Stein v Chodiev & Ors

This has been the hearing of the claim by Kirill Ace Stein (“the Claimant”) against originally six, now four, Defendants, Mr Patokh Chodiev (“the First Defendant”), Mr Alexander Machkevitch (“the Second Defendant”), Mr Alijan Ibragimov (“the Third Defendant”) and Ms Mounissa Chodiev, the daughter of the First Defendant, (“the Fourth Defendant”). The First, Second and Third Defendants, colloquially called “the Trio”, have held business interests together for over 20 years, and together run various successful businesses, primarily based in Kazakhstan, operating in mining, and in the processing and marketing of the products of those mines. Together they founded a business which became ENRC Plc, a natural resources company which was listed on the London Stock Exchange on 12 December 2007, but which has very recently been re-privatised. The Claimant is a US qualified lawyer, banker and corporate financier, who claims against the Trio and the Fourth Defendant sums due pursuant to an oral agreement allegedly concluded in January or early February 2006 (“the January Agreement”). Apart from substantial sums admittedly due and paid to him by various business entities of the Defendants between 2006 and 2011, a sum of US$4 million was paid by one of the Trio’s companies, CIM Global Investment N.V. (SA) (“CIM Global”) to a consultancy company which employs the Claimant, Aurdeley Enterprises Limited (“Aurdeley”) in April 2007; but the Claimant claims a substantial balance, which he asserts to be due pursuant to the January Agreement, relating to the balance of his entitlement to a success fee of 0.5% of monies raised by him for the Defendants and their Group (i) resulting from a syndicated pre-export finance facility, which produced between February and April 2007 US$1.48 billion, mostly used in order to fund the payment of dividends to the shareholders of the Group (substantially the Trio), who had themselves previously funded, through their companies, the construction, commenced in 2003, of a smelter in Kazakhstan (“the Trade Finance”) and (ii) from an Initial Public Offering (“IPO”) of the shares in ENRC Plc to obtain the listing to which I have referred, which raised for the shareholders, in respect of approximately 20% of the shares, the sum of US$3.1 billion.

The case requires my resolution of a number of disputed issues of fact, but I shall first endeavour to set out the relevant history by reference to common ground between the parties, to contemporaneous documents and to third party evidence.

In about Autumn 2004, the Claimant was introduced to the Fourth Defendant and her boyfriend Mr Radjabov by or in the company of a mutual friend, Mr Barinstein, a director at Deutsche Bank AG, who was the relationship banker of the Defendants’ business. It seems that in the following months the Claimant and the Fourth Defendant got together socially on a regular basis, and the Fourth Defendant began to seek advice and help from the Claimant. Mr Barinstein says that he understood from both the Claimant and the Fourth Defendant that they had been engaged in a number of discussions regarding the possibility of the Claimant managing an IPO which the Defendants were considering. At any rate he recommended to the Fourth Defendant that the Claimant would be a good candidate to be engaged by them, and the Fourth Defendant arranged for the Claimant to meet her father, the First Defendant, at his home in St. Jean Cap Ferrat in France, a meeting which took place on 28 July 2005. The Claimant and the First and Fourth Defendants discussed the appointment of the Claimant as a consultant, on terms of remuneration on the basis of a retainer and a success fee. It was agreed that the Claimant would seek further information about the Defendants’ business, and on 26 October 2005 the Claimant travelled to London from New York to meet with the Fourth Defendant, and Dr Sittard and Pieter Hammelink, senior figures in the ENRC organisation and to Kazakhstan, where on 30 October 2005 he had a further meeting with the First Defendant, who introduced him to the Group’s Financial Comptroller in Astana. Meanwhile Deutsche Bank presented on 27 September 2005 in Geneva a strategic roadmap for ENRC, including a draft equity IPO timetable for discussion, and according to the First Defendant the Government of Kazakhstan in late 2005 gave the Trio its consent for an IPO.

There were further discussions in December 2005 and early January 2006 between the Claimant and the Fourth Defendant, when she invited him to put a written proposal for his engagement to them in writing. According to the Claimant, by then (but on the Defendants’ case earlier) the Fourth Defendant had also mentioned to him the Defendants’ desire to raise finance in respect of the construction of the smelter, which was nearing completion, but had to be completed and operational by the end of 2007. The Proposal, dated 16 January 2006, based on those many discussions, was submitted by the Claimant to the Fourth Defendant (“the January Term Sheet”), prior to a meeting which was arranged between him and the First and Fourth Defendants at the Peninsula Hotel in New York to discuss it. The Fourth Defendant agrees that she had received and considered it before the Peninsula meeting, and although the First Defendant had not himself read it, she had summarised and explained it to him so that he knew its contents. As the document is of some importance in this case, I set out in full both the covering letter and the Term Sheet which formed part of it:

“As we discussed on the telephone a few days ago, below I attach some thoughts on compensation structure. For ease of reference I have used the format of a Term Sheet where I have also set out those items which I believe have already been discussed and agreed.

The main concept I try to reflect is the differentiation between “regular transactions” (such as financings and small scale-M&A transactions) and “liquidity events”.

I would define a liquidity event as the sale of equity to the public through an IPO or any other transaction which causes an effective change of control of the main company or its major subsidiaries/affiliates (whether through: (i) an outright sale of a controlling block of equity; (ii) the grant to a third party of certain corporate governance rights commensurate with effective control; and/or (iii) a transaction or a series of transactions whereby the current shareholders no longer own at least 50%+ 1 share). I would also include transactions whereby the potential for a change of control is present. For example, a sale of a minority stake combined with a grant of a call option to the buyer to subsequently increase its stake to a controlling one. In this last instance, I would envision that any compensation already paid for the sale of the minority stake would be adjusted in the event that the call option is exercised in the future. Such adjustment should occur even if the employer terminates the contract during the interim period.

My reasons for this differentiation are several. First, the successful completion of any liquidity event puts me at a significant risk of losing further employment or working for new and potentially unacceptable controlling shareholders. Second, I view the successful completion of a liquidity event as the primary objective of the shareholders and believe that my interest should parallel that of the shareholders in this regard. Third, a successful future liquidity event will require significant preparatory work and therefore any compensation upon completion should be more appropriately viewed as having been earned over the entire period of employment.

Accordingly, I have proposed the structure set forth below. In the interest of simplicity, I tried to be as brief as possible. Any definitive agreement would clearly contain significant more detail. As we both have only begun to set pen to paper, I suggest that we use the Term Sheet as an outline and add meat to the skeleton as we progress further.

Please review it, as you deem appropriate and revert to me with comments/questions you may have.

Last, but not least, I would like you to consider allowing me to sit on the board, as I believe that my participation in discussion of strategy will be crucial to efficient achievement of shareholders’ objectives.

With best regards,

Kirill

Term Sheet

Base Salary	USD $500,000 per annum
Guaranteed Minimum Bonus	USD $500,000 per annum to be paid in addition to the Base Salary. Such bonus to be offset against any earned bonus for the year at issue.
Earned Bonus	Regular transactions – (expressed as a percentage of the transaction value (Footnote: 1)). (i) up to USD $500 mln. – 1% (ii) greater then USD $500 mln., but less than USD 1 bln = 0.75% (iii) greater then USD 1 bln. – 0.65% Liquidity Event – (expressed as a percentage of the transaction value). The greater of USD 10 mln or 0.5%.
Other Benefits	(i) Use of a corporate Credit Card for business purposes; (ii) Reimbursement of reasonable travel expenses, including taxis; (iii) Reasonable Apartment rent; (iv) Use of a cellular phone; (v) Use of a secretary
Severance	Severance package to include: (i) three months salary; (ii) the greater of (a) any Guaranteed Minimum Bonus on a pro rated basis; or (b) any Earned Bonus which would have been payable had no termination occurred. ”

It is common ground that after some discussion the First Defendant indicated that the Claimant should make his proposal simpler, or less complicated, and that they should just say 0.5%. The Claimant said he would think about this, and the First Defendant said that he would speak to his partners (a reference to the Second and Third Defendants). It is agreed by the First Defendant that he told the Claimant this must be kept confidential. The Fourth Defendant and the Claimant spoke on the telephone some days later (“the post-Peninsula telephone call”), and reached agreement.

The Claimant relocated to London and started to work on 1 March 2006, based in the offices of Alferon Management Limited (“Alferon UK”), a company owned by Dr Sittard and associated with the Group. On 25 April 2006 the Claimant flew with the First Defendant to Kazakhstan, and met the Second Defendant, who had been reported in an article in the Mining Journal on 24 March 2006 as confirming that part of ENRC would be listed in London through an IPO in 2007, in Astana for the first time. The Third Defendant recollects meeting him prior to that in London.

The Claimant became extremely busy in negotiating and setting up the financing, which he recommended to be by way of Trade Finance. He was also meeting with, among others, McKinsey (who sent him and the Fourth Defendant a memorandum dated 2 May 2006) relating to preparation for a successful IPO. Although draft agreements were prepared in respect of the Claimant’s engagement, none was signed, nor remuneration paid, until September 2006, when there were two Service Agreements (“the Alferon Service Agreements”) executed between two Alferon companies and the Claimant relating to the period 1 August 2006 to 28 February 2007 (being one year from his start on 1 March 2006), with provision for renewal, relating to his service as Head of Corporate Finance with responsibility (by clause 4.3) for “assessing the appropriateness of the financial systems of the Company and/or any Group Company, including being responsible for all financial disciplines and providing general financial advice as and when required in connection with the possible flotation of the Company or any Group Company or any related entity on such securities exchange as the Board may seem fit [and] in addition the Executive shall be responsible for undertaking such work as may be necessary to enable the Company or any Group Company access to outside finance (whether through the capital markets or otherwise)”.

Additionally a contract was executed between Aurdeley and an entity obviously emanating from the Defendants, but whose identity neither any of the Defendants nor their witnesses could explain, called Darcon Marketing Ltd (“Darcon”). This was intended to pick up the balance of the retainer which had not been paid because of the delay in execution of the Alferon Service Agreements, amounting to a total of $243,000. In addition there was provision in clause 4.2 for what is called a “second retainer” of $500,000: it is common ground that this was the provision relating to the “guaranteed minimum bonus” in the January Term Sheet.

A draft of this contract had been prepared by the Claimant which contained definition clauses by reference to a “Closing” in respect to any “transaction”, and “Transaction” was defined in clause 1.1 as meaning “the raising of funds through the use of debt and/or equity instruments, whether through the public or banking markets or otherwise”. These definitions remained in the final agreement as executed. What, however, was included in the draft as clause 4.3, but was removed from the Agreement as executed, after clause 4.2 relating to the “second retainer” was the following clause:

“4.3

The Principal shall further pay to the Consultant a bonus calculated as follows:

(a)

For each Closing, [0.5%] (one half of one percent) of the total amount of funds raised, whether through debt and/or equity (the “Bonus”); and

(b)

Any such Bonus shall be paid on or before February 28, 2007.”

The Claimant continued to work on the Trade Finance. By virtue of what the Defendants concede was excellent work on his part, instead of what the Fourth Defendant accepts was originally discussed at the end of 2005 as being the raising of $300 million, the amount to be raised increased to $600 million by June 2006 and then by November 2006 to $1 billion, and eventually as a result of a successful syndication by March 2007 to $1.48 billion. The majority of the money was used, the smelter in fact having been self financed by the Group, to pay out dividends to the shareholders, including the Trio. He was also doing preparatory work in respect of the IPO, on which work started in earnest by October 2006, by which time he was arranging the necessary ‘beauty parades’ in respect of the professional advisers. Mr Charles Lucas, who from 2005 led ABN Amro’s relevant Equity Capital Markets Group, whose bank was appointed as joint book runner on the IPO, confirmed in an unchallenged witness statement that he understood the Claimant to be the “deal co-ordinator” on behalf of ENRC for the IPO, which was originally anticipated to take place before the end of June 2007.

By a memorandum of 16 January 2007 Deutsche Bank submitted its fee proposal for the IPO to the Claimant, in respect of its appointment as lead underwriter for the IPO. Once all the advisers were appointed, an IPO kick-off meeting took place in Kazakhstan at the beginning of February 2007. Dr Sittard announced to the meeting that the Claimant was leader of the IPO, and the Claimant addressed the meeting in that capacity.

On 28, 29 and 30 March 2007 the increase of the Trade Finance to $1.48 billion was agreed and signed off by the Board of ENRC Marketing AG, authorising (apart from the board members) the Claimant in that regard, and the completion date for receipt of the last tranche of $480 million was set for 12 April 2007.

On 1 April 2007 in Zurich the Claimant met with the Second Defendant and with the First Defendant’s nephew Olim Chodiev. The Second Defendant announced that the Claimant would be paid a bonus in respect of the Trade Finance, calculated by reference to 0.5% of $1 billion (not $1.48 billion), from which were to be deducted his $500,000 guaranteed bonus and his $500,000 annual retainer. So far as the IPO was concerned, he repeated an offer made some days earlier by Dr Sittard to pay him a bonus of $1 million for working on the IPO. It is common ground that the Claimant regarded this as unacceptable, and said he would be leaving the Group. An agreement was drawn up between another of the Defendants’ companies, whose representative was Mr Olim Chodiev, CIM Global Investments NV (SA), and Aurdeley dated 5 April 2007, which did not contain a full and final settlement clause (although it contained at clause 9 an entire agreement clause) and the $4 million was paid to Aurdeley on 11 April. On 13 April, the Claimant’s last day in the Alferon offices, the First Defendant came to see him, and it is common ground both that the Claimant vigorously complained, and that he threatened to sue. The First Defendant proposed that rather than engage in any legal action the Claimant should come and work for the Chodiev family businesses. The Claimant said that he would think about it. In August 2007 the Fourth Defendant telephoned the Claimant and asked him to help out with a problem that had arisen in the family business, and the Claimant agreed to accept the First Defendant’s offer which, when executed in service agreements with the Claimant and Aurdeley, backdated to September 2007, involved remuneration of $1 million per year.

The IPO was delayed from June to September 2007 but was completed in December 2007. A total of some $3.1 billion was raised.

The Claimant continued to work for the Chodiev family businesses. The First Defendant confirms (in paragraph 20 of his second witness statement) that “I clearly remember conversations, on more than one occasion, where I confirmed that despite his suggestions to the contrary no sums were outstanding from his time at ENRC, and that my partners and I had been true to our word. However [the Fourth Defendant] and I thought, despite his complaints, that he would be useful to our family and had done good work. I was happy to ensure that he earned good money going forward provided he succeeded in those projects.”

Between September 2009 and August 2010 these complaints led to discussions of paying the Claimant $3 million plus interest and giving him equity participation in the Chodiev businesses, while the annual consultancy agreements with the Claimant and/or Aurdeley continued, although for a time the Claimant’s remuneration was reduced, over his protests, until the First and Fourth Defendants personally agreed to reimburse that reduction by entering into service contracts with Aurdeley.

By an email to the Fourth Defendant (seemingly being the agreed method of communication, as the First Defendant does not use email) dated 26 September 2010 the Claimant set out in what, it is common ground, was the first time in writing his complaints. I set out the material parts of what was a lengthy email, which are important as they set out his case in detail:

“Given . . . the fact that all my efforts and compromises to reach a mutually acceptable resolution since May of 2009 have still not borne any fruit, my position is becoming more and more untenable by the day and my patience and goodwill is wearing thin. I now write to explain clearly my current position in the last hope that we can still resolve these matters and continue forward in a mutually productive relationship.

As you have been aware for many years, my position has always been that my agreement with you(r) father and his two business partners, relating to the work I did in raising financing for KazChrome and preparing ENRC for a public listing, was not honored. More specifically, under the agreement with your father and his partners, I was to be paid one half of one percent of ALL moneys that I raised for their company plus a salary of $500,000 annually.

This should have resulted in a total compensation of $8 mln, based on the $1.5 bln I raised in the KazChrome financing and another approximately $15 mln, based on the $3 bln raised in the public listing of ENRC’s shares on the London Stock Exchange.

In fact, rather than the approximately $23 mln I should have received for my work, the total amount that was actually paid by the three main shareholders of ENRC was $5 mln.

The reason for this was that the three shareholders unilaterally shortchanged me on the KazChrome financing and simultaneously chose to unilaterally amend our agreement going forward and offered me a fixed payment of $1.5 mln to complete the IPO. This was done mere months before the IPO was successfully completed and more than one year after I had begun my work.

No reason for any of these unilateral actions was given. Not for failing to pay the full fee on the financing. Nor for completely ignoring our agreement in respect of the IPO and thereby, forcing me out of the company.

This was all the more hurtful and hard to understand for me given the fact that I not only fulfilled ALL of the goals that were set for me by the shareholders, but in fact exceeded these goals substantially. I raised five times more funds than was originally hoped for and did it on terms that the company, to this day, is not able to achieve in the markets, even as a public company. So in my mind, there was no valid commercial reason to deny me my proper compensation and the only justification I can think of is pure greed.

As a result of breaching our agreement and offering to compensate me in an amount that is, in fact, less than 30% of the compensation I would have been entitled to had the agreement not been breached, I had no choice, but to leave the company and consider my legal options.

On my last day with the company, your father came to me and rather than explaining why he and his partners chose to breach our agreement, he proposed that I not engage in any legal action, but rather, come to work for your family business and that the moneys I lost as a result of the breach would be well recompensed to me in the future, if I agreed. I responded that I did not see any reason why I should give-up my claims, but that I would consider his proposal in the spirit of seeking a non-legal resolution to this situation.

As you are also aware, I took some time to understand your family businesses and my conclusion, which I presented to your father, was that I did not believe that the businesses were of the size and scope sufficient to allow me to earn my expected compensation and certainly not enough to allow me to re-earn what was already owed to me.

Nevertheless, your father was very persistent in convincing me that I would come out ahead financially if I avoided a law suit and accepted his offer.

I also noted that notwithstanding my position on my claims, I was willing to make every effort to avoid a lawsuit because I believe this to be an instrument of last resort and more importantly, because my lawsuit against the shareholders and the time that the IPO was in it’s final stages would have likely caused significant problems for the successful and timely completion of the IPO. My goals was to recover the funds that were owed to me, not to hurt the company nor to be vengeful.

In that spirit, but expressly without giving up any of my rights, I agreed to join your family’s business and to try to recover what I had already earned by, in essence, . . . working some more. We agreed on a salary of $1 mln plus housing and discretionary bonus and I started three years ago.

. . .

During this entire time, I have always maintained the constructive position that I was willing to compromise on the amounts owed to me from my time at ENRC, but I was not willing to accept a total loss. Moreover, my compromise on the ENRC claims was based on reaching agreement on a significantly higher level of compensation than the originally agreed $1 mln (whether in salary or in salary + bonus) and some form of a long-term interest in the various projects that I was engaged on. More specifically, I proposed to your father that I would accept a payment of $3 mln, covering the shortfall, of the KazChrome financing fee, plus interest thereon at a rate of 5% annually; plus the shortfall in my salary since July of 2009 was to be compensated (approx $480,000); and all of this if and only if, we were simultaneously able to reach agreement on a long-term relationship that would include an increase my compensation by a factor of several times and some kind of a participation interest in the business.

In response, your father agreed that the $3 mln, was clearly owed to me and that he would make it up to me. He further proposed to make me the CEO of the business. Nothing was said about the timing of any payment of the $3 mln; nor the level of salary; nor about a participation interest in any of the projects.

When I pressed for sufficient detail to evaluate this proposal none was forthcoming until 1.5 months ago when your father finally made time for us to have another discussion on this issue.

During this time, however, I have been pushed to assume the position of CEO with full responsibility over all of the projects. You know that I am a professional and conscientious person and notwithstanding the fact that none of my issues had been appropriately addressed, I have worked very hard, travelling extensively and working long hours, seven days a week to try to ensure that the role of CEO was fulfilled and the business did not suffer while we continued to seek a resolution.

Finally, in the middle of August, after much pushing from my end, your father told me that he would re-pay the $3 mln owed to me over the next three years (by 2013) and without any interest. This would mean that I would receive the last of the amount on which I agreed to compromise a full seven years after it was rightfully due and payable and without any compensation for the time value of money. He also proposed to reinstate my original compensation of $1 mln annually, notwithstanding the fact that the pressure on my time and the level of my responsibility has increased significantly in my function in the role of the CEO.

Now that I have briefly summarized the basic history, I would like to explain my reasoning why this proposal is completely unacceptable to me and why it does not make any sense for me to work with Ian on reinstating my old salary, as you have asked him to do.

First and foremost, I continue to believe that I am owed significantly higher sums than $3 mln ($18 mln + interest to be exact) and that this amount was proposed by me in the spirit of good will and only in conjunction with resolution of all of the remaining issues (salary level, participation interest, long-term contract).

Moreover, in order to agree on the remaining issues, this amount must be paid with interest and must be paid not later than the date that any new agreement is executed. I believe that there can be no talk about the future until the past is fully resolved and settled.

In the absence of this, it simply does not make any sense for me to give-up my prior claims, which, again I believe to be significantly higher.

Second, as regards the reinstatement of my previous salary, this issue is closely connected to the timely payment of the $3 mln plus interest, to the level of responsibility that I have over the operations of the business and to what I believe I could earn on the open market given my background and level of experience.

Assuming, for the sake of discussion, that we will agree on the repayment of $3 mln plus interest, inter alia, please understand my reasons why I find the proposal to simply reinstate my salary to its original level unacceptable;

. . .

You know and understand that business is all about weighing risks against probabilities of success. Applying this to the current situation and assuming a three-year contract, my reasoning is as follows.

If I accept your proposal, the absolute most that I can earn in a BEST CASE scenario is $6 mln ($3 mln in salary over three years plus a partial return of the debts due to me of another $3 mln). So a full six years after I had agreed to defer seeking legal redress, but rather to put my trust in your family, I would still be more than $12 poorer than if no breach had ever occurred.

If, on the other hand, I terminate the contract in October, I will immediately receive my severance of $1.04 mln and be fully free to pursue my ENRC claims and to seek other employment. Even if we assume that I agreed to fully and immediately settle my ENRC claims for the very same $3 mln plus interest (which I would never agree to in that context) at the time of my departure next month I would have approximately $4.5 mln. Why would I instead agree to 30% more but would have to wait another three years to get it? There’s just no commercial logic in this whatsoever.

The reason for my pointing out all of this is not to make a legal argument and not to threaten with a legal process. It is simply to explain to you my logic when I analyze this situation, so that you understand why I take the positions that I do and why my proposal (described below) differs so significantly from yours. It is also intended to avoid wasting time in coming to a resolution - whatever it may be.

Although I’m very confident that you and your father have always understood my position, but pretended not to because it was convenient for you, now that I have taken the trouble to put all of it in writing in one document, this will no longer work. Either we work this out and both compromise and compromise significantly or we don’t.

I’m sure that you know that I always prefer to work things out amicably and that I will be happy to continue my relationship with your family. To be sure, ALL my actions over the last three and one [half] years have been aimed at resolving this amicably and giving your family the benefit of the doubt. I have taken significant risks and have delayed receipt of significant financial sums to do this and have, all the while, continued to work very hard, harder than anyone else in your entire organization, for your benefit and for the protection of your interests. None of it has been appreciated and none of it has been compensated and therefore, it is finally time to put my interests first.

Accordingly, my proposal is that we agree on a three-year contract which would include the following:

(a)

on the date of execution of this new contract I will receive the $3 mln owed to me plus interest thereon at a rate of 5% from February 2007 through the execution date;

(b)

the difference between my old compensation level of $1.12 mln (including housing) and my current level of $750,000 (including housing) will be compensated to me for the time period beginning with July, 2009 and ending on the date of execution of the new contract;

(c)

my new compensation level will be not less than $3 mln annually (whether in salary or salary plus bonus); and

(d)

the contract will provide for my equity participation in the various projects that I have responsibility over. Because each project has different time horizons, levels of risk and more importantly, shareholder structures, detailed discussions on this issue will need to be had to determine the level of equity participation and the best way to accomplish this. (eg. This could be done at the main holding company level, or at the level of each project separately). The basic concept is that I would need to fulfil the three-year contact to vest into the equity and would be fully vested thereafter; and

(e)

all ancillary matters (such as use of a car during my employment) would be appropriately and finally resolved.

To the extent that my proposal is acceptable to you, I intend to complete all discussions and documentation required to put it into place by the end of October, 2010. If my proposal is not acceptable to you, please let me know at your earliest convenience. In such an event, my intention is to terminate the month-to-month contracts at the end of October, 2010, seek immediate payment of the severance due to me under both contracts and to pursue other opportunities going forward. If no response from you is forthcoming within a reasonable period of time hereafter, I shall treat this as a refusal of my proposal and shall act in the manner described in the immediately preceding sentence.

Once again, I want to assure you that I want to work and believe that, given the opportunity to do so, can contribute significantly to the business. I cannot and will not, however, continue to maintain the status quo in direct contravention of my own best interests.”

There is little dispute as to what the response of the Fourth Defendant was to this email, because she and the Claimant each describe it in their witness statements, he in paragraph 405 to 409 of his first witness statement, and the Fourth Defendant in paragraph 58 of her second witness statement, which reads as follows:

“On 16 March 2011, [the Claimant] says that he met with me to discuss his compromise proposal (paragraph 405). As he says, the meeting was heated and emotional – most meetings with him were. We did discuss his issues and he said he felt he had been underpaid on the IPO. I did tell him that it would be unfair to my father to have to pay him anything further for his time at ENRC – [the Claimant] had left ENRC, been paid everything that was due to him and shaken hands with [the Second Defendant] at the time and accepted a US$4 million settlement. We did discuss these things, but it is not true that he came to work for us to make up for any money still due for his time at ENRC.”

The Claimant terminated his employment with the Chodiev family on 31 March 2011, as he had said in his letter he would. There was a final meeting on 22 April 2011 between the Claimant and the First and Fourth Defendants and two other members of their family. Termination payments in respect of the family contracts were agreed, as set out in his letter of 24 April 2011, and although he expressed a willingness to carry out further services for them (and for a short time did so) there was no agreement reached in this regard. No payment was made in respect of any of his claims in respect of his time with ENRC. He expressed a hope that “we can part ways professionally and amicably and remain until Wednesday at your disposal should you wish to discuss anything further or if you have any questions”.

The agreed severance payments were made on 11 May 2011. No settlement agreement was signed. The Claimant’s letter before action was sent on 24 February 2012.

The issues for me to resolve are as follows:

There is little or no law involved in the dispute. The decision in respect of Issue 1 will be largely if not entirely factual, although informed by such authorities as Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 and Maggs v Marsh [2006] BLR 396. Issue 4 may require implicit consideration of the law on usual authority and/or undisclosed principal and/or guarantee or indemnity, but again consideration of it will be marginal. As to Issues 5 and 6, the question of ‘effective cause’ was raised by amendment by the Defendants, but in the event it features hardly if at all. Finally as to Issue 7, this too will be largely if not wholly a matter of fact, but if necessary there could be consideration of the authorities on the law of compromise collected by Sir David Foskett in the 7^th edition of his book at paragraph 3-12 to 3-16.

In those circumstances, the case depends upon the resolution of disputed evidence, relating to events primarily in 2005 through to 2007. Much therefore depends upon my assessment of the witnesses whom I have heard and seen giving evidence, both in chief, because I requested that, in relation to the most disputed areas, the Claimant, First Defendant and Fourth Defendant gave oral evidence in chief, and when cross-examined and, to an extent, re-examined. Inevitably a judge of oral evidence will make allowances for inconsistencies and contradictions in relation to the recounting of recollections of events many years ago. He will also be astute to appreciate and to take account of those inconsistencies and contradictions which appear immaterial or can be accounted for or accepted as inevitable or accidental. The judge will also be looking for what has been described as a hook, upon which to peg a conclusion, or to give corroboration to one side or the other, which is not dependent upon the vagaries of recollection. In this case there was some contemporaneous documentation, although not as much as there should have been because for some reason ENRC, and/or the Defendants’ companies, have operated an unusually radical programme of disposition, not only of hard copies but of documents contained on computer. Clearly the most important contemporaneous documents were the January Term Sheet, and the draft Darcon contract referred to in paragraph 9 above. The other hook upon which a Judge can feel confident in resting, or at any rate testing, his conclusions is that of unchallenged evidence. In this case the evidence of two of the witnesses for the Claimant was not challenged, those of Mr Lucas, then of ABN Amro, and of Mr van Broekhoven, who gave evidence as to the Trade Finance. There was also third party evidence, from apparently independent parties with nothing to gain from their evidence (who in both cases attended under witness summons), both of whom supported the Claimant’s case as to his entitlement and involvement in respect of the IPO, Mr Barinstein, then of Deutsche Bank, the relationship banker for the Defendants but also a friend, and original recommender, of the Claimant, and Mr Radjabov, the former long-term boyfriend of the Fourth Defendant.

Inevitably there was some interlocutory jostling for position, not all of which reflected well on either party. The Claimant included in his witness statement a good deal of background information as to his work with the Defendants and their businesses in 2006, which the Defendants say was only included in order to create embarrassment for them and perhaps to encourage them to settle short of the court door. He also included as Defendants not only the Fourth Defendant, the First Defendant’s daughter, but the Fifth and Sixth Defendants, the children of the Second and Third Defendants, both of them involved in the business but neither on the evidence playing any material part in the relevant history, and the Defendants submit that the inclusion of those Defendants, only abandoned by the Claimant in the light of a summary judgment application brought by the Defendants on the first day of the hearing, was another indicator of the putting on of collateral pressure by the Claimant. On the other hand, the Claimant asserted, an issue which I cut short because it seemed to me likely to lead into collateral issues, that the influence of the Defendants has been such that he has not been able to obtain relevant work in his specialist field in Russia since bringing these proceedings. And just before the start of the trial separate leading and junior counsel and solicitors instructed by the now privatised ENRC intervened in order to seek injunctions not only preventing the airing of some of the matters in the Claimant’s witness statement to which I have referred (and which I excluded), but also of documents which, given the paucity of disclosure from the Defendants’ businesses, for the reasons I have given, were essential for him to seek to prove his case as to his involvement in the IPO: the issue of confidentiality as between the Claimant and ENRC remains to be resolved in new proceedings brought against him for that purpose and adjourned by me until after this trial. I do not regard any of this as playing any material role in my assessment of the witnesses.

Inevitably when assessing the credibility of a witness who seeks recovery of a very substantial sum allegedly due pursuant to an oral agreement made 8 years ago, a judge would approach such claim with scepticism, even without encouragement from the Defendants by reference to the words of Gloster J in paragraphs 90 to 95 of Berezovsky v Abramovich [2012] EWHC 2463 (Comm). However I found the Claimant a most impressive witness. He met the able cross-examination by Mr Flynn QC with steadfastness, moderation and credibility. On occasion he may have embellished his case – although it may well be that he was simply belatedly remembering matters which after so long had been forgotten – as in his assertion of the discussion of a 12 month ‘tail’ (referred to in paragraph 21 above) with the Fourth Defendant at St. Jean Cap Ferrat, or his recollection of a particular conversation with the First Defendant in Moscow in early 2008, not mentioned specifically in his witness statement and not put by Mr Oudkerk QC his equally able counsel, in cross-examination to the First Defendant, some time after the completion of the IPO. However, I found his evidence credible and consistent, and, in particular, consistent with and supported by the contemporaneous documents and the independent witnesses.

As to his witnesses, the credibility or honesty of Mr Barinstein was not challenged. It was pointed out that he was a long standing friend, and indeed business associate of the Claimant, but also (indeed for longer) of the Fourth Defendant, and not only does his wife remain in business with the Fourth Defendant, but he continues to have a professional relationship with ENRC. His evidence was sensible and persuasive, and he gave accounts of conversations both with the Claimant and with the Fourth Defendant at the relevant time which substantially supported the case of the Claimant. I have already referred to the supportive evidence of the plainly independent, and unchallenged, Mr Lucas of ABN Amro. So far as concerns Mr Radjabov, he was not challenged in relation to any specific evidence he gave as to the conversations at the material time, of which he also spoke, both with the Claimant, with whom he was friendly, and with the Fourth Defendant, with whom he had a long standing and intimate relationship. I am entirely satisfied that he was giving honest evidence and was not in any way motivated, as was suggested, by any antipathy towards either the Fourth Defendant, with whom he had had a close relationship, on and off, for some 8 years, or her father, the First Defendant. I am entirely satisfied that the third party witnesses called by the Claimant were indeed independent.

As for the Defendants, they called no independent witnesses. The First, Second and Third Defendants are all very experienced and powerful men. They gave evidence with the assistance of an interpreter, but such was the ability of the interpreter that I am satisfied nothing was lost in relation either to lack of spontaneity or comprehensibility in relation to their giving of evidence. I found Mr Olim Chodiev an unpersuasive witness, although he gave evidence primarily only of the meeting of April 2007, particularly in the respect detailed below. There were material differences between the evidence of the First and Fourth Defendants, to which I shall return, and which Mr Flynn invited me to accept were the inevitable differences of recollection by witnesses honestly intending to give a true account. There was however a significant feature in relation to the Defendants’ evidence, which is relevant to the credibility of all their leading witnesses. I shall describe below how Dr Sittard, the CEO of Alferon UK, and subsequently the CEO of ENRC after the IPO, included a false case in his witness statements, which he only (and then at first only partially) corrected on going into the witness box, and before deposing to the truth of those statements in the witness box. He in fact was the last witness to go into the box, and therefore that false case was not withdrawn until he did so on Day 11.

The case was that the Claimant had never had anything material to do with the IPO, and that Mr Amre Youness was appointed in October 2006 to lead the IPO, not the Claimant. Dr Sittard accepted, by his correction, that Mr Youness was not appointed to lead the IPO until after the Claimant had left in April 2007 (a case which had been painstakingly put by Mr Oudkerk to the earlier witnesses and rejected by them), and that he had appointed the Claimant to lead the IPO (admittedly only in February 2007, on his case). Prior to this correction, in relation to a matter of considerable importance to the question of whether the Claimant had been asked to lead the IPO on terms of receiving a success fee, all of the First, Second and Fourth Defendants and a Mr Ehrensberger, who had been called specifically to give evidence as to the preparatory work done on the IPO prior to April 2007, had firmly rejected any suggestion of the Claimant having any role, never mind a leading one, in the IPO or its preparation. For example the First Defendant said (Day 10/47):

“Absolutely wrong position, wrong picture. Absolutely wrong. It was Mr Youness who was coordinating the [IPO] work. Mr Stein had nothing to do with it.”

Careful assessment of the evidence is required, and the Claimant carries the burden of proof of the oral agreement. But I preferred his evidence and those of his witnesses.

This is in the end not a difficult issue to resolve. The January Term Sheet plainly contained the provision for a success fee or bonus. The First Defendant said this should be simplified. 0.5% had been plainly reached, by the end of the Peninsula meeting, as the figure which both sides were to consider (e.g. Day 6/113). The Fourth Defendant and Claimant “locked” (as she put it, by reference to reaching agreement) in the subsequent telephone conversation, on 0.5% on sums raised. The 0.5% was later the basis for the $4 million in April 2007 (referred to in paragraph 13 above) which was apparently the result of prior discussions between all the Trio, albeit announced to the Claimant by the Second Defendant. There was no ‘floor’, as had been proposed in the January Term Sheet, once the First Defendant insisted that the terms should be kept simple – i.e. the 0.5% on sums raised. There was the severance provision, which was not specifically discussed, nor any tail agreed, even if the tail was raised. But what was on any basis agreed was 0.5% on funds raised. It does not feature in either of the Alferon Service Agreements, (the responsibility of Dr Sittard, who knew nothing about it), but where it did feature was in the draft Darcon contract; and it was then removed from that draft not because it was not agreed but because (per the Fourth Defendant) it should have been described as discretionary or (per the Claimant) because he agreed to take it out as he was told that it should remain confidential. What however was not agreed was that it was subject to being subsequently incorporated in a service contract, because the Alferon Service Agreements did not contain it, and yet it was, as I am satisfied, treated by both sides as binding.

The Third Defendant lucidly addressed how in fact the Claimant started work in March 2006 on an oral agreement, albeit by reference to his assertion that the 0.5% only applied to the Trade Finance and not to the IPO (Day 8/160-161), and he refers (at Day 8/165) to the fact that, on his case, the payment by CIM Global in April 2007 “honoured our verbal agreements on bonuses”.

I am entirely satisfied that:

The significance of this issue is that there is no plea by the Claimant that, if the success fee was discretionary, i.e. at the discretion of the Trio or Dr Sittard, they were obliged to exercise such discretion reasonably, or were only entitled to exercise it so as to award 0.5%, or certainly not to exercise the discretion so as (i) to deduct the $500,000 salary retainer (ii) to award no fee at all in relation to the $0.48 billion or (iii) to award no fee, or only the $1 million that they offered on 1 April 2011, in respect of the IPO. Hence the result would be that the Claimant’s claim would fail in all respects

The Claimant’s claim is straightforward. It is that he was invited to put forward a fee proposal, having discussed with the Fourth Defendant, and with Mr Barinstein, beforehand what terms to propose, and that he proposed, indeed he believed that in relation to the IPO it had at least been provisionally agreed by the Fourth Defendant, that he should receive, in addition to the $500,000 salary retainer and a $500,000 guaranteed bonus, the percentage set out in the January Term Sheet, that the First Defendant then said (as the Fourth Defendant accepts) that this was too complicated, and suggested 0.5% (which the First Defendant would discuss with his partners and the Claimant would consider) and that in the subsequent telephone conversation, when he and the Fourth Defendant locked, the 0.5% was agreed. There was no mention of discretion, and had there been he would not have agreed to it, as that would have left him at the mercy of the Trio, who had no prior experience in the banking field.

The Defendants’ case varies, as between the First Defendant and the Fourth Defendant:

There are difficulties, apart from such inconsistency, in such evidence by each of these Defendants, in each case not appearing in their witness statements:

It is plainly more likely that a bonus could be discretionary, particularly a bonus not calculated by reference to any formula, than a success fee of a certain percentage of monies raised, but understandably Mr Flynn pointed to two pieces of evidence in his support: first, the evidence of Mr Barinstein at Day 7/48-49:

“My understanding is that a discretionary/success fee is pretty much the same. So it’s up to the parties to determine whether it was successful or not and usually it is a success if you raise capital. For instance, I can only talk how banks work in terms of the discretionary bonus. So in our example, we charged the company 2.25% and we had a 0.5% discretionary success fee, which meant that if the company was happy with our performance, they would pay that additional 0.5%”:

secondly, the fact that, when referring to a discretionary bonus that he had received from a previous employer, the Claimant referred to it as a success fee.

So by reference to Mr Barinstein’s evidence there can be a fixed success fee or a discretionary success fee. The Defence pleads the Defendants’ case at paragraph 6, as follows, that what was agreed was that “the companies for which the Claimant would work would have the discretion as to whether to pay a bonus at all, and that, if they were satisfied generally with his performance, their current indicative suggestion would be to pay 0.5% of any trade finance raised”.

There are a number of significant factors as to whether there was a fixed success fee.

First, to set against the clear terms of the January Term Sheet, which makes no reference to discretion, the evidence of the First and Fourth Defendants is unimpressive. Each has put forward a case, relating (respectively) to the pretty name at the Cap Ferrat meeting and to the showing up of the whole discretionary component only in the post-Peninsula telephone conversation, which are both inconsistent with each other and with their own accounts of Cap Ferrat and the Peninsula meeting. Quite apart from the unlikelihood of both the Fourth Defendant and the Claimant having no recollection of the pretty name conversation at Cap Ferrat, the recollection of the First Defendant, the Claimant and indeed the Fourth Defendant herself (e.g. Day 7/124) as to how the Peninsula Hotel meeting ended, with the simplified 0.5%, renders it unlikely that the ‘discretionary component’ would have then come up (and for the first time) afterwards.

Secondly, it seems to me to be common sense that unless the words “discretionary” or “discretion” are used, or at any rate fall to be implied, as in the example used by Mr Barinstein (where there are two different percentages), then a success fee of a percentage of monies raised is not dependent upon discretion. Of course there may be other ways of expressing the existence of a discretion, for example if the percentage is said to be a ‘maximum’; but the First Defendant was clear (Day 9/126) that the word maximum was never mentioned, and although the Fourth Defendant suggested that the Claimant used the word in her new account of the telephone conversation at Day 6/124, quoted above, she expressly says at Day 8/30 that she is not saying that it was ever agreed that there would be a “discretionary success fee of a maximum of 0.5%”. Without words such as maximum or up to, it is difficult to see how there could be any implication of discretion.

Thirdly, that this is so is quite clear from the disputed evidence about the draft Darcon contract, to which I referred in paragraph 9 above. The Fourth Defendant says that she insisted that draft clause 4.3 (a) and (b), set out in that paragraph, should come out of the agreement because it did not provide that the bonus was discretionary. This account is of itself significant in two respects. First, it implies that without qualifying the bonuses as being discretionary, they would be fixed, and secondly, it shows that the Claimant believed that it was a fixed percentage. In any event, as Mr Oudkerk submits, it seems a wholly unpersuasive reason for taking the clause out of the draft, when all that would be necessary would be for the clause to be amended to include the necessary wording. The Claimant however says, as set out in paragraph 9, that what actually happened is that the Fourth Defendant insisted on the clause being taken out because it was to be confidential. If that was so, then it was plainly agreed to be a fixed fee, and was to be taken out specifically because what had been agreed was to be kept confidential. The Fourth Defendant denies that this was the position. However the evidence is all the other way:

The significance of this is not only that it contradicts the Fourth Defendant’s explanation of the reason for the exclusion of the fixed fee provision from the draft Darcon contract, and supports the Claimant’s case in that regard, but it also undermines the First Defendant’s belated account as to the pretty name, at least insofar as it suggests that the Claimant was to have the same kind of bonus as his other employees. The fact that it was to be kept confidential from the other employees supports the likelihood that it was different, at least from the terms offered to the ordinary employee: it remains unknown as to what the terms of remuneration of Messrs Sittard, Hamelink and Youness were in their contracts, as they have not been disclosed by the Defendants, not even that of Mr Youness, which Mr Ehrensberger said in evidence ought to be available.

Fourthly, as Mr Oudkerk pointed out in his closing, the fact that the Claimant was asking for a fixed fee of 0.5% was reported by the First Defendant to the Trio, according to the evidence of the Second Defendant (Day 11/25), and apparently agreed amongst themselves to be unacceptable as contrary to normal practice. The Second Defendant could not remember when that conversation took place, but there is no sign whatsoever of any alleged rejection by the Trio being imparted to the Claimant, and as Mr Oudkerk submitted, it clearly supports the proposition that the Claimant was seeking, and in the light of the inadequate evidence of the First and Fourth Defendants and the contemporaneous documents, obtained, a fixed success fee of 0.5%.

The January Term Sheet itself together with the draft Darcon contract are persuasive contemporaneous documents to show that the 0.5% success fee was agreed and was not discretionary. The $500,000 guaranteed bonus (but not the $500,000 salary retainer) fell to be set off against it in the event that, as in fact eventuated, at least in relation to the Trade Finance, the 0.5% success fee fell to be paid. The account given by Mr Olim Chodiev of how the alleged discretionary bonus was said to work, namely by subtracting not only the guaranteed bonus but the salary retainer (which is what in the event occurred when the Trio purported in April 2007 to recognise the Claimant’s achievement in respect of the Trade Finance), so that a discretionary bonus of $1 million could lead to a nil payout (Day 10/130-134), only emphasises the unlikely nature of what the Claimant is said to have agreed with the Defendants. I am satisfied that he, and they, did not. What was agreed was not a current indicative suggestion, but a fixed success fee.

The Claimant’s case is that, very early in the discussions between him and the Fourth Defendant, there was raised the fact that they were planning for an IPO, and that when he attended the meeting with the First Defendant, which the Fourth Defendant had fixed up, at Cap Ferrat, the First Defendant asked him about the work he had done in the finance industry, told the Claimant a little bit about his business and the fact that he had partners in the business and that they had been planning to undertake an IPO of the business, and that he was looking for a finance professional to help him and his partners to take an IPO forward (Day 2/127). Hence after a number of further discussions with the Fourth Defendant and Mr Barinstein, as a mutual friend and the Defendants’ relationship banker, and the meetings with various senior employees in the Defendants’ business referred to in paragraph 3 above, the Claimant began to formulate a proposal whereby he could join the Defendants as a consultant to prepare for, and in due course lead, an IPO. He was looking for remuneration of $1 million per year, but on the basis that $500,000 of it would be as a guaranteed bonus to set off against the success fee of 0.5%, which he was proposing, with a floor, or guaranteed minimum, of $10 million. His case is that it was only towards the latter end of his discussions with the Fourth Defendant, in November or December 2005, that the Fourth Defendant also suggested that he should assist in the raising of finance in respect of the smelter which the Defendants were constructing, and so he formulated a range of percentages for the latter. At her request, he then formulated a written proposal (the January Term Sheet) which related to both an IPO (a “liquidity event”) and “regular transactions”, such as the financing then being discussed. The percentages in his proposal differed as between an IPO and the loan finance, but the response by the First Defendant was that this was too complicated, so the 0.5% should apply to any moneys raised, i.e. a regular transactionor a liquidity event, by implication without any floor or minimum. This is what the Claimant then says was agreed to in the post-Peninsula telephone conversation.

The Defendants’ case is that there was no question of the 0.5% success fee applying to an IPO. The agreement related only to the proposed Trade Finance, and the 0.5% was only applicable to the Trade Finance.

I shall first set out the matters upon which Mr Oudkerk relies in support of the Claimant’s case.

First, there is no disagreement between the Claimant and the First and Fourth Defendants that the First Defendant did indeed say that he wanted to simplify the arrangements. The Claimant described it in chief at Day 2/179:-

“Well, Mr Chodiev took the proposal and he turned it to the page that has the table, which is page 2, and he sort of looked at it for a little while and he said ‘look, this all seems very difficult and complex and what I would like to do is just simplify it. Can’t we just make it one half of 1% of whatever finance you raise?’”

This is further amplified both in that passage and in cross-examination at Day 3/150-151 and 168. It seems clear, as Mr Oudkerk submitted, that in her evidence in cross-examination at Day 6/112 and Day 7/124, the Fourth Defendant was going to give much the same account, although she sought to qualify it by saying “the discussion was about trade finance”. But in returning to this she said as follows (Day 7/126-7):-

“We didn’t have, in our discussions, a distinction of regular transactions versus liquidity transactions. There was a discussion on a transaction which we regarded as a debt financing, and that was at the heart of that discussion. Kirill put forward in a rather complicated way what he identifies regular, liquidity – we never – this is the complication. How do you divide the transaction as to what they would be? If that was the case, our meeting – and I assure you – I think my father would ask ‘well, Kirill what do you think is a regular transaction, what is a debt transaction? How about – where would you qualify –’. We never got to this, because for us, we never made a distinction between the types of transactions we accepted that his wish was 0.5%. That was his wish.”

Mr Oudkerk submits that this plainly supports the Claimant’s case that what was agreed was that there should be no distinction between the transactions and the percentage success fee in relation to them.

Secondly, the Defendants’ case as to the fact that there could not have been, and hence was not, an agreement in relation to a percentage success fee of an IPO, was that the Defendant had no plans for an IPO at the end of 2005/beginning of 2006. The First Defendant positively said (Day 9/61) “naturally, we didn’t discuss the IPO and any results from the potential IPO, because I didn’t know myself anything about the IPO.” It is however plain that an IPO was being discussed and planned for by the Trio by late 2005/early 2006. Among the documents produced by the Claimant is the strategic road map dated 27 September 2005 prepared by Deutsche Bank (referred to in paragraph 3 above), containing proposals for a possible IPO with a draft timetable. As also set out in paragraph 3, the Trio obtained consent from the Government of Kazakhstan to an IPO in late 2005, and a presentation was made to that Government by ENRC on 8 February 2006 containing an IPO timetable aiming for an IPO in the second and third quarter of 2007. In March 2006 Dr Sittard noted decisions taken regarding the structure and management of a proposed new structure after listing, and in a press release in the Mining Journal of March 24 2006 the Second Defendant is recorded as having “confirmed that part of the Eurasia Natural Resources Corp Group will be listed in London through an initial public offering of shares in 2007”. That the IPO was plainly in mind and indeed, contrary to the evidence of the First Defendant, considered at their meetings with the Claimant appears from the Fourth Defendant’s evidence in chief (Day 6/126-7):-

“At the time, in January 2006, . . . I told him: ‘if you will be successful, maybe – maybe you should become CFO. Maybe you should lead – if we get there, if we get there – you will continue to head – you will stay with us on a permanent role to do an IPO. You will lead the IPO’.”

Thirdly, the proposal that the success fee should apply to the IPO is plain from the January Term Sheet, which the Fourth Defendant accepts she had received and read prior to the meeting, and which she had summarised for and discussed with the First Defendant. There is no doubt from the January Term Sheet itself that it is not being suggested that the IPO is imminent, but rather that “a successful future liquidity event will require significant preparatory work and therefore any compensation upon completion should be more appropriately viewed as having been earned over the entire period of employment”. Yet although this was clearly the proposal, neither the First Defendant nor the Fourth Defendant gives any evidence that they at any stage rejected the suggestion that the agreement extend to the IPO. The Claimant made it clear in his witness statement (paragraph 93) that his case is that there was express discussion that the “simplified 0.5% was to apply to both types of transaction”. Mr Flynn points out that in paragraph 24 of her first witness statement the Fourth Defendant says that she “suggested that we take things in stages and focus on one thing at a time rather than thinking too far ahead. The first stage was to procure the finance for the smelter, which was the purpose for which the group needed his assistance”. But this suggested account was said to have formed part of the post-Peninsula telephone conversation, in which she, at that stage of her case, was saying that she had said that the proposal was unacceptable. In her oral evidence (Day 8/136) she withdrew that suggestion, and described, as set out in paragraph 35(ii) above, how she and the Claimant locked in agreement, and she did not repeat the originally suggested account. All that she can be said to have recalled in this regard is what I have recorded in paragraph 49 above from Day 7/126-7.

Fourthly, the case by the Defendants that it was unthinkable that the Claimant could have been asked to lead the IPO and hence to be entitled to any kind of fee in respect of the IPO is bolstered by the case referred to in paragraphs 27-28 above that in the event he did not have anything to do with the IPO. This is a case which Mr Oudkerk valiantly sought to address in cross-examination by reference to documents such as those eventually set out in a helpful agreed schedule, namely documents showing his involvement in work preparatory for the IPO (supported by the reference in his Alferon Service Agreement set out in paragraph 7 above) and his dealings with McKinsey and Deutsche Bank, referred to in paragraphs 7 and 11 above; but such case evaporated, as set out above, when Dr Sittard eventually went into the witness box:-

In fact, as set out above, Dr Sittard was not prepared when he went into the witness box to support what he had said in his witness statement and (Day 11/62-3, 91-8) after initially correcting some of his statements, he was driven to correct them all. What he now said was that Mr Youness had not been brought in to lead the IPO, and had never done so until after the Claimant departed in April 2007 (as the Claimant had always said), and that the Claimant was indeed appointed to lead the IPO, and was announced as such at the kick-off meeting in February 2007. He gave no explanation as to why his witness statements were so inaccurate, and it is clear, that unlike all the other witnesses for the Defendant, he was finally prepared to correct those misstatements. Of course the fact that once the IPO started to be prepared and in due course got off the ground the Claimant did indeed lead it does not prove that in January 2006, when it is plain that the IPO was already in the minds of the Defendants, he was asked to take up that role, as he asserts. Nor does the fact that a deliberately inaccurate case to the contrary was put forward by the Defendants’ witnesses, and pursued until Dr Sittard went into the witness box, prove that the First and Fourth Defendants are not to be believed in relation to their denial that they had asked him to take on that role in return for a success fee in January 2006, but it plainly supports the Claimant’s case and his credibility, and undermines the Defendants’.

In fact it is clear that at least from October 2006 he – and not Youness – was putting the IPO together on behalf of the Defendants. This is supported by the evidence from the independent witnesses:-

Fifthly, in parallel with the down-playing of the IPO (paragraph 50 above) and of any role in it by the Claimant (paragraph 52 above) was what Mr Oudkerk submitted to be a playing-up by the Defendants, in their evidence, as to the smelter. As set out above, the Claimant’s case is that this need for financing in respect of the smelter came later in discussions between him and the Fourth Defendant and effectively as an add-on to what the Defendants principally wanted him to concentrate on, namely preparations for a listing. This accords with, and is supported by, the evidence of Mr Barinstein, resulting from his recollection of his separate conversations with the Claimant and with the Defendant (paragraphs 42 to 45 of his witness statement and Day 7/38 of his evidence). The impression sought to be given by the Defendants was that there was urgency in relation to the raising of the finance, because the smelter had to be constructed and completed and in operation by December 2007. However the reality is that the Defendants had started construction of the smelter in 2004, and were well on track for completion within time, by virtue of the fact that they had funded the smelter project themselves out of their own Group’s monies. There was therefore no urgency to raise finance, but it seemed desirable to do so, not least, as the Claimant soon discovered and recommended, since there were unpaid dividends which, if finance could be arranged, could now be paid out to the Trio. It is plain that what was anticipated at the time of the Fourth Defendant’s discussions with the Claimant was the possible raising of finance in a sum of $300 million, which was indeed the subject of a contemporaneous Term Sheet from China Ex-Im Bank. The Fourth Defendant confirmed in evidence that $300 million is what was then required, and was discussed with the Claimant (Day 6/68-87, 181, Day 7/182). It was only later, after the Claimant had started work, that the Claimant suggested that more money could be raised, first, in June 2006, $600-650 million, and then between June and November 2006 $1 billion, and finally the $1.48 billion eventually achieved. This was, as the Defendants accepted, the result of admirable work by the Claimant, and it was far more than was necessary for the smelter: it resulted in a substantial payment to the Trio, by way of dividends.

Sixthly, Mr Oudkerk relies on the lack of credibility of a new case made by the First Defendant in the course of his evidence, not contained in his witness statement. Whereas when he first gave evidence, in chief, he still effectively remembered little about the Peninsula Hotel meeting (Day 9/55), in cross-examination he gave the following account (Day 10/11):

“So, in the event that we decide to agree to his terms of 0.5% of the amounts raised, then, based on the sum that if he raises $1 billion, then the remuneration should be $5 million. Out of those $5 million, he requested that $500,000 would be his salary and $500,000 would be a fixed bonus, and $4 million were to be paid on completion, to which I responded that I shall discuss it with my partners . . . $4 million were to be payment to be made at our discretion. ”

Seventhly, another significant feature relied upon by Mr Oudkerk is that, in order to make it seem more unlikely that the Defendants would have agreed the success fee in relation to the IPO, the Defendants sought to ridicule the possibility of paying the amount of money to the Claimant which in the event resulted. In the event $3.1 billion was obtained by the shareholders in respect of the shares placed, which leads to the Claimant’s present claim for $15.5 million. In fact it is clear that no one at the time foresaw how successful the IPO would in the event be – the Claimant has explained that he thought a likely result, having discussed the matter with Mr Barinstein, would be an estimate of the value of the company at some $5 to $6 billion, which would mean, at an anticipated placement of 20% of the shares, recoupment of some $1 billion, which would mean a success fee of some $5 to $6 million. The Defendants’ witness statements all postulate the unacceptability of such a sum by reference to other bonuses paid – in paragraph 29 of the First Defendant’s statement in particular - although there was no disclosure of the bonuses in fact paid. On the evidence now before me, in fact a total of $278 million was paid in bonuses, and Dr Sittard was paid $24 million, Mr Hamelink $20.7 million and Mr Youness, who took over from the Claimant as leader of the IPO only in April 2007, received $16 million. It is fair to point out that some of the bonuses were paid in shares, but as the contracts of these last three gentlemen were not disclosed (and Mr Youness was not called), it is not easy to compare the position. What is clear however, is that if indeed the Claimant was to prepare for and then lead the IPO, his percentage success fee would not have been out of line (as indeed, as a result of her investigation in the market at the time at the request of the First Defendant, the Fourth Defendant plainly will have appreciated).

Eighthly, Mr Barinstein gives significant support to the Claimant’s case. I have already referred, in paragraph 26 above, to the fact that I find him a credible witness, and one who is genuinely independent, in the sense of having ties with both sides, but favouring neither. The Claimant gave evidence as to his contemporaneous discussions with Mr Barinstein, both as to reporting to him and taking advice from him, during the course of the negotiations in late 2005 and onwards. Of course to that extent Mr Barinstein’s evidence is hearsay, though nevertheless admissible. However, insofar as Mr Barinstein was also speaking to, and obtaining reports from, the Fourth Defendant, his evidence is the more valuable. His material evidence begins (paragraph 28 of his witness statement) with his account of the fact, learned from both the Claimant and the Fourth Defendant separately, that they had been engaged during 2005 in a number of discussions regarding the possibility of the Claimant managing the IPO, and he was kept in touch by both sides. He discussed the size of the potential IPO (paragraph 38), and then significantly he states at paragraph 44ff as follows:-

“44.

During these discussions, [the Fourth Defendant] informed me that [the Claimant] had made a proposal to oversee all aspects of corporate finance, including preparation for the IPO and any debt financing. [She] told me that they wanted [the Claimant] to join them and asked me whether I thought [he] would join on the basis of a success fee of 0.5% of any funds raised. My impression was that the proposed success fee of 0.5% would be applicable in respect of any funds raised by either equity and/or debt financing, as such an arrangement would not be unusual. I confirmed that, in my opinion, such a proposal was reasonable, reflective of my experiences in the market at that time and that I thought that [the Claimant] would be receptive to this idea.

45.

As far as I recall, shortly thereafter, both [the Claimant and the Fourth Defendant] independently confirmed to me that [he] had accepted the offer to work, including leading the IPO and assisting with the raising of debt finance, in exchange for an annual salary of US$500,000, plus a guaranteed bonus of US$500,000 and a success fee of 0.5% [of] any funds raised. I recollect that [the Claimant] told me that the 0.5% was a confidential term.

46.

At the time, it was my understanding based on various conversations with Dr Sittard, [the Fourth Defendant and the Claimant] and Samuel Danilowitsch that [the Claimant] was hired as a corporate finance specialist to achieve the Group’s corporate finance objectives, including the result of an IPO. His primary responsibility was to drive and coordinate the preparations and the restructuring exercise to get the Group to the “starting line” as quickly as possible, so that the formal part of preparing a company for an IPO from an investment banker’s point of view could begin. This preparation included matters such as . . . audited financial statements, holding structures, intra-group loans, controls, etc.”

Although carefully cross-examined by Mr Flynn, against the background of his own clients’ acceptance, particularly by the Fourth Defendant, that Mr Barinstein was regarded as reliable and trustworthy, he was not shaken from this position. At Day 7/36 his recollection was that the Claimant was “trying to price an equity transaction, but after his discussions with the company then he came back and tried to effectively bifurcate the proposal to split it into two”. Mr Flynn points out that he said (Day 7/38) that to the best of his recollection the discussion about the financing came “a little bit later. . . to put it into a sequence and exact date is very, very difficult, but to the best of my recollection, I think this was more towards December”. I do not consider that this detracts from, but rather supports, his recollection. He thought (Day 7/36) that the percentage would apply to both raising debt and the IPO but (Day 7/40) could not recall any specifics. But he was clear (Day 7/44-45) that what was being discussed was a percentage in respect of an IPO, and in that regard what assets were likely to be capable of being included in an IPO. It is quite obvious in those circumstances why the Claimant then included in his January Term Sheet proposals in respect of both an IPO and financing, and in the absence of any persuasive or other evidence that the former was rejected and only the latter accepted, the evidence of Mr Barinstein would be extremely persuasive, even without his evidence that in fact he had at all times also been discussing with the Fourth Defendant the possibility of the Defendants engaging the Claimant to manage the IPO.

Ninthly, the Claimant’s evidence is supported by that of Mr Radjabov. I refer to what I have said in paragraph 26 above. Again he gives evidence both as to conversations with the Claimant and, because he was regularly in her company and close to her, the Fourth Defendant. Although in general terms Mr Flynn put to him that he had reason for a grievance against the Fourth and/or First Defendants (which I have not accepted), such that his evidence should not be accepted, he did not challenge any specific accounts or conversations. His evidence is persuasive and thorough. His understanding from the Fourth Defendant was that they were looking for someone to get the Group ready for an IPO and then to lead it, that she was impressed with the Claimant’s skills and experience (paragraphs 21-23) that he was seeking a fee of 0.5% of the value of any finance raised by way of an IPO, which she thought would be agreed by her father (paragraphs 26-28), that he understood that such deal had been agreed (although he understood it to have been in New York) (paragraphs 29-31) and that he learned later about the smelter (paragraph 35).

Tenthly, it should be added that the fact that the Claimant turned down the $1 million offer in respect of a bonus for the IPO, made to him by Dr Sittard in March and repeated by the Second Defendant on 1 April 2007, is at least supportive of his case that he had an entitlement to considerably more if and when the IPO took place.

I turn to the points put in opposition to this by Mr Flynn on the Defendants’ behalf, in addition to his emphasis that I should not be surprised by, and should make allowances for, the existence of inconsistencies in the evidence for the Defendants, given the passage of time.

The Darcon draft. I have already referred to this in paragraphs 42-43 above as substantially supporting the Claimant’s case that the agreement was not for a discretionary success fee or bonus. It provides for a fixed fee. There is also support for the Claimant’s case in respect of this issue, by virtue of the fact that, as set out in paragraph 9 above, it is plain that the transaction, upon whose closing depends an entitlement for bonus under the draft clause 4.3, is of a transaction whose definition is apt to cover both an IPO and trade finance. Mr Flynn however relies upon the terms of that draft clause 4.3 as heavily supportive of his case, because it provides for the 0.5% bonus to be paid on or before 28 February 2007. Both the Alferon Service Agreements were to expire on 28 February 2007, although they provided for good faith negotiations to be entered into not less than three months before that date, with a view to entering into a new service agreement. The Darcon Contract itself terminates on 28 February 2007 (although capable of being terminated on one month’s prior written notice). Mr Flynn submits that in putting forward the draft Darcon contract with its clause 4.3 the Claimant cannot possibly have thought that he would be entitled to a bonus based upon the closing of an IPO, which on any basis could not have completed before 28 February 2007. In mid-2006 when the draft Darcon contract was put forward, it cannot have been thought that the IPO then being contemplated (as I find it plainly was being) could have been completed by the end of February 2007: indeed all the plans indicate second quarter 2007 at the earliest. Thus the Claimant was putting forward an agreement which was said by him to record the oral January agreement, which could not give him the 0.5% on the IPO which he is asserting he was entitled to. This shows that he cannot have thought he was entitled to such a 0.5% bonus. This is a good advocate’s argument, not dependent at all, nor drawing at all, upon his clients’ evidence, as they do not accept that there was such an oral agreement, or that the Darcon draft contract was put forward on the basis the Claimant suggests, and there is no evidence at all as to discussion of how any entitlement to a bonus would or was to expire on 28 February 2007.

However I am satisfied that it is not right:

The draft provision is not entirely consistent with the Claimant’s case that it was intended to record the oral January agreement, but it certainly does not contradict its existence. But the one thing that is clear is that it is not consistent with the Defendants’ case.

Mr Flynn’s next point is that it was not necessary or appropriate to appoint the Claimant to lead the IPO, as he asserts was done in January 2006. It seems to me plain that there is nothing unlikely, given what the Fourth Defendant was, with Mr Barinstein’s advice, trying to do, and given the clear desire of the Trio at that stage to have an IPO as soon as possible, to appoint someone like the Claimant to do the necessary preparatory work and then lead the IPO. They plainly needed someone to lead the IPO, and they asserted (falsely as I conclude) that it was to be Mr Youness.

Mr Flynn submits that the agreement which the Claimant alleges was unlikely, and far too generous, for someone with his track record. The Claimant had not led an IPO before, and his previous entitlement was, as he explained (Day 11/148-9) $2.5 million for ten months’ work. He came with a high recommendation from Mr Barinstein and after a good deal of research by the Fourth Defendant and, it seems, contact by the First Defendant with his previous employer, and was, as Mr Radjabov discussed with the Fourth Defendant, exactly what they wanted. Indeed the Fourth Defendant herself said to him (as set out in paragraph 50 above) that he could lead the IPO. He is likely to have been extremely impressive to the Defendants, as indeed he was in the witness box (Day 3/185-186):

“Sir, I was almost 38 years old. I had been at this for 11 years. I had just come off a transaction that was valued at 3.875 billion and the one before that was valued at 3.3 billion. The one I had just come off was the largest transaction ever done by Russians outside of Russia, and the one before that was part of the quite famous and sometimes acrimonious transaction by which British Petroleum acquired a 50 per cent stake in TNK. I assure you I was not in the least bit interested in going to do a 300 million transaction in a commercial banking product which is what a bank loan is; it's not an investment banking product - with the possibility that I could earn 1.5 million from it.”

The Defendants are indeed submitting that after all the discussions, meetings and time spent, the Claimant agreed to a success fee of 0.5% (discretionary) of a then estimated $300 million, and not of the IPO which the company I am quite satisfied was then planning, and indeed speaking of to him. In the event a large sum will have become due pursuant to such agreement (although not out of line with what it seems was paid to others), but, as set out in paragraph 57 above, it is likely that the parties did not appreciate just how successful and how profitable (for the Defendants proportionately more than the Claimant) an IPO would be. But as the Claimant made clear in his Term Sheet Proposal:

“I view the successful completion of a liquidity event as the primary objective of the shareholders and believe that my interest should parallel that of the shareholders in this regard.”

Mr Flynn submits that the agreement submitted by the Claimant is most unlikely because it would result in what he called ‘double dipping’ – i.e. an entitlement to a percentage success fee on the Trade Finance and then, although a good deal of the Claimant’s work in respect of the Trade Finance would be of use, indeed essential, by way of preparation work for the IPO, another percentage fee on the IPO. This was however what the Claimant says was agreed, and the shareholders could and did earn substantial sums on each transaction, the majority of the $1.48 billion from the Trade Finance paid out in dividends, and the recoupment from the IPO: and so his interest would parallel that of the shareholders. As appears from the evidence of the Fourth Defendant set out in paragraph 49 above, no distinction was drawn between the two transactions, and in any event Mr Barinstein’s evidence (paragraph 44, set out in paragraph 58 above) supports the proposition that “such an arrangement would not be unusual”.

Mr Flynn then submits that the Claimant would not have accepted the First Defendant’s offer on 13th April 2007, on his last day with Alferon, after what he alleges to have been the repudiation of the January agreement on 1 April, to make it up to him by giving him the opportunity to earn substantial sums with the family business; because if he had thought that he had not only been deprived of his percentage on the balance of the Trade Finance but also the loss of his opportunity to earn a success fee on the IPO, such offer would not have been sufficient. This is however what he says he did, and it can be seen that at that stage, with the IPO stalling and an uncertainty as to the size of it in any event, it may not have been at all clear what his expectations would be in respect of repudiatory breach of the agreement in relation to the IPO. However it seems clear from the Claimant’s evidence that his priority was to seek favour with such influential people, and to trust in them, particularly as the offer from the First Defendant came when, it is common ground, he had threatened to sue. He himself addressed this very point, as to the size and scope of the business offered to him compared with his claim, in his letter of 26 September 2010, set out in paragraph 17 above, when he says how ‘persistent’ the First Defendant was.

There are two significant further factors. The first is that it is not suggested, nor asserted, that his acceptance of such employment was in settlement of any right to sue, which he plainly retained. Secondly he is supported by the evidence of Mr Barinstein (paragraphs 87-88 of his witness statement) at least in relation to his expressed intention at that time.

The last of Mr Flynn’s arguments in relation to his contention that the Claimant may have had a (but he asserts an unjustified) complaint in respect of the balance of the trade financing, but had no claim in respect of the IPO, relates to his alleged lack of complaint in the latter regard until the letter of 26 September 2010, which I have set out at length in paragraph 17 above. The Claimant says that he did complain orally on a fairly regular basis whenever he could get a private moment with the First and/or Fourth Defendants, both on 13 April 2007 itself, but also subsequently (with which he deals in paragraphs 386-7 of his witness statement). What he said in the letter of 26 September 2010 quoted above was “Although I’m very confident that you and your father have always understood my position, but pretended not to because it was convenient for you, now that I have taken the trouble to put all of it in writing in one document, this will no longer work”. Mr Flynn suggested that this is inconsistent with his case that effectively the First Defendant had bought him off with previous promises. His response was as follows (Day 11/159-161).

“I'm referring to all of my attempts to try to actually engage in a significant discussion on this matter. I'm referring to the fact that [the Fourth Defendant], who was a close personal friend of mine and with whom I had worked quite closely when I was at the group and had played a major role in convincing me to sort of join her family business and to not pursue any lawsuit at that time, she had stopped communicating with me. She almost never came to Moscow. I hardly ever saw her. [The First Defendant] would frequently, when I did meet with him, not meet with me one on one. I believe he gave - when I was able to put the question to him sort of fairly head on, he would give me answers which were, given who I was and given who he was, very difficult for me to sort of force the issue. And so I believe that what they had tried to do - you see, I really couldn't believe for quite a long time that they would simply just not honour the agreement that we made and so I tried to, in as inoffensive a way as possible, try to get them to discuss this with me and they avoided it and it wasn't a situation where I felt that they were my equals, either in status or certainly in financial and administrative resources, and as I believe I said during my testimony earlier, I understood what me forcing this issue would mean. I understood that if it at all blew up, it would be the end of my career and that I would have some significant difficulties going forward. So it took me a long time to get sort of to the point where I just finally felt that I could not take that any more and finally just come out and say it and say, "Look, you know what this is all about, you have been avoiding me all along. I think you have played on the fact that I am an honourable and honest and professional person but I have just had enough and I really can't keep silent any more" and that is how it is that I winded up sitting in this chair today.”

The Defendants themselves accept that he made frequent complaints, and on the face of it not limited to the Trade Finance:

However Mr Flynn makes particular criticism of the fact that the Claimant, when asked in cross-examination why he had not made a complaint shortly after the listing was completed in December 2007, when it could be seen that his success fee on the IPO should have crystallised, said that he had done so, in Moscow in early 2008, although he had not said so either in his witness statements or in his evidence in chief. He asserted (Day 5/15) that he remembered the occasion, because the First Defendant asked him to sit on the Board of the listed company, because the UK Listing Authority would not permit any of the Trio or their relatives to hold a Board seat. Mr Flynn suggested that it was or should have been a ‘champagne moment’, when the listing had now gone through, and he ought to have been in a position to make a more persuasive claim and could not have forgotten about it if it had truly occurred. The Claimant accepted that it was not in his witness statement, but asserted that he had had a number of conversations with the First Defendant, but did not feel that any of the conversations was getting anywhere. It may be that this conversation, omitted by the Claimant in his witness statement, is one of the conversations to which the First and Fourth Defendants refer, as set out above in their witness statements, or that it is supported by Mr Barinstein’s recollection at paragraph 89 of his witness statement. Or it may be that it is embellishment or wishful thinking. However:

What I do find very significant is the Defendants’ reaction to the letter of 26 September 2010, when, as quoted at length in paragraph 17 above, the Claimant set out for the first time in writing his entitlement to the balance of the Trade Finance success fee and to the IPO success fee. The letter is now, and was then, a very persuasive document. There was no response to the letter at all. If the Defendants are right, he was making a claim which he knew to be false and which in any event was totally unfounded, and yet he continued to be engaged by them for the family businesses in a position of trust, as Mr Oudkerk points out. Even more significant is the reaction to the letter when it was finally expressed, at a meeting between the Claimant and the Fourth Defendant on 16 March 2011. The Fourth Defendant sets it out in paragraph 58 of her second witness statement, which I have quoted in paragraph 18 above. She did not accuse the Claimant of making a false claim, in respect of the IPO. She simply said that it would not be fair for her father to have to pay it.

I weigh up all the points made by Mr Flynn, but I am persuaded by all the matters set out in paragraphs 49 to 60 above, and in particular the content of the January Term Sheet, the fact that I am satisfied as to the simplification of the 0.5% on all funds raised, and that I conclude that there was no rejection by the Defendants of the fact that it extended to the IPO, by the Darcon draft contract, the support of the independent witnesses and what I conclude to be the lack of credibility of the Defendants’ evidence. Although it has cost the Defendants much more than they anticipated, it is, I am satisfied, what the Defendants wanted and agreed to at the time. I resolve the third issue in favour of the Claimant.

In his closing submissions, Mr Flynn for the first time at the trial submitted that the Claimant was not entitled to sue on the January Agreement, or that such oral agreement was not enforceable by the Claimant, but by Aurdeley. This was said to be put forward on the basis of the Claimant’s evidence in cross-examination that he had an arm’s length, independently negotiated and transparent agreement with Aurdeley in respect of his services (Day 2/198), which was exclusive (Day 2/216). He explained (at Day 2/217) how he could personally enter into a contract with the Defendants without being in breach of his agreement with Aurdeley:

“Because my agreement with Aurdeley was that I go out there and get clients, he [Mr Zakharov, the principal of Aurdeley] tries to help me get clients, and we structure our relationship with the clients in whatever way the client is most comfortable, and if the client wants to have me face the client and me be the face of the relationship, that’s fine; if the client wants to enter into a contract relationship with Aurdeley also, that’s also fine.”

Mr Flynn submitted that if there was an exclusive agreement between the Claimant and Aurdeley, then he could not contract personally with the Defendants. I was satisfied that this contention was unarguable and in any event was not entitled to be pursued at the trial, and did not call upon the Claimant in his following closing submissions:

I see no basis upon which the Claimant has a claim against the Fourth Defendant personally. As she said, and I accept, she was the communications bridge between the Claimant and her father and his partners, the Trio. She was an important figure, in that she recommended and introduced the Claimant to her father, took part (not simply serving the tea) in the two significant meetings and locked the agreement in the post-Peninsula telephone call. However I am satisfied that, even though she was, as a family member, a minor shareholder together with the Trio, she was not a principal. This is made entirely clear by the Claimant’s own words in which he sets out his case in the letter of 26 September 2010 quoted in paragraph 17 above:

“My position has always been that my agreement with you(r) father and his two business partners relating to the work I did in raising financing . . . and preparing ENRC for a public listing was not honored.”

Insofar as she subsequently promised that all would be sorted out, on a number of occasions, as I am satisfied she did – for example in September 2006 as set out in paragraphs 152-153 of the Claimant’s first witness statement – she neither gave an oral (and therefore in any event unenforceable) guarantee nor indemnity, and did not take on any personal liability.

It is equally plain that the oral agreement was not made with any Alferon company. Dr Sittard, the CEO of Alferon UK, had no knowledge of the January Agreement or the 0.5% success fee, and both the First and Third Defendants accepted in evidence that the payment of bonus to the Claimant was not the decision of Dr Sittard but that of the First and the Second and Third Defendants (Day 7/76, 8-18, 9/84). In a clear passage, to which I shall return, the Third Defendant stated in cross-examination (Day 9/17):

“Q. But you knew, didn’t you, that you had an obligation to pay Mr Stein under your verbal agreement?

A.

We have fulfilled our obligations vis-à-vis Kirill Stein, judging by what he has received, and we couldn't press Dr Sittard to discharge obligations he never signed up for in relation to Kirill Stein.”

Equally it is quite clear that the January Agreement was not with Darcon, a company whose identity remains wholly mysterious, apparently even to the Defendants themselves. In any event, even though the Claimant may have expected that there would be a record in writing (plainly he did, as per his Darcon draft contract and his chasing up of the Fourth Defendant in September 2006) it is clear that the First Defendant had no such intention (see paragraph 42 above). The January Agreement was not made by any company.

The January Agreement which I have found was reached with the Claimant for his engagement as a consultant to arrange what subsequently became the Trade Finance and to prepare for and subsequently lead an IPO, on terms including a fixed 0.5% success fee, was plainly made by the First Defendant. As I have concluded, it was not made by any particular company, and, not least as appears from the evidence to which I shall refer below, it was for the benefit of the Trio who gained enormous advantage both from the proceeds of the Trade Finance and the proceeds of the IPO. The Claimant explained in chief (Day 2/183) that:

“I understood that I was contracting with [the First Defendant] and, when he signed, [his] business partners. No name of any company had ever been given to me and, quite frankly, I didn’t ever have anyone other than them as sort of my counterparties.”

Now that it is clear, contrary to her original evidence, that it is accepted by both the First and Fourth Defendants that it was the post-Peninsula telephone call which finalised the agreement which had been all but reached at the Peninsula Hotel, the picture is even clearer, as stated by the Fourth Defendant (Day 6/113):

“I am just trying to remember exactly because I think my father listened and he said ‘ok I will … I understand what you are looking at or what you would like’, and then he had to speak to his partners. It’s always the case … my father said, "Okay, 0.5, let me think about it, okay, I’ll take it on board and you liaise with Mounissa when we get back to you.”

And by the First Defendant:

“We parted our ways knowing that I have to talk to my partners and discuss it with them … we shall agree to discuss his bonus on successful completion of [the] transaction” (Day 9/55-6) and:

“I said that I would discuss it with my partners and I will let him know through Mounissa, which happened.” (Day 10/19).

The Fourth Defendant certainly accepted that the decision was that of the First Defendant and his partners (Day 7/76) and (Day 8/4): “It was enough for my father to speak to his two partners, to agree with them and then communicate the decision.”

The evidence of the First Defendant himself puts it beyond doubt that the main decisions, including the decision as to a bonus for the Claimant, was that of the Trio (Day 9/84, Day 9/122, Day 10/3). All of the Trio in their evidence insisted that there had not been an agreement with the Claimant either to pay a fixed fee or to pay the success fee in respect of the IPO, and I have found that that was not the case. But it is plain from the evidence of the Second and Third Defendants that whatever it was that was agreed, they left to the First Defendant after consultation with them.

The Third Defendant said as follows:

As for the Second Defendant, I have referred, at paragraph 44, above to his knowledge that the Claimant was asking for a fixed 0.5% bonus, which had been imparted to him by the First Defendant. He accepted that he did not meet the Claimant until March or April, when he had already started work, so it is plain (as indeed the Third Defendant accepted and asserted (paragraph 31 above)) that he was working on the basis of the oral agreement made with the First Defendant.

I conclude that the First Defendant did regularly consult with the Second and Third Defendants, as he and the Fourth Defendant explained, but that they left it to him to reach an agreement with the Claimant. He made that agreement on behalf of himself and the Second and Third Defendants as the other two members of the Trio. It was either with their actual authority or it was within his usual authority. They were content to accept whatever agreement it was that he had made with the Claimant, and they were bound by it. There is no need for me to consider whether any of the subsequent promises by the First Defendant constituted a separate confirmatory or ratificatory action.

As set out in paragraph 13 above, when the Second Defendant purported to pay the Claimant a bonus in respect of the Trade Finance in April 2007, after discussion with the other members of the Trio, he purported in the exercise of a discretion to set off or deduct not only the minimum bonus of $500,000, which was properly in accordance with the January Agreement, but the $500,000 salary retainer. He was plainly not entitled to take that course and that sum is due and payable pursuant to the January agreement.

I have no doubt at all that the agreed 0.5% success fee extended to the total sum that was obtained as a result of the Claimant’s work on the Trade Finance. In the unchallenged evidence of Mr van Broekhoven, he explains (paragraph 4 of his first witness statement) that the syndicated pre-export finance facility, originally US$1 billion, was increased to $1.48 billion, as a result of the discussion between him and the Claimant (paragraphs 31-33), that in the light of the over-subscription of the issue ENRC AG wished to take more, namely up to just short of the maximum available of US$1.5 billion, the increase in the amount of dividends thus available to the shareholders of the Group being one of the reasons for this increase (paragraph 43). Insofar as there is, as a result of the late amendment by the Defendants, an issue as to ‘effective cause’, the Claimant was as much an effective cause of the extra $0.48 billion as he was of the original $1 billion, and, as set out in paragraph 12 above, he remained as of 27 March 2007 the board-authorised signatory in relation to the further payment. Mr van Broekhoven explains in paragraph 20 of his second witness statement:

“20.

Finally, the Trade Financing is only one transaction despite there being reference to a completion date of 15 December 2006 in relation to US$1bn and a completion date of 12 April 2007 in relation to the increased sum of US$1.48bn. The only reason for having two completion dates is that the company wanted to have part of the funds available prior to its financial year end 2006, and there was not enough time to launch and complete the syndication. So the first set of documents was signed on 15 December 2006 with only the three bookrunners and underwriters while syndication to a wider group of lenders launched in early 2007, leading to final completion on 12 April 2007.”

In terms of the success, for which the 0.5% fee was agreed, that success had been achieved by 1 April 2007 when the Defendants repudiated the January Agreement with the Claimant, as I conclude that they did by refusing to comply with that agreement, and only offering the sum of $4 million, itself arrived at by a wrongful deduction of the $500,000 salary referred to above. But the Claimant did not accept that repudiation until he left the Defendants’ employment on 13 April 2007, his last day in the Alferon offices, and the day when he had the conversation with the First Defendant, referred to in paragraph 13 above. By that date, on any basis, the success had been achieved, because 12 April was the date of completion of the last tranche of $0.48 billion. In those circumstances, and without my needing to consider the question as to whether the “severance provision” was operative and to what effect, the Claimant is entitled to his 0.5% on the remaining $0.48 billion. In the alternative I would have found that he was entitled to damages in the same sum as the consequence of the Defendants’ repudiation.

By April 2007, the IPO had not been executed. No implied term is relied on, such as was found in the case of Alpha Trading Limited v Dunnshaw-Patten Limited [1981] QB 290 in respect of a principal’s obligation not to terminate an agency agreement in bad faith deliberately so as to avoid the obligation to pay a commission. I am also not able (nor do I need) to rest my conclusion upon a construction of the severance term referred to above, given that its nature and effect were never discussed, or even if I concluded that the Claimant did indeed explain the consequences of a twelve month ‘tail’, never agreed; in the circumstances of the January Agreement, which I have found, resulting from the First Defendant’s insistence upon simplification and the proposition of the 0.5% success fee agreed and accepted in the post-Peninsula telephone call. Consequently, the Claimant’s entitlement arises only by way of a claim for damages for repudiation of the January Agreement. In the light of my finding that there was an oral agreement for a fixed 0.5% success fee in respect of the IPO, that agreement was plainly repudiated on 1 April 2007, when the Defendants refused to pay any sum, save for a discretionary bonus of $1 million.

It is plain that the Defendants were not prepared to comply with their obligations as to the Trade Finance or the IPO, and the Claimant accepted their repudiation on 13 April. In evidence which the First Defendant accepts, the Claimant said (Day 3/163):

“Friday was my last day. [The First Defendant] came to talk to me on Friday. I had a conversation with [him]. I believe he talks about it in his witness statement as well. I believe he mentions that I told him that I was very unhappy and was considering legal action, and so clearly that is an indication of me telling him ‘I had a deal with you, and you broke that deal and in fact your partner broke that deal and I am very unhappy about that’.”

This acceptance of repudiation and his reasons for it are corroborated by Mr Barinstein (paragraphs 80-82) and Mr Radjabov (paragraphs 41-46).

No case has been put forward that, assuming that the agreement had not been repudiated, the Claimant would not have been entitled to such success fee. It is in any event not at all out of line with the amounts which the Defendants paid, as set out in paragraph 57 above, especially to Mr Youness, who only took over as leader of the IPO from the Claimant when, as I am satisfied was the case (see paragraph 54(i) above) effectively almost all of the internal work on the IPO had been completed, save of course for the surmounting of the problems which had been discovered and which led to a delay of some three months. Subject therefore to Issue 7, the Claimant would be entitled to damages in the sum of $15.5 million.

The first occasion when the Defendants allege that there was a compromise, such that the Claimant is not entitled to make a claim either in respect of the balance of his fee on the Trade Finance or his claim in respect of the IPO, was in April 2007. The first basis of the Defendants’ case rests upon oral evidence as to what was said on 1 April 2007 and the second upon the Claimant’s acceptance of the $4 million and the existence of the agreement of 5 April 2007, under which the monies were paid to the Claimant on 11 April.

The Claimant said in his witness statement and in his evidence that he said to the Second Defendant (and afterwards to Mr Olim Chodiev) that he was taking the $4 million, which is all they were offering him (and refusing the $1 million), and would use it to sue them. The Defendants deny that this was said, and the Second Defendant gave evidence that if it had been said he would not have made the payment, particularly given that a claim could put a spoke in the IPO which was, though at that stage in limbo, still intended. The Claimant said that he had indeed wanted to make that clear, because he believed in being open and not holding back his intentions. Further he said it again to the First Defendant in their conversation on 13 April – and that is admitted by the First Defendant which, the Claimant says, confirms his approach. He further says that he took the same open approach four years later in April 2011 in his meeting with the First and Fourth Defendants on 22 April 2011, referred to in paragraph 29 above (although this is denied by the First Defendant). Mr Flynn submits that the (admitted) fact that he said it on 13 April 2007 may be explicable by the fact that he had by then already received the $4 million. On the other hand it could be equally argued that the reason why the First Defendant came to see the Claimant on 13 April and offered (successfully) to engage him within the family was to prevent exactly what they anticipated, namely his suing them at an inconvenient time. In any event there is no suggestion that when the Claimant admittedly told the First Defendant that he was intending to sue for the balance of what was owed him the First Defendant said he could not do so because there had been a binding compromise.

The Defendants on the other hand rely upon evidence that was given by the Second Defendant in cross-examination as to what he allegedly said on 1 April, which was not in his first witness statement, or even in his second witness statement when he was addressing the Claimant’s case discussed above, namely that he made it clear to the Claimant on 1 April that the money being paid was in final settlement “and there will be no claims from either side”, because he ‘always says this as a matter of course when he pays somebody’(Day 11/49). It seems to me very unlikely that this belated evidence is right, given the context, namely where he was purporting to announce to the Claimant a decision (which he confirmed had been previously discussed and agreed with the other members of the Trio) to give the Claimant a predetermined bonus of $4 million. As I have said above, the First Defendant does not appear to have appreciated at the time of his discussion with the Claimant on 13 April that this was his or the Second Defendant’s position.

As to the agreement of 5 April under which the $4 million was paid, it seems to me wholly unlikely that, if it was intended that the payment was in full and final settlement, such agreement would not have so recorded, which it does not. Mr Flynn relies on the entire agreement clause, which is in fairly conventional terms, and is certainly not tailored so as to adapt to become a full and final settlement clause:

“9.1

This Agreement contains the entire agreement and understanding of the parties and supersedes all prior arrangements, agreements or understandings (both oral and written) relating to the subject matter of this Agreement.”

I agree with Mr Oudkerk that the words of Popplewell J in Barclays Bank plc v Unicredit Bank AG [2013] 2 Lloyds Law Rep 1 at 83-85 (following Lightman J in Inntrepreneur Pub Co v East Crown Limited [2002] Lloyds Rep 611, as approved in Axa Sun Life Services plc v Campbell Martin Limited [2011] 2 Lloyds Rep 1) as considered in the Court of Appeal ([2014] EWCA Civ 302) do not encourage, or indeed support, reliance on such an entire agreement clause to do anything other than rule out what otherwise might be oral or implied assurances or understandings, and certainly not so as to constitute and effect a full and final settlement of all previous claims of and between the parties including claims which, according to the Second Defendant, had not been adumbrated, in respect of the IPO .

Again Mr Barinstein’s independent evidence supports the Claimant (paragraphs 87 and 88).

On balance I tend to prefer the Claimant’s evidence as to what he said to the Second Defendant, but in any event I am entirely satisfied that the Second Defendant did not say, nor was the payment made upon the basis, that it was in full and final settlement of any claims of and between the parties. The Claimant did not then sue because he hoped that by keeping in with such important people he would be able to find a way to recoup what was due to him, as he subsequently explains in his letter of 26 September 2010 (above).

I do not therefore need to address the argument of Mr Oudkerk that even if the payment did purport to be made in full and final settlement, because the Defendants were only paying what they agreed to be due (having previously decided to make a bonus of $4 million) there could not be consideration for a settlement by virtue of the principle in Foakes v Beer [1884] 9 App. Cas. 605.

I turn to the last of the Defendants’ defences, namely that, if there was not a full and final settlement in April 2007, there was such in April/May 2011. All that was paid on 11 May 2011 (as set out in paragraph 19 above) was what was due under and in order to terminate the family agreements. Leaving aside the question of Foakes v Beer, and the Claimant’s evidence (paragraph 416) that he said that he intended to pursue his legal rights and that the First Defendant responded that he was free to do so (denied by the First Defendant, although he said he had little recollection of the meeting (Day 10/76-8)), the simple question is whether there is anything to support the proposition that there was a full and final settlement. The only evidence of an agreement is that set out by the Claimant in his letter of 24 April 2011 (which he expected would be signed as accepted and agreed by the First and Fourth Defendants, but never was) which recorded the sums being paid under the family consulting agreements. I am satisfied that that is what was meant by the words “we discussed and agreed the terms of the termination of my consulting services to you and your organisation” addressed to the First and Fourth Defendants, who had indeed been personally contracted in relation to the last agreements of 30 September 2009; and no full and final settlement is expressed - indeed it was at least anticipated by the Claimant that the Defendants might wish him to continue work on various projects, although that never eventuated. The reality was that, as he said in his letter of 26 September 2010, if no compromise was reached in regard of his ‘ENRC claim’, he would simply take what was due to him under the family contracts and leave.

The evidence of neither the First nor the Fourth Defendant supports any suggestion of a full and final settlement:-

The only matter upon which Mr Flynn relies in seeking to argue that the agreement of 22 April 2011, as recorded in the Claimant’s letter of 24 April 2011 (without a full and final settlement clause) was in full and final settlement are the words of the Claimant in a subsequent letter, namely “I still hold out hope that we can part ways professionally and amicably”. He submits that it was not amicable, after the Claimant had then received the sums due under the family agreements, for the Claimant to send his letter before action and issue these proceedings.

There was no compromise of the Claimant’s claims under the January Agreement.

I therefore resolve all seven issues against the Defendants, save for the Fourth Defendant (and the Fifth and Sixth Defendants who have already been dismissed from the action), and give judgment for the Claimant against the First, Second and Third Defendants for the sum of US$2.9 million (being the wrongly deducted $500,000 and the balance of the 0.5% success fee in respect of the $0.48 billion Trade Finance) and for damages in the sum of US$15.5 million in respect of the 0.5% success fee in respect of the IPO.