doubt that the sale of the assets at auction achieved market value at that point in time for those assets.

There is no basis for the Court to draw any ‘inference’ against the Claimants, let alone any inference to support the fraudulent

‘conspiracy’ as alleged.”

Further, the Claimants reject the suggestion that the ultimate purchasers of the Onega Terminal and Western Terminal assets and businesses, ROK No. 1 Prichaly and Baltic Fuel respectively, were owned or controlled by the Bank and/or Mr Savelyev or their “loyal friends” and associates, and they reject any suggestion that there was all along, or indeed ever, a conspiracy to ensure that those ultimate purchasers should be enabled to acquire the assets and businesses at a knock-down price.

Before addressing the disputed elements of the Counterclaim (some of which I have already adjudicated in the context of the Defence), it is convenient to deal with a limitation point raised by the Claimants in respect of the third iteration of the Counterclaim as introduced by paragraph 179A of the Re-Re-Amended Defence and Counterclaim.

As a procedural matter, I permitted the introduction of the amendment introducing this third iteration of the claims in the Counterclaim on the basis that the Claimants should be permitted to contend at a convenient moment later that this aspect of the claim amounted to a new claim and (having been raised some seven years after the alleged conspiracy) was time-barred. The Claimants included in their written closing a short recitation of this background and an assertion of the alleged time-bar; but they did not elaborate on this initially, and it was not until their oral reply that (in response to Mr Milner’s argument that under English law and the concept of ‘relation back’ the ‘new’ claim was not barred) Mr Birt contended to the contrary. By then, Mr Milner was no longer available. Argument has thus not been as full as might have been useful, but its ambit was as follows.

The Claimants submitted that the relevant paragraph 179A constitutes a new claim and/or new claims (whether under Articles 1064 RCC and/or 1080 RCC) on the basis (they submit) that by definition the claim does not (indeed it positively cannot) rely on the same facts and matters as the Counterclaimants’ primary formulation of the ‘conspiracy’ claim.

The Counterclaimants submitted that, to the contrary, the claim was not ‘new’ but rather the assertion of an alternative date for the same basic conspiracy (to ‘raid’ OMG and steal its assets further to the steps and stratagems identified above).

This is a notoriously difficult area. The cases demonstrate how fine may be the distinction between an amendment which merely adds a detail or particular to an existing cause of action, or prays in aid a different legal inference from the same facts, and an amendment which seeks to add a distinct cause of action. In this case, the difficulty is the more acute, since the inference invited is of collusive agreement at some different dates to the existing plea.

However, I have concluded that the new plea does not constitute a new claim or cause of action for the purposes of the Limitation Acts. I accept the submissions of the Counterclaimants that the cause of action has always been of conspiracy to ‘raid’ the assets of the OMG; and that the amendment at heart simply offers an alternative date at which the conspiracy was hatched between the same primary actors with (substantially) the same objectives.

I am happy to reach that conclusion for other reasons also. First, it would be bizarre and unjust if the Counterclaimants were precluded from asserting the plea, given that the Claimants seek declaratory relief that there was no conspiracy at all: and the composite form of the relief sought seems to me may also support my conclusion that the plea does not introduce a new cause of action. Secondly, the conclusion avoids further

The fact that, as noted above, the Counterclaimants’ case, though it does identify a number of meetings and their alleged participants, is ultimately based on inferences from the fact patterns and the alleged gross undervalues achieved for OMG’s assets, requires careful analysis of each element alleged to give rise to the inference in respect of each of the three alternative dates proposed as being the date of first dishonest collusion.

In point of approach, Mr Stroilov made the valid point that “the very nature of fraud is that it should look all right from the start” and he urged me to analyse the events:

“in reverse chronological order, to look at the end result, and then the final stages of it, and then to go backwards to see whether it’s still consistent with innocence, and then go backwards in time to try and understand when it may have gone wrong, at what stage it went wrong, or whether it was all wrong from the beginning. So I would suggest starting from the so-called public auctions, then looking into the wider context of various transfers between Renord companies which led to those public auctions and into the transfers of both shares and assets, as they are all interrelated. And then we effectively arrive to the repo arrangement, and I will submit that the trial has shown that the agreement was intended by the Bank to be the means of appropriating OMG assets from the start.”

This is understandable; but there are considerable dangers in making assumptions as to the past from observations about the present; and even more dangers in using hindsight to assume from what in fact occurred a plan that they should so occur, whereas events are often not pre-planned and are more random: in days gone by known as the fallacy of post hoc ergo propter hoc.

Although mindful of Mr Stroilov’s point that seemingly benign events may be given malign colour by their context, and by the sequence of events that follow from them, and that a chronological progression through facts may disguise a malign objective, I nevertheless do not consider it right to start, as it were, at the end, and move backwards in time. Before determining in the round whether there is substance in the Counterclaimants’ allegation of conspiracy in any of its iterations, I propose to address in roughly chronological sequence the findings they invite.

Accordingly, I turn to deal with the Counterclaimants’ contentions as to the factual elements of their claim as summarised in paragraph [867] above, but in the following slightly adjusted sequence:

Much of the factual material has already been traversed, and where I have made findings already in the context of the Defence I include references back to avoid undue repetition.

By the end of the trial, and despite Dr Arkhangelsky’s unimpressive attempts to revive the issue of forgery during his cross-examination (see paragraph [758] above), Dr Arkhangelsky’s attempt to turn the tables and claim that the Bank had fabricated documents and that each such fabrication was an overt act demonstrative of the alleged conspiracy had become largely a source of embarrassment for the Counterclaimants. Ultimately it was the Claimants who prayed in aid the issue as confirming the contrived character of the Counterclaim as a whole.

The alleged forgeries were not mentioned at all in the Counterclaimants’ written closing submissions; and in oral closing, Mr Stroilov on their behalf kept open the possibility that documentation was only put in place and then backdated when in about December 2008 the Bank realised that guarantees were not in place, but otherwise (and primarily) sought to marginalise the issue as going at most to credibility.

In their Closing Submissions, Counsel for the Claimants submitted that the attempts on the part of the Counterclaimants “to downplay the centrality of the forgery case to the conspiracy” reflect their “realisation that the conspiracy case is dealt a decisive and fatal blow if the forgery case were to collapse”. They went on to suggest that:

“It will be appreciated immediately that since, for the reasons given above, the forgery allegations are false, the ‘conspiracy’ loses one of its key components. Just as Mr Arkhangelsky has dishonestly alleged forgery, so he dishonestly alleges a

‘conspiracy’ against him.”

Of course, if forgery by or at the instance of the Bank had been established, that would have told heavily against the Claimants; conversely, the abandonment or collapse of the plea knocks out a pillar of the structure of the Counterclaimants’ case, and further undermines Dr Arkhangelsky’s reliability and credibility. That is so especially in any context where his word is essentially the only evidence (such as in the context of his claims of coercion) or where his reliability and credibility is crucial (such as in the context of the claim that he was promised a general 6-month moratorium at the December meeting). Put another way, it reinforces my conclusion that Dr Arkhangelsky is an unreliable, sometimes dishonest, and often reckless witness, whose evidence I would not accept without undisputed documentary corroboration.

However, the reality in this case is that the conspiracy claim will stand or fall, not on Dr Arkhangelsky’s credibility in asserting it, but on the consistency and credibility of the Claimants and their witnesses in defending it. The abandonment or collapse of the forgery allegation does not, in my view, inevitably cause the collapse of the conspiracy case in all its iterations. It removes a brick, but not any corner-stone. I do not agree with the Claimants’ suggestion that it constitutes a “fatal blow”.

The fact that Dr Arkhangelsky contrived one allegation does not of itself mean that there was no such conspiracy as is alleged. The guarantees were not a pre-requisite or necessary ingredient of the conspiracy alleged (in any of its iterations). It is not as if either the Personal Loan or the guarantees was the cause of default and of the Counterclaimants losing the repurchase option and thus all control of or entitlement to the shares. Subject to the alleged moratorium, it was the fact that the Bank became entitled to call in the loans themselves and to deploy or realise their securities, including the repo shares, that was crucial.

My findings as regards the alleged Moratorium, however, are more problematic for the Counterclaim. It may assist to recall the basis of the Counterclaimants’ case in this regard.

In summary, the Counterclaim asserts claims in respect of the Moratorium and the Memorandum as follows:

Thus, the Counterclaimants maintain that the promise of the moratorium was the carrot to add to Mr Savelyev’s stick and that its denial and/or breach not only subverted the basis of the repo arrangements but also, taken together with the implementation of those arrangements, demonstrate the ‘trick’ deployed to sneak in and snaffle the underlying businesses before the Counterclaimants had the chance they thought they had bargained for to save them.

The Counterclaimants’ principal case has always been that those constitute overt acts from which a conspiracy in December 2008 and its true objectives can and should be inferred. Consistently with the logic of that case, that it was the control conferred by the shares which were transferred under the repo arrangements which enabled the alleged theft of the Group’s assets by the Bank, the Counterclaimants’ contention (for many years) was that the alleged conspiracy “must have been before the conclusion of the Memorandum”.

Their most recent pleading deletes that sentence, but they have not withdrawn any of Dr Arkhangelsky’s evidence that it was at the “end of 2008” that the “Claimants, together with other connected parties, effectively stole many of the Group’s most valuable assets”.

Had I found that Dr Arkhangelsky was threatened by Mr Savelyev or deceived into the Memorandum and repo arrangements before obtaining written agreement of the alleged 6-month moratorium that would have been a powerful point in favour of the Counterclaimants’ conspiracy theory: but I have not done so. On the contrary, I have earlier found against Dr Arkhangelsky’s claim that Mr Savelyev promised him a general 6-month moratorium and he would otherwise never have agreed the repo arrangements and parted with his shares, although I have accepted that this may be what Dr Arkhangelsky convinced himself thereafter to have been the upshot of their December 2008 discussions.

In point of credit, these findings cast yet further doubt on Dr Arkhangelsky’s reliability as a witness, and reinforce the conclusion that he has indeed been prepared to concoct any claim that appears to him, from time to time, to support his general case that he has been deprived of ownership of valuable businesses.

In point of substance, these findings at the very least narrow the range of overt acts on which the Counterclaimants can rely as evidence of a conspiracy in December 2008. Indeed, in my view, my findings that no general moratorium as alleged by the Counterclaimants was promised or agreed by the Bank is undoubtedly destructive of two important elements of the Counterclaimants’ case.

First, the corollary of the findings is that (subject to the claim that though Dr Arkhangelsky did not understand this at the time, their form, content and effect were so unusual as to demonstrate fraud or conspiracy and betray the true intentions of the Bank) the repo arrangements were consensual, and not induced by or premised on or subject to the alleged moratorium. That negates the claim that Dr Arkhangelsky was tricked into agreeing them, and leaves his only basis for complaint that he misunderstood their true effect and intended use (and/or that they were put to improper use).

Secondly, those finding negate the claim that the Bank acted wrongfully in refusing to extend the PetroLes and Vyborg Shipping loans and in demanding repayment before June 2009: there being no agreed moratorium in the form alleged, that was the Bank’s contractual entitlement.

However, though seriously damaging, I do not consider that my findings that Dr Arkhangelsky was not coerced by threats or intimidation, nor induced by a false promise of a general moratorium, into agreeing the Memorandum and the repo arrangements are necessarily fatal to the Counterclaimants’ allegation that the Memorandum and the repo arrangements were the origin and engine of the conspiracy.

Neither the fact that Dr Arkhangelsky is not to be believed in this important context, nor the fact that he must be taken to have agreed to the repo arrangements without a 6month general moratorium, necessarily means that the repo arrangements were benign. Neither demonstrates that the Bank’s purposes were to try “to assist their client in difficult times” (as its Counsel submitted in closing), or negates the Counterclaimants’ case that the Claimants intended to and did deploy the repo arrangements and the likelihood of default as the means of taking his companies and their enterprise value for nothing and pocketing as proceeds all but the (allegedly) derisory sums achieved on the sale of assets and applied in diminution of the loans.

I do not consider that the fact that Dr Arkhangelsky did, under financial pressure, but without improper threats or coercion, agree to the repo arrangements without securing the moratorium he wanted, is definitive about the objectives of the Bank and “connected parties”. Further, I think it entirely possible that by the end of December 2008 the Bank had measured Dr Arkhangelsky to be a character who was unfocused on detail and who could be strung along by vague but unenforceable assurances.

The question remains of whether the repo arrangements were put in place purely to fortify the existing security; or whether, even at this early stage, the Claimants had their sights on a ‘raid’ and extracting the assets of Dr Arkhangelsky’s companies and realising their enterprise value, not with a view to recovering as much as possible of the debts, but with a view to substantial benefit and profit for themselves and their associates.

I turn then to the indications relied on by the Counterclaimants as suggesting that, by December 2008 and in formulating and insisting on the repo arrangements in unusual form and with the Original Purchasers in place of the Bank as repo counterparties, the Claimants did have in mind a classic ‘raid’.

The Counterclaimants, supported by their banking expert, Professor Guriev, condemned the repo arrangements as “not only irregular, but clearly improper”.

They especially emphasised the following features of the form and provisions of the repo arrangements (in addition to the omission from the Memorandum of any reference to a moratorium) which in their perception have fed the notion that in insisting on the repo arrangements the Claimants had their eyes, not simply on enhanced security for their loans, but on seizing the surplus value of the assets and the enterprise value of the companies to which the arrangements related:

That last omission may be especially notable in circumstances where (as I understood to be agreed, but in any event, I find) the Bank, at the relevant time, supposed (on the basis of the Lair valuations) that the value of the assets considerably exceeded the amounts outstanding.

The Counterclaimants contrasted these features with standard repo arrangements, suggesting that:

Professor Guriev described the repo arrangements, and the Memorandum, as “very informal and intentionally confusing”. He considered that the use of third parties, in the person of the Original Purchasers, for the purposes (according to Mr Sklyarevsky and others) of reducing the impact of the transactions on the Bank’s capital, constituted a knowing attempt “to deceive Russian prudential regulators” and to “mislead the market”. He was not able to say how unusual the structure was: he accepted it might be quite common-place, but said that in which case he would characterise it as “common malpractice”.

He rejected Mr Turetsky’s attempt to equate the position with a good bank/bad bank model under which the bad bank does no lending but is a repository for bad loans and non-performing assets (‘toxic assets’), with the sole job of restructuring and/or enforcing them, which he accepted as “transparent and regular”.

He also instanced as particularly objectionable the lack of any provisions clearly covering issues that would inevitably arise. In particular, he said in his report that a:

“conventional arrangement of a similar kind, e.g. a ‘repo’ sale to a ‘bad bank’, would normally be recorded in a formal, carefully drafted contract, clearly setting out the material terms. In particular:

(1)

If the borrower transferred the assets in exchange for a restructuring of its debt, that would normally be clearly recorded in the contract. Moreover, the exact terms of that restructuring would also be recorded in the contract…

(2)

I would expect the contract to specify who was entitled to any income generated by Western Terminal and Scan during the period while the two companies remained under the control of the Bank (or third parties nominated by the Bank). If the Bank (or nominated third party) was entitled to derive that income, the contract would also specify whether it should be applied to reduce the debt.

(3)

I would expect the contract to address the possibility of the collateral being sold off at public auction, and whether the surplus value recovered at such auction should be returned to the

OMG.”

Professor Guriev noted, I accept correctly, that the absence of such provisions was exceptional and of far-reaching effect. Whether inadvertent or intentional (a question of fundamental importance to the Counterclaim, to which I shall return), the lack of any stipulation as to the exact terms of restructuring had given the occasion for the entire dispute; and which could only be challenged by uncertain legal action, and opened the door to income generated enuring solely to the benefit of the purchasers by way of pure gain and not by way of security.

The Claimants, on the other hand, submitted with the support of their banking expert, Mr Turetsky, that none of these features is such as to cause concern let alone such as to constitute evidence of bad faith or collusion in a ‘raid’.

In turn, it was Mr Turetsky’s opinion:

Thus, in effect, the Bank prayed in aid the need to finesse the regulatory restraints and accounting difficulties as the justification for warehousing the shares with third parties with which it had an undefined but nevertheless trusting relationship. As Mr Savelyev put it:

“We draw in the companies that we understand and trust, and trust them to work with the Bank, and we ask them to operate together on commercial terms with regard to toxic or problem assets.”

There can be no doubt that the repo arrangements presented the Bank with the keys to Dr Arkhangelsky’s empire. The combination of the peculiar features and the eventual implementation of the repo arrangements upon default conferred on (in the event) the Subsequent Purchasers (see later) full control over the assets of OMG, whether pledged or not, and enabled the ultimate sale of those assets without affording the Counterclaimants any recourse to, or share in, any surplus or enterprise value. The arrangements were capable of being used to achieve a result which was to the same effect as a ‘raid’.

However, that is not to say that the arrangements, with their curiosities, were contrived or calculated for that purpose when the arrangements were drafted, agreed and put in place. The question is whether these curiosities demonstrate a hard bargain which the Bank was in a position to and did drive in order to enhance its security and the prospect of full recovery; or whether, even at this early stage, the Claimants had their eyes not on repayment of the loans but on seizing the businesses. For the purpose of analysis, I turn to assess each curiosity in turn and then at the end seek to assess the arrangements in the round.

I do not accept that the fact that the Bank already had pledges over most of the real estate owned by Western Terminal and by Scan removes any benign rationale for the repo arrangements. The evidence that enforcement, even of such pledges, may be a long-protracted business if the pledger is minded to ‘play the system’ was not contradicted; and Dr Arkhangelsky made no secret of his intention to use the full armoury of tactics available to borrowers in Russia to delay or even defeat a lender. Control of the borrower achieved though implementation of repo arrangements would circumvent all this, and, as Mr Turetsky pointed out, would be of particular interest and potential utility in the context of fast-deteriorating asset values where, in his phrase, “the land was burning under their feet”.

It may be that in 2008/2009 the use of repo arrangements to enhance such security was unusual. But it was not entirely novel. Mr Stroilov put it to Mr Turetsky that, even so, it would surely be rare to insist on both a pledge of a company’s real estate and a repo arrangement in respect of its shares. Mr Turetsky admitted that he had no personal involvement in such a case; but he instanced at least one other case in which it had been done, and another three where it probably was done, and commended the “logic” of having both forms of security, especially in the crisis conditions at the end of 2008. Professor Guriev considered that “a further registered pledge of real estate would be a more reliable form of additional security”; but he did not contradict the logic of ensuring the means of securing control of the company providing that security. Nor did he contend that combining a repo arrangement with an existing mortgage of real property was inherently wrongful or necessarily sinister, even if it was unusual.

Furthermore, in this case there were assets of the underlying companies which remained unpledged: so that the repo arrangements did in fact enhance the extent as well as (indirectly) the quality of the security available to the Bank. Indeed, it became clear from the evidence of the Bank’s witnesses at trial that at least part of the purpose of the

Thus, in this case, the repo arrangements did in fact extend and enhance the Bank’s security. Although it seems to me clear that the arrangements were capable of being implemented and utilized in a way that went beyond the Bank’s avowed intention of providing itself with an effective means of realizing the assets pledged even if Dr Arkhangelsky were later to determine to stymie enforcement proceedings, that possibility of misuse does not of itself indicate that such was the intention.

The question then is whether the Bank’s nomination and use of the Original Purchasers as the holders of the repo shares, and the lack of documentation to establish their true relationship and the Bank’s consistent equivocation in that regard, signifies and evidences or suggests an inference of an intended ‘raid’. (In answering that question, I leave out of account for the present, but return later to, the fact of the later transfer by the Original Purchasers to the Subsequent Purchasers.)

It is not easy for an English judge to determine on the basis of this opposing and somewhat general evidence whether the arrangements were in compliance with Central Bank requirements and accounting fairness; and I am relieved that it is not necessary for me to attempt to do so, since that is not properly an issue in the case. What is necessary for me to decide is whether the justification offered is a plausible one. In my view, the rationale that the Bank simply could not take the shares into its own books, and that there would be regulatory difficulties if it tried, seems to me plausible, even if it may not provide the whole story; and the explanation that the Original Purchasers provided a solution similarly so.

The Claimants’ reticence in explaining their true relationship with the Original Purchasers has excited further suspicion. So too (and the points are of course related) has the complete absence of any formal record of the arrangements and obligations between the Bank and the Original Purchasers, purportedly (or rather, according to the Claimants) because of the “trust” between them.

However, the fact that the Original Purchasers, rather than the Bank itself, were to be the counterparties to the repo arrangements was plain to see on the face of the Memorandum and the repo documentation which followed: it was not dissembled or disguised; and Dr Arkhangelsky did not object at the time.

I have concluded, and find, that the interpolation of the Original Purchasers was not, when the repo arrangements were incepted, contrived or intended to pave the way for a ‘raid’. I accept the Claimants’ case that it was intended to enable the Bank to have the enhanced security offered by the repo arrangements without taking the shares onto its own books.

The separation of the two ‘sides’ of the repo arrangements into two documents with no cross-referencing between them, resulting in the transactions appearing to be absolute sales, does seem to me to be odd and a departure from the norm: it was confusing and remains substantively unexplained. It has caused me concern.

However, it is to be remembered that the parties agreed to these documents; and it is not as if there were no arrangements for repurchase and re-transfer of the shares back to OMGP and GOM. As to the express provisions:

The Master Agreement required to be concluded was to contain a provision for the sale back at the same price as that paid for the shares under the original Share Purchase Agreement. I consider Mr Turetsky’s summary of the intent and effect of the arrangements in this regard to be broadly accurate:

“So I think what they were trying to do was they were trying to come up with a bespoke document which would achieve the same objective, and I reviewed this repurchase agreement and it seemed to me that someone has put some thought into it, because the way they have done it is if they just wanted -- for the sake of argument if they just wanted to get the shares and dispense with Dr Arkhangelsky, they would just have an agreement and some vague obligation to sell it back. What they have in reality come up with is an elaborate document which contains three parts, which is the original sale agreement, then the preliminary agreement to agree on a reverse sale, and then they attach to it the actual instrument of transfer for the eventual sale back.

So I wouldn't say that this is a perfect structure, and I agree that I haven't seen it done this way precisely, but it kind of suggests to me that they have put some thought into how they would enable Mr Arkhangelsky to buy the shares back at the time.”

In the event, the failure to cross-refer to the repurchase arrangements resulted in Dr and Mrs Arkhangelsky succeeding at first instance in the Russian proceedings in presenting the purchase arrangements as being for no consideration and invalid. That unforeseen and unintended consequence does not establish that the Claimants had no ulterior purpose in structuring the two sides of the arrangements as separate contracts; but it does suggest that error or unfamiliarity with the novel arrangements rather than malign intent is more likely as an explanation. It may seem a strange omission; but I have to bear in mind that the arrangements were novel, so far as the Bank was concerned; and their drafting was entrusted to people who were largely ‘flying blind’ and without the benefit of precedent or (as far as I can tell) established practice.

On the whole, I accept that the failure to match up the two sides of the repo arrangements by express cross-references was not intended to prevent or impede Dr Arkhangelsky in exercising his right to repurchase if the conditions under which the right arose were satisfied in time.

Of greater concern, to my mind, are the obvious and material omissions from the repo arrangements in terms of defining the rights of the vendors (OMGP and GOM). Most glaringly, as it seems to me, is that none of the forms of agreement specify what was to happen to any right to repurchase the shares in the event of default.

Another puzzling and concerning feature of the Claimants’ case in defence of the repo arrangements was their inconsistency in explaining whether the right to repurchase the repo shares would ever be exercisable after default in the event of there being a surplus after repayment of the Bank’s loans, or whether in the event of such a surplus it would enure to the benefit of the Original Purchasers (or, later, the Subsequent Purchasers).

I raised a question in this regard in the course of Mr Birt QC’s oral submissions in reply for the Claimants:

“MR JUSTICE HILDYARD…on the Bank’s case, pursuant to these [interesting] but undocumented arrangements, the excess in value of the pledged assets over the loan inured not to the Bank but to the Subsequent Purchasers, is that right?”

After a period for further thought, the answer given on behalf of the Claimants can be summarised as follows:

I have found this difficult to accept; and the inconsistency and equivocation in the explanations offered reinforced rather than mitigated my concerns. Even if (and the evidence was scant) the Bank had little or no expectation of surplus, notwithstanding the considerable margin of pledged assets over indebtedness according to the Lair valuations, I find it difficult to accept that the Bank simply gave no thought as to where any surplus would go: there is no suggestion in the evidence that as at December 2008 or until mid-2009 it had serious doubts about the Lair valuations, although it is fair to suppose that the general economic conditions would have justified the supposition of material erosion. I suppose it is possible (as Mr Birt seemed to me to be suggesting) that its focus on stymieing manoeuvring by the borrower blinded it to the true effect of the arrangements: but that seems to me as a general matter unlikely, and the more so on my particular view of the Bank and its personnel.

Further, it is difficult to see any basis in the evidence before me for the possibility, floated by Mr Birt in this connection for the first time in his oral reply in closing, to the effect that the Original Purchasers would have been bound to account for any surplus, or at least to deliver back the shares and thus the keys to any such surplus. This suggestion was not supported by any evidence of usual practice; and it was contrary to the Bank’s own witness Mr Turetsky’s evidence, who was quoted in paragraph 412(4) of the Claimants’ written Closing Submissions as stating that “in any repo transaction if a borrower were to default on payment when due, then he lost the rights to buy back the shares.”

On that basis, it was an egregious feature of the repo arrangements that upon default and the exclusion of the repurchase right, the value of the businesses would enure to the purchasers, subject only to an obligation to apply sums realised for pledged assets in repayment or reduction of indebtedness. A further consequence is that any income generated by Western Terminal and Scan, so far as not applied in reduction of the

That undoubtedly served to increase the leverage over Dr Arkhangelsky and his companies enjoyed by the Bank. However, I do not think it necessarily connotes that the repo arrangements were being put in place and given effect with a view to ‘raiding’. Seeking to have the ‘whip-hand’ on a recalcitrant borrower is one thing; expropriation is another. The more benign interpretation can only be dislodged by evidence of sufficient strength to oust it in favour of a more malign one.

I have taken carefully into account that the curiosities of the original ad hoc drafting did favour the Claimants. I have also borne in mind the use ultimately made of the curiosities. But I do not consider any of these justify a finding that the repo arrangements were contrived ab initio to implement a ‘raid’. In my judgment, none of that is enough, of itself or in combination, to warrant an inference that when the Bank initially agreed the repo arrangements with Dr Arkhangelsky and put them in place it did so with the intention of later stealing the Group’s assets. The arrangements were harsh; and they did confer the keys to Dr Arkhangelsky’s companies on default. But the Bank was entitled to drive a hard bargain; and the arrangements are consistent with the Bank wanting to avoid facing the delaying tactics of a recalcitrant borrower. The Counterclaimants’ expert, Professor Guriev, acknowledged that the value of collateral is in substantial part a function of the ability to control its disposition, and that upon default a creditor bank’s main job is to “assure the control over the collateral” (as he put it in his report). Indeed, although he avoided giving a direct answer, when it was put to him that it was plainly a legitimate aim and advantage for a creditor bank to seek ways of vesting control of collateral in the event of default in friendly hands, Professor Guriev offered no cogent basis for denying it.

In other words, there is in my judgment, nothing sufficient to contradict the more benign view of the facts that (as it was put in the Claimants’ written closing submissions) “the Bank wanted to avoid having to face an unscrupulous borrower and minimise problems of enforcement in the event that became necessary because the ability of the borrower to engage in spoiling tactics would have been curtailed. In any enforcement process, it wanted to face a friendly counterparty rather than a borrower who had declared war on the bank.”

As previously mentioned (see paragraph [449] above), prior to December 2008, Mr Guz and his subordinate Mr Belykh were the top managers in charge of day-to-day relations with OMG. They ceased to be so some time in late December 2008, or possibly right at the beginning of January 2009, when Mrs Malysheva (Deputy Chairman of the Bank) became involved.

The Counterclaimants submit that that the introduction of Mrs Malysheva in place of Mr Guz and Mr Belykh, and in combination with Mr Savelyev, as the persons in charge for the Bank of its relationship with OMG, is further evidence of the commencement of a conspiracy to ‘raid’ the assets of OMG. The Counterclaimants emphasised not only

Mr Guz (who, interestingly, makes no mention at all of Mrs Malysheva in his witness statement) told me during his cross-examination that his involvement stopped in late December 2008. He sought to explain the involvement of Mrs Malysheva as part of a process of problem borrowers being allocated between top managers of the Bank. This did not really explain his replacement: he was a Deputy Chairman of the Management Board at the time.

Mr Belykh does not mention Mrs Malysheva in his witness statement either. He confirmed that he was not involved himself after December until March 2009, and then only when the BKK was asked to consider extension of the First PetroLes Loan due to be repaid on 5 March 2009. He presented Ms Mironova as the person primarily involved in the restructuring.

Mr Savelyev refers to Mrs Malysheva only fleetingly in his witness statement, but it became obvious as the trial developed, and in particular, during his cross-examination, that they worked very closely together. In cross-examination, he referred to her as having been “instructed to look into the OMG toxic assets” (presumably by him, given her status as Vice-President of the Bank). As an indication of her supporting role, Ms Stalevskaya said that it was Mrs Malysheva who “must have organised” for Mr Savelyev to sign the Memorandum.

Mrs Malysheva’s central role from 2009 onwards is clearly apparent from Mr Smirnov’s witness statement, where he described her as a personal friend of some 20 years’ standing, whom he trusted and respected “as a key figure in the banking industry” and also from the evidence of Mr Sklyarevsky.

Mr Sklyarevsky explained that it was Mrs Malysheva who contacted him in late December 2008 “to ask if Renord-Invest would assist the Bank in relation to some problems it was having with OMG” by holding the repo shares “on behalf of the Bank” because the “Bank did not itself want to hold the shares – it was not the Bank’s core business.”

He related her continuing involvement, and in particular that it was Mrs Malysheva who (a) informed him in March 2009 that it had been determined that OMG would default, (b) caused Mr Sklyarevsky to be involved, and (c) procured the transfer of the repo shares from the Original Purchasers to the Subsequent Purchasers.

As will appear later, I have considerable concerns about the later role of Mrs Malysheva, especially in orchestrating the replacement of the directors of Scan and Western Terminal and the auction sales which followed. These concerns have not been dispelled by the evidence available, and could not be dispelled by Mrs Malysheva herself since she apparently declined to give evidence and attend to be cross-examined. However, I have not been persuaded that either her introduction in place of Mr Guz and Mr Belykh or her engagement of Mr Sklyarevsky, of itself indicates anything more

An event of default in effect foreclosed the repurchase side of the repo arrangements, and cleared the way for the transferees (by now, the Subsequent Purchasers) on behalf of the Bank to use the keys of Dr Arkhangelsky’s kingdom.

The Counterclaimants’ case is that (a) the promise of a moratorium lulled them (and was intended to lull them) into an expectation that no payments would be due or demanded until at the earliest June 2009 and (b) the Bank set about engineering the conditions for, and to justify, an event of default which would (c) trigger cross-default across all the companies in the group and liability under any guarantees. I have previously addressed (a); and I now discuss (b) and (c).

The Counterclaimants put forward a number of supposed machinations or contrivances of which the purpose was suggested to be to put the Counterclaimants into default and justify calling cross-default.

First and foremost, of course, the Counterclaimants depicted the Bank’s refusal to extend the First PetroLes and Vyborg Shipping loans and defer capital repayment from March 2009 until at least June 2009 (as had been the other loans) as being the springing of a trap set when the Bank had treated the PetroLes and Vyborg loans differently from the other loans and extended them only to March 2009 and not June 2009. That, they contend, was a breach of the moratorium, and part of a pre-calculated scheme intended to enable the Bank to use almost inevitable default on the PetroLes and Vyborg loans to undo all its other commitments to extend the other loans by working a cross-default.

I have already explained why I consider that the Bank did not in fact make any commitment in December 2008 to extend the PetroLes and Vyborg Shipping loans beyond early March 2009, even if Dr Arkhangelsky chose to believe that this is what was the effect of what he had been promised. I have also explained why I do not accept Dr Arkhangelsky’s various contentions as to why the Additional Agreements for the PetroLes and Vyborg Shipping loans should be treated as invalid or signed in error.

That does not, however, answer the question why the Bank chose to treat, and felt justified in treating, the PetroLes and Vyborg Shipping loans differently from the other loans. Nor does it answer the question whether in doing so the Bank was intentionally laying a trap for the Counterclaimants knowing that they would be unable to make any repayments by March 2009 and arming itself in effect to negate the rest of the agreed extensions by calling a cross-default once it had (a) got round having to make provisions at 2008 year-end to satisfy regulatory conditions without making further reserves and (b) put in place the repo arrangements.

It is, at first sight at the least, a curiosity that the PetroLes loans and Vyborg Shipping loans were treated differently from the rest. Its potential to undermine all the other arrangements, as ultimately it in fact did, seems obvious. Default in one loan could trigger cross-default in all the others, and bring the newly reconstructed house down.

For the Counterclaimants, and in the alternative (presumably) to the primary case that in providing for more restricted extensions the relevant additional agreements were misleading or defective, Mr Stroilov submitted that, so far as Dr Arkhangelsky was concerned, the intention was always that these loans would be extended, but at a later stage than the others, at a second stage.

This suggestion that the Bank was committed to a second round of restructuring was not pleaded, but in the unusual circumstances of the case I permitted Mr Stroilov to put it to Ms Volodina, so as not to interrupt the flow of his prepared cross-examination and to allow flexibility for a later amendment, if justified.

As it was, Ms Volodina agreed that there was to be a second review in about February, but asserted that this was premised on Dr Arkhangelsky delivering on various commitments (including a promise of a RUB 300 million to PetroLes for timber), and denied any commitment to further extension on the part of the Bank. The following exchange from Ms Volodina’s cross-examination illustrates the position:

“Q Now, Ms Volodina, I put it to you that…it was intended that the restructuring would take place in two stages: one by way of various additional agreements dated December 2008, and then in January or February or March, there would be further additional agreements to various loan agreements, which would avoid the need to form results [sic] and to reflect them in 2008 reporting to the Central bank. I hope it is not too complex a question.

A. No, no, no, this is not too complex. No, this is not what was intended. No additional restructuring was intended. In January and February the Bank hoped to receive a financial recovery plan from the client until the PetroLes maturity on 5 March, a decision was expected to be made as to what we do going forward. But the client did not provide that plan, nor did we receive any proceeds with respect to the timber shipment…in other words, the client did not perform under any of the obligations that he had assumed.”

I accept Ms Volodina’s explanation, which also seems to me to provide a not implausible answer to the question as to why the PetroLes and Vyborg Shipping loans were differently treated. It seems to me not implausible that the Bank should have (as Ms Volodina put it in her witness statement) wanted to “keep these payment obligations as indicators of OMG’s financial position” and to review matters without commitment, and according to whether or not Dr Arkhangelsky made good on his assurances, which I accept he gave, and on which the Bank was entitled to rely.

Of course, with the benefit of hindsight, default in March unless an extension was granted, and the refusal of the Bank to agree to one on the basis of the financial position as it transpired to be, seems always to have been inevitable. But that does not mean that it appeared to be so at the time. As I have said before, Dr Arkhangelsky is a chancer, prone to Micawberism: I think it more likely than not that he trusted to being able to convince the Bank when the time came. As it seems to me, that explanation is likelier

An alternative contention advanced on the part of the Counterclaimants in support of their case that the Bank was working from the end of 2008 and throughout early 2009, not to assist the Counterclaimants, but to call in the loans, was that the Bank machinated to ensure that Vyborg Shipping would be unable to ensure payments to avoid default. It is suggested also that the Bank knew well in the case of Vyborg Shipping that the winter months would be likely to be difficult, not least because of the likelihood that St Petersburg port might be closed by ice.

In particular, Mr Stroilov put to Ms Mironova that the Bank persuaded the Russian Federal Tax Service to make an order dated 26 January 2009 freezing the bank account of Vyborg Shipping at the Bank’s Investrbank branch further to the alleged failure to pay tax in the derisory sum of RUB 99.63 (about £2.50), and that the purpose of this was “to assist the Bank to paralyse the operations of Vyborg Shipping and to create the conditions for a default”.

Ms Mironova rejected this as not having “anything to do with reality”, asking Mr Stroilov whether the question was a “sort of way of being funny?” In other words, the suggestion was dismissed as fanciful.

But on any view, the fact of such a freezing order is remarkable, even if it is the case (as Ms Mironova emphasised) that it was the tiny amount rather than the account itself that was frozen: it seems almost inconceivable that a tax authority would consider it appropriate and proportionate to issue a freezing order on the basis of non-payment of such a “laughable” sum (to quote Ms Mironova), not least in that payment of the amount would undo the freeze.

But, though remarkable, it is not, without more, evidence of collusion; and I note that the point was not pressed by the Counterclaimants in their closing submissions, written and oral. Failure to pay a small sum may well be more revealing than failure to pay a larger one; and the authorities may have been acting with the future in mind. And as the Claimants submitted, the fact appears to be that Vyborg Shipping was already paralysed by this stage: it had no money left, not even the £2.50 or so it needed to avoid default, and none was coming in to it.

The Counterclaimants also suggested that the Claimants simply had no proper justification for declining to extend the PetroLes and Vyborg Shipping loans, and had sought falsely to contrive one and to present the decision as based on changed circumstances to disguise the fact that they were acting out of improper self-interest, and in defiance and negation of the logic which underpinned the extensions of the other loans.

Thus, it was suggested that the Claimants’ resort to an attempt to justify refusing an extension, on the basis that Dr Arkhangelsky proved himself in the couple of months following December 2008 to be what Ms Volodina described as a “mala fide borrower” in whom the Bank had for good reason lost all trust, was a contrivance.

In particular, the Counterclaimants rejected as a pretence the Bank’s claim that they had not been informed of or heard about, and that Dr Arkhangelsky had concealed from the Bank, for a month or more, the fact of the arrest of the ‘Tosno’ in Tallinn, Estonia in December 2008. The Bank’s suggestion was that he did this lest revelation of the arrest, and the dire financial position it signified, precluded the debt restructuring he desperately needed.

Dr Arkhangelsky, in his witness statement for trial, maintained that the Bank had been well aware of the ‘Tosno’s’ arrest since shortly after it was made (which was in December 2008); he said he had discussed it with Ms Borisova, Ms Prokhor and Mr Platonov as persons in the know within the Bank, and so he believed, with Mr Savelyev when they met. On this basis, he contended that the Claimants had falsely alleged concealment as a pretext for denying any further funding or leeway notwithstanding the agreements reached in December 2008. Under cross-examination, however, he accepted that he could not in fact remember informing Mr Savelyev, and his evidence became that he:

“assumed that people in the Bank been well informed, considering that we were normally fulfilling all the obligations, and especially Mrs Krygina, who was directly communicating with the Bank and knowing quite a lot of the people there.”

Dr Arkhangelsky has a propensity to re-write history; and I do not accept that he informed Mr Savelyev or anyone else at the Bank of the arrest of the ‘Tosno’ in December 2008 as soon as it had happened. I accept Ms Mironova’s evidence that the Bank first heard of the arrest from the representative of the creditor which had procured it (Bergen Bunkers AS) in February 2009 or perhaps early March 2009, and that, after delaying for as long as he felt he could, it was not until some time in April 2009 that Dr Arkhangelsky told the Bank.

That is also supported by the following:

It is hardly surprising that upon its revelation, the decision on the part of Dr Arkhangelsky (as I find it to have been) to keep quiet about the arrest of ‘Tosno’ so as not to upset the reconstruction negotiations, caused the Bank to doubt its borrower. When added to that (a) the fact that the promised RUB 300 million proceeds from timber sales showed no signs of materialising, (b) Dr Arkhangelsky’s failure to provide

It is no answer for Dr Arkhangelsky to complain that the Bank was acting in its own self-interest; that is what commercial enterprises, including banks, sometimes have, and are entitled, to do. Only if some breach of previous commitment, or some overriding or paramount illegitimate reason for the decision, is demonstrated is that pursuit of selfinterest improper.

The last question becomes whether there is anything else in the wider circumstances of the refusal to extend the PetroLes and Vyborg Shipping loans which casts such a different light on the decision as to demonstrate that in truth the Bank made its decision predominantly for reasons different from the normal commercial criteria above identified (for example, as the Counterclaimants would have it, a plan to raid the two companies under the repo agreement).

The circumstances principally prayed in aid on behalf of the Counterclaimants (in addition to those I have addressed above) are (a) the Bank’s alleged failure to consider attempts to refinance; (b) the reversal of earlier recommendations in favour of extending the relevant loans when the matter was referred up to Mr Savelyev, Mrs Malysheva and the Managing Board, (c) the apparent availability of collateral well in excess in value to the amount of the loans outstanding and (d) the immediate aftermath of the refusal to extend, all of which are alleged to show the impropriety of the Bank’s decision and its true and improper motivation.

As to (a) (in paragraph [996] immediately above), the Counterclaimants maintain that the Bank’s true intention of procuring a default in order to further its ‘raid’ is exemplified by its failure to explore or take any account of Dr Arkhangelsky’s efforts to obtain refinancing at the end of 2008 and in early 2009. They say that Dr Arkhangelsky “had a lot to show to reassure his creditors…” and that the Bank was provided with details of his refinancing projects, including the Western Terminal IM, but apparently chose to ignore or attach no importance to them, even to the point of being unable, at least in the case of Mr Guz for example, to remember being aware that Dr Arkhangelsky had been trying to negotiate such projects.

In assessing this point it is not easy to put out of mind the fact that the IM was, to put it lightly, flawed and misleading, and that such refinancing interest as there was is likely to have been based on misleading, indeed fundamentally false information. Nor is it easy to exclude from consideration that fact that the refinancing efforts came to nothing (see paragraphs [390] to [393] above). But I accept that strictly neither has any more than limited relevance to the issue under immediate consideration, which is not whether refinancing might have been available, but whether the Bank’s lack of any interest in