Danilina v Chernukhin & Ors

This is another application by a party to litigation in this court to be released from the collateral use prohibition on documents disclosed in the litigation. The application is brought pursuant to CPR 31.22(1)(b); see The Libyan Investment Authority v Societe Generale SA [2017] EWHC 2631 for a recent illustration of this jurisdiction.

The applicant is Ms. Lolita Vladimirovna Danilina. She has commenced proceedings in this court against the respondent, Mr. Vladimir Chernukhin, seeking declaratory relief that she is the beneficial owner of Navigator Equities Limited with the result that she, not Mr. Chernukhin, is party to a Shareholders’ Agreement (“SHA”) with Mr. Oleg Deripaska. Upon the assumption that a report by SC Strategy Limited dated 8 September 2016 (“the Report”) was disclosed to her in these proceedings she seeks permission from the court to use the Report in “(a) correspondence with SC Strategy or its professional advisers and (b) correspondence with, or a complaint to, the Information Commissioner”. The Report suggests that Ms. Danilina wrongly accepted large sums of money to assist Mr. Deripaska in defending a claim brought against him in arbitration by Mr. Chernukhin. Ms. Danilina maintains that the suggestions have no proper factual basis.

Ms. Danilina considers that the Report contains “personal data” within the meaning of the Data Protection Act 1998 (“the Act”) and that SC Strategy “processed” that personal data within the meaning of the Act. She has therefore submitted a subject access request to SC Strategy requesting details of all her personal data held by SC Strategy. She did so on 22 March 2017. But, by letter dated 3 April 2017, SC Strategy has rejected the request and maintains that its activities do not fall within the Act. If she is to probe SC Strategy’s statement that they do not “process data” she needs to be able to refer to the Report in correspondence with SC Strategy. And if she is to complain to the Information Commissioner that SC Strategy has failed to comply with the Act she also needs to be able to refer to the Report. Those, in short form, are the reasons for this application.

The circumstances in which Ms. Danilina received a copy of the Report are not transparent. The respondent to this application, Mr. Chernukhin, suggests that Ms. Danilina was given a copy of the Report by Mr. Deripaska. If that is so then it is difficult to see why she needs the permission of the court to use the Report in the manner intended. However, I am told that the parties are content to treat the Report as having been disclosed to her by Mr. Chernukhin. On that agreed but apparently fictitious basis the applicant needs the permission of this court to use the document in the manner intended.

The background to this application, like many proceedings in this court, involves a dispute between two wealthy Russian businessmen. It is necessary to note the background because Mr. Crow QC on behalf of Mr. Chernukhin says that it is relevant to the determination of the application and in any event the background sets the application in its factual context. In order to recount the background it is necessary to refer to a London arbitration award issued in arbitration proceedings commenced by Mr. Chernukhin against Mr. Deripaska. I am assured by counsel that notwithstanding the usual confidentiality of arbitration proceedings I may properly refer to that award. That is because both Mr. Chernukhin and Mr. Deripaska, the parties to the arbitration, have agreed that documents from the arbitration, including the arbitration award, may be used in these proceedings.

Mr. Deripaska and (according to Mr. Chernukhin) Mr. Chernukhin were parties to a joint venture, the subject matter of which was a valuable real estate site in central Moscow. On 31 May 2005 the SHA was agreed. The joint venture vehicles were Navigator and Filatona, each of which held 50% of Navio Holdings Limited, a special purpose vehicle which held the parties’ stake in TGM, the owner of the real estate. At the time Mr. Chernukhin had left Russia and was resident in the UK. Ms. Danilina, who was in a close relationship with Mr. Chernukhin, was named as party to the SHA. It is the case of Mr. Chernukhin that she was, to the knowledge of Mr. Deripaska, a nominee for Mr. Chernukhin. She, however, maintains that she was the beneficial owner of Navigator and hence party to the SHA in her own right.

In 2009 a dispute between Mr. Chernukhin and Mr. Deripaska resulted in, according to Mr. Chernukhin, a forcible takeover of TGM’s business premises by Mr. Deripaska on 14 December 2010. Thereafter, and following protracted negotiations, Mr. Chernukhin and Mr. Deripaska shook hands in Davos on a proposed deal whereby Mr. Deripaska would buy out Mr. Chernukhin’s interest for US$100 million. But that never happened and so Mr. Chernukhin commenced arbitration proceedings in London pursuant to the terms of the SHA.

Mr. Deripaska disputed that Mr. Chernukhin was party to the SHA. There was to be a preliminary issue hearing at which that issue was to be resolved. Before that hearing Mr. Chernukhin had reason to believe that Mr. Deripaska had bribed Ms. Danilina not to cooperate with Mr. Chernukhin in relation to the dispute. Mr. Chernukhin commissioned the Report from SC Strategy (an “international strategic company” founded by Sir John Scarlett KCMG OBE and Lord Carlisle of Berriew CBE QC) which referred to “intelligence” on that subject. The Report was deployed before the tribunal in support of an application for an adjournment of the preliminary issue hearing so that Mr. Chernukhin would have more time to marshal his evidence regarding the alleged bribe. However, the adjournment was refused.

The preliminary issue was determined by the arbitration tribunal in an award dated 16 November 2016. The tribunal held that Mr. Chernukhin was party to the SHA and that Mr. Deripaska had put forward a case which he knew to be untrue. The tribunal also held that the takeover of TGM’s premises had been carried out by persons acting on behalf of Mr. Deripaska. The tribunal said in terms that it had not had regard to the Report.

By two agreements dated 23 December 2016 Mr. Deripaska agreed to pay Ms. Danilina US$2 million in consideration of Ms. Danilina (i) producing evidence in support of Mr. Deripaska’s case in the arbitration, (ii) not cooperating with Mr. Chernukhin and (iii) instituting proceedings against Mr. Chernukhin for the purpose of establishing that Ms. Danilina, not Mr. Chernukhin, was the beneficial owner of Navigator. Mr. Deripaska agreed to finance those proceedings. In the event that Ms. Danilina established title to Navigator he promised to pay her a further $10 million. The proceedings were commenced in this court on 22 February 2017.

The substantive arbitration hearing took place in March 2017 and in a further award dated 20 July 2017 the tribunal held that Mr. Deripaska had acted oppressively towards Mr. Chernukhin and ordered Mr. Deripaska to buy out Mr. Chernukhin’s interest in Navio for $95,181,285.

Ms. Danilina is not party to the arbitration and so is not bound by the findings of the tribunal. She maintains that she is the beneficial owner of Navigator and therefore the real party to the SHA. That contention, which has been resolved in favour of Mr. Chernukhin by the tribunal, will be fought out in the proceedings in this court between Ms. Danilina and Mr. Chernukhin. It is striking that those proceedings will be financed by Mr. Deripaska, notwithstanding that the case being advanced in those proceedings has been rejected by the tribunal before whom he gave evidence.

There is no dispute as to the principles by reference to which the court’s discretion under CPR 31.22 should be exercised. The starting point is that collateral use of disclosed documents is not permitted. The onus is on the party seeking to be released from the collateral use prohibition to justify such release. Such release will only be permitted if there are special circumstances constituting a cogent reason for doing so. Whether such circumstances have been established in any particular case requires the court to consider carefully whether the reasons relied upon to justify release do in fact do so. The court will have to weigh up conflicting public interests; see Tchenguiz v Serious Fraud Office [2014] EWCA Civ 1409 at para.66.

The suggested cogent reasons advanced by Mr. Stanley QC, on behalf of Ms. Danilina, are these. First, it is said that her rights under the Act are at stake and she cannot vindicate them effectively unless she is given permission to rely upon the Report. Second, there is a public interest in ensuring that SC Strategy complies with its obligations under the Act. Third, the nature of the Report and the manner in which it came into her possession militate in favour of granting her permission to use the report outside of these proceedings. By this is meant that Mr. Chernukhin obtained it, deployed it in the arbitration and agreed that it may be used in these proceedings (so that it may be deployed in open court) and it is therefore artificial for him to prevent her from referring to it in correspondence with SC Strategy. Fourth, permission is sought to use the Report for a limited purpose, namely, referring to it in correspondence. Fifth, Mr. Chernukhin will suffer no prejudice if this application is granted. In the light of the above it is said that the interests of justice are in favour of granting the application.

Against those arguments a number of points were taken by Mr. Crow, on behalf of Mr. Chernukhin. First, there is in this case “an extra layer of confidentiality” arising from the circumstances that the Report was produced in an arbitration to which Ms. Danilina is not party. It was suggested that the report was provided to her by Mr. Deripaska in breach of the duty of confidentiality owed by him. Second, in circumstances where Mr. Chernukhin had undertaken not to use the Report in the future (and it had not been relied upon by the tribunal) there was no risk of any reputational harm to Ms. Danilina. Third, in circumstances where the proceedings in this court, and hence this application, are being financed by Mr. Deripaska the truth is that this application is being advanced, not to protect Ms. Danilina’s rights under the Act, but as one aspect of the aggressive and hard fought litigation between Mr. Deripaska and Mr. Chernukhin. Fourth, what lies behind the application is a quest by Mr. Deripaska to find out who leaked information to Mr. Chernukhin about his payments to Ms. Danilina. Fifth, there is no benefit to Ms. Danilina in the contemplated enforcement of her rights under the Act because SC Strategy cannot be ordered to delete its “intelligence” and there is no prospect of her recovering compensation because she has suffered no pecuniary loss and there is no evidence that she has suffered distress. Fifth, the absence of prejudice to Mr. Chernukhin cannot amount to a cogent reason for releasing Ms. Danilina from the collateral use prohibition.

In principle there is a public interest in recognising and enforcing Ms. Danilina’s rights under the Act. That public interest can be set against the public interest underlying the collateral use prohibition, namely, the public interest in ensuring that all relevant evidence is produced to enable cases to be decided justly. Ms. Danilina wishes to pursue her rights under the Act and the first stage in that exercise is to seek to persuade SC Strategy and/or the Information Commissioner that the Act applies to SC Strategy.

It may be that Ms. Danilina is unable to claim compensation but section 14(2) of the Act enables Ms. Danilina to seek an order that the data or intelligence kept by SC Strategy be supplemented by a statement of the true facts. Thus there is a remedy available to her.

I do not consider that the public interest in ensuring that SC Strategy complies with the Act is a separate public interest. It appears to me to be the converse of Ms. Danilina’s rights under the Act.

Nor do I consider that the public interest in enforcing her rights under the Act is weakened by what Mr. Crow called the “extra layer of confidentiality” arising from the circumstance that the report was produced in an arbitration to which Ms. Danilina is not party. The very fact that she is not a party means that she is not bound by that further layer of confidentiality. Whether or not Mr. Deripaska provided a copy of the report to her in breach of the duty of confidentiality which he owed does not appear to me to be in point in circumstances where it is agreed that this application is to be determined on the basis that the report was disclosed to Ms. Danilina by Mr. Chernukhin in these proceedings. In any event Mr. Chernukhin appears to have waived all his rights to confidentiality of the arbitration by allowing the arbitration materials to be deployed in these proceedings.

It seems to me, however, that in considering whether Ms. Danilina’s rights under the Act are a sufficient public interest to amount to a cogent reason for releasing her from the collateral use prohibition I must give careful consideration to Mr. Crow’s submission that in circumstances where the proceedings in this court, and hence this application, are being financed by Mr. Deripaska the truth is that this application is being advanced, not to protect Ms. Danilina’s rights under the Act, but as one aspect of the aggressive and hard fought litigation between Mr. Deripaska and Mr. Chernukhin. Mr. Stanley responded to this submission by saying that the application is not calculated to advance the interests of Mr. Deripaska, that the court cannot decide whether Ms. Danilina is “in cahoots with Mr. Deripaska” to support a dishonest case and that the point is irrelevant because her rights under the Act have nothing to do with the proceedings in this court.

On the one hand it can be said that Ms. Danilina is not bound by the findings of the arbitral tribunal, that she has a right to have the question of her claim to be the beneficial owner of Navigator determined in these proceedings, that her concerns about her rights under the Act are separate from the subject-matter of these proceedings and that Mr. Deripaska cannot gain from her pursuit of those rights. On the other hand Mr. Chernukhin can say that in circumstances where these proceedings are being advanced by Ms. Danilina at the expense of Mr. Deripaska and where this application is being made in those proceedings it is to be inferred that the application is in fact being pursued by Mr. Deripaska for his own ends in the context of his hard fought dispute with Mr. Chernukhin.

When considering an application for release from the collateral use prohibition the suggested cogent reasons must be closely and carefully examined. In that context I do not consider that I can close my eyes to the findings of the arbitral tribunal on the grounds that they are not binding upon Ms. Danilina. Of course I cannot decide the issues which have to be decided in these proceedings by a trial but it seems to me that I can properly have regard to the findings of the arbitral tribunal when forming a view as to whether Ms. Danilina’s apparent concern with her rights under the Act amounts to a cogent reason for releasing her from the collateral use prohibition.

She maintains that she is the owner of Navigator, that she has commenced these proceedings to prove her ownership and that she is making the current application to exercise her rights under the Act. But the following matters must also be noted. First, Ms. Danilina and Mr. Deripaska agreed that she would commence these proceedings, and that he would fund them, in December 2016 shortly after the arbitral tribunal had reached its decision in November 2016 that Mr. Chernukhin, not Ms. Danilina, was party to the SHA. Second, these proceedings were commenced by Ms. Danilina on 22 February 2017. Third, she submitted her subject access request under the Act to SC Strategy on 22 March 2017.

The arbitration proceedings between Mr. Chernukhin and Ms. Danilina had been underway since late 2015. It is improbable that Ms. Danilina did not know about them and yet she did not issue any proceedings herself. The fact that she only did so about 2 months after her agreement with Mr. Deripaska suggests that he, rather than she, is the driving force behind these proceedings. Against that must be weighed the evidence from her solicitor that Ms. Danilina’s resources did not enable her to fund any claim and her own evidence that the agreements with Mr. Deripaska “represented the only way for me to have legal representation and protect my assets”. Having commenced these proceedings in February 2017 she then made her subject access request in March 2017. No disclosure of the Report had taken place between February and March 2017. But on 3 March 2017 Mr. Deripaska’s solicitor confirmed to Ms. Danilina’s solicitor that he did not object to her referring to or relying upon confidential documents disclosed in the arbitration proceedings. On 6 March 2017 Mr. Chernukhin’s solicitor informed Ms. Danilina’s solicitor that he too had no objection to the use of material from the arbitration. No mention was made in any correspondence to which I have been referred of disclosure of the Report. All that I have been told by Ms. Danilina’s solicitor is that the Report “has come into Ms. Danilina’s possession in connection with this claim”. Since there is no evidence that Mr. Deripaska provided the report to Ms. Danilina between 3 March and 22 March (when her solicitor made the subject access request) I infer that Ms. Danilina had been provided with the report some time before by Mr. Deripaska. Yet no subject access request was made until after the agreements reached in December 2016 between Mr. Deripaska and Ms. Danilina. That suggests that the driving force behind the request is also Mr. Deripaska rather than Ms. Danilina.

There is the further oddity that Ms. Danilina is concerned to correct the intelligence garnered by SC Strategy which suggested that she wrongly accepted large sums of money to assist Mr. Deripaska in defending a claim brought against him in arbitration when there is no dispute that she has accepted $2 million from Mr. Deripaska to commence these proceedings.

In the result I am left in real doubt as to whether this application really is brought to exercise and protect Ms. Danilina’s rights under the Act. There are grounds to believe that the application has been brought because Mr. Deripaska considers that it will somehow improve his position in his battle with Mr. Chernukhin. Quite how it will improve his position is, I accept, unclear; though Mr. Crow invites me to infer that Mr. Deripaska wishes to discover who leaked information to SC Strategy concerning him and Ms. Danilina. That is possible but I am not sure that there is yet enough material to justify the drawing of an inference to that effect. Further, section 7(4) and (5) of the Act give protection to sources.

Mr. Stanley said that the court cannot decide whether Ms. Danilina is “in cahoots with Mr. Deripaska” to support a dishonest case. I agree that the court cannot decide on this application that the case being advanced in these proceedings is dishonest but the court can review the material which was put before it to assess the strength of the suggestion that it is in truth Mr. Deripaska who is behind this application rather than Ms. Danilina. The matters to which I have referred suggest that that is not the case; and in consequence Ms. Danilina’s case on this application is weakened. Mr. Stanley said that the point is irrelevant because her rights under the Act have nothing to do with the issues in these proceedings. But in my judgment the point is relevant because the stronger the case that Ms. Danilina is in cahoots with Mr. Deripaska the weaker becomes the suggestion that it is in truth Ms. Danilina behind this application rather than Mr. Deripaska.

The court has to consider carefully whether the necessary special and cogent reasons for releasing a party from the collateral use prohibition have been established. In the present case where there is, for the reasons I have summarised, reason to doubt that the motivation behind the application is that of Ms. Danilina seeking to exercise her rights under the Act and where the motivation may in fact be that of Mr. Deripaska seeking to further his dispute with Mr. Chernukhin, despite having lost the arbitration with him, I am not persuaded that the necessary special and cogent reasons for release from the collateral use prohibition in fact exist.

Three further matters were relied upon by Mr. Stanley.

It was said that it is artificial for Mr. Chernukhin to seek to prevent the collateral use of the Report by Ms. Danilina in circumstances where he commissioned it and has agreed that it may be deployed in these proceedings. But upon the agreed assumption that he disclosed the Report to Ms. Danilina he is entitled to resist the collateral use of the Report. In one sense his stance is artificial; there does not appear to have been any such disclosure by Mr. Chernukhin, merely an agreed assumption that there has been such disclosure. But Ms. Danilina cannot complain of that because her application is based upon the same agreed assumption.

Reliance was placed upon the limited nature of the intended collateral use. I agree that it is limited but that cannot itself amount to a special reason for justifying release from the collateral use prohibition.

Finally it is said that there is no prejudice to Mr. Chernukhin if the application is granted. That may be so but the absence of prejudice cannot itself amount to a special reason for justifying release from the collateral use prohibition.

For these reasons I have concluded that the application must be dismissed.