Ziyavudin Magomedov & Ors v TPG Group Holdings (SBS) LP & Ors

The Alleged NCSP Conspiracy

That there were, from about November 2017, discussions about Transneft (via Fenti) acquiring Port-Petrovsk’s stake in NCSP; and that an agreement in principle had been reached in March 2018 that Port-Petrovsk’s shares in Omirico would be sold to Fenti for US$ 1.156 billion. It is also said that, as part of the same proposed deal, a loan of approximately US$ 150 million owed by Omirico to another company beneficially owned by ZM, Torresant Industry Ltd (‘Torresant’), would be assigned to Fenti. A share sale and purchase agreement was produced. As the Claimants say, it was scheduled for execution in mid-March 2018, but was delayed by requests from Transneft for personal guarantees from ZM and MM.

On 29 March 2018, ZM and MM met Mr Tokarev, the President of Transneft, to conclude the negotiations. The next day, on 30 March 2018, ZM and MM were arrested in Russia on what ZM contends to have been false charges of embezzlement. The Claimants contend that this arrest had been discussed at a meeting which occurred on 30 March 2018 between President Putin and Mr Tokarev, whom the Claimants say is a close ally of President Putin with an association going back to their days as KGB officers together in East Germany. The Claimants say that these two men discussed seizing control of NCSP, given its strategic importance to the Russian state. They say further that the sale of the shares in Omirico was delayed by Mr Tokarev by the device of asking for personal guarantees from ZM and MM, ‘until the arrests of ZM and MM could be arranged’.

As a result of the arrests, the proposed sale did not conclude. However, the Claimants contend that, in June or July 2018 the Tenth Defendant, Ms Mammad Zade, who had been CEO of ZM’s corporate group and who, the Claimants say, effectively remained in control of substantial aspects of his business affairs, communicated a message to ZM in prison via his criminal lawyers. Ms Mammad Zade is said to have conveyed that Mr Tokarev had indicated that he would speak to President Putin to stop the prosecution of ZM and MM and would secure their release from prison, but only if they first agreed to sell Port-Petrovsk’s shares in Omirico for a price of US$ 750 million. This the Claimants call ‘the Threat’. The Claimants further contend that in making the Threat, Mr Tokarev, on behalf of Transneft, represented that he was capable of procuring the release of ZM and MM, that he intended to procure that release if ZM and Port-Petrovsk agreed to sell Port-Petrovsk’s interest in Omirico for US$ 750 million, and that he understood that ZM and MM would be released if ZM and Port-Petrovsk agreed to sell that interest for US$ 750 million. These the Claimants call ‘the Representations’.

The Claimants say that ZM and MM did not agree to those terms. ZM conveyed to Ms Mammad Zade that he did not want to proceed with the reduced offer conveyed in the Threat.

However, the transaction proceeded regardless. A SPA for the sale at US$ 750 million was signed, as the Claimants say without ZM’s knowledge or approval, on 31 August 2018 by Mr Zaur Karmokov a director of Port-Petrovsk. It is said that this must have been as a result of a decision by Ms Mammad Zade to allow the sale to proceed. This, the Claimants say, could only have been because either she was now acting in collusion with Transneft, or she was acting on the Threat that Transneft had made hoping to secure ZM’s release from prison in return for doing the deal.

The Claimants say that it is also significant that the Omirico SPA executed on 31 August 2018 included a term that did not appear in the March 2018 version, namely the identification of a specific bank account for the receipt of the proceeds of the sale at Sberbank. On 18 September 2018, following execution of the Omirico SPA but prior to completion, the Russian General Prosecutor sought and obtained, from the Tverskoy District Court of Moscow, an order that funds deposited or to be deposited in that account be seized. On completion of the transaction on 27 September 2018, the proceeds were seized. Those funds have ultimately been confiscated by order dated 27 May 2022. The result is that ZM and Port-Petrovsk have lost their interest in NCSP, in exchange for nothing.

These alleged facts are said by the Claimants to give rise to causes of action in intimidation and duress (in relation to the Threat); misrepresentation (in relation to the Representations), and dishonest assistance (by Transneft of Mr Karmokov in his alleged breach of fiduciary duties as a director of Port-Petrovsk and of Ms Mammad Zade in her alleged breach of duties as a de facto director of ZM’s corporate group).

The Claimants’ Application

to give 28 days’ notice of an intention (a) to acquire or dispose of shareholdings in companies or stakes in partnerships anywhere in the world worth US$ 10 million or more, (b) to reorganise or alter its own capital structure, (c) to take on or pre-pay debt facilities in excess of US$ 50 million; (d) to commence, settle or discontinue litigation proceedings with a value in excess of US$ 10 million, or (e) to declare or pay dividends or otherwise distribute assets to shareholders or investors;

within 10 working of service of the order to inform the Claimants’ solicitors of all its cash balances exceeding US$ 1 million worldwide, and all other assets outside Russia exceeding US$ 10 million and all other assets within Russia exceeding US$ 50 million; and within 15 days after being served with the order should swear and serve an affidavit setting out this information.

This is a case of extraordinary delay for which there is no credible explanation. On the Claimants’ own case, ZM was aware of the facts comprising the alleged conspiracy by September 2018; but he had done nothing about it, and this claim had not been intimated, until the second half of July 2023.

There is no good arguable case against Transneft. The allegations are not properly particularised, are based purely on inference, non-attributed multiple hearsay and circular reasoning and make factual allegations which are incoherent and illogical.

There is no evidence which establishes a risk of unjustified dissipation.

It would not be just and convenient to grant the relief sought, which would be extremely damaging to Transneft.

Legal Principles

The Claimants contended that it was wrong to conflate the test for good arguable case in the freezing injunction context with the test for good arguable case in the jurisdictional context. So far as good arguable case is concerned however, both Haddon-Cave LJ in Lakatamia and the Chancellor in PJSC do not appear to draw this distinction, at least in the context of showing a good arguable case in relation to the question of risk of dissipation. It may be that any such distinction derives from the fact that the test of good arguable case in the context of jurisdiction had come to engage the concept of having much the better of the argument; whereas now the use of the word "much" in this formulation of the test of good arguable case has been discredited in the jurisdictional context.

Where does all this leave the test of good arguable case? I accept the submission of Mr Higgo that the law has moved on from a simple 50% test of good arguable case. It seems to me that, in applying the test of good arguable case, I should take account of the analysis of Green LJ in Kaefer, and the three limbed test as reformulated by Lord Sumption in Goldman Sachs.

It is not entirely clear to me, in my reading of the above test, how it applies to issues of law or construction, which may or may not depend upon the resolution of factual issues. It seems to me that the question of what view can be taken on issues of law or construction at this interim stage depends upon the nature of the issue. The overriding point is that it is for the Claimants to show that they have a good arguable case, both in respect of issues of fact and issues of law which arise in relation to the Claims. I add that, in relation to issues of law, it seems to me that it is not open to me simply to dismiss an issue of law as too difficult to deal with at this stage. I must, at the least, take a view on whether the Claimants have demonstrated a good arguable case on the issue.

It also seems clear that it is perfectly proper for a court, in applying the test of good arguable case, to adopt the yardstick of considering whether one party or the other has the better of the argument, both on a particular issue and on the relevant case as a whole. Returning to Kaefer, this is explained by Davis LJ, in his short judgment agreeing with the judgment of Green LJ, in the following terms at [119] (underlining added):

There was some debate before me as to what exactly the Claimants must demonstrate in order to show the requisite good arguable case. I was referred by Mr Salzedo to Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV, [2019] EWCA Civ 10; [2019] 1 WLR 3514. This concerned a jurisdiction challenge where the judge at first instance had applied the same test of "good arguable case" in relation to the question of jurisdictional gateway. At paragraphs 57ff, the Court of Appeal discussed the nature of the test to be applied in some detail and, in particular, whether it was absolute (such that the claimant need only meet a specified evidential threshold irrespective of whether its case was stronger or weaker than that of the defendant) or relative (requiring the claimant to show that its case was relatively stronger than that of the defendant).

After reviewing the authorities, the Court concluded that there could no longer be any doubt but that the three-limbed test first articulated by Lord Sumption in Brownlie v Four Seasons Holdings Inc, [2017] UKSC 80; [2018] 1 WLR 192 at [7] and subsequently endorsed by the Supreme Court in Goldman Sachs International v Novo Banco SA, [2018] UKSC 34; [2018] 1 WLR 3683 was now authoritative:

The Court of Appeal did, nonetheless, give useful guidance on the application of this test in practice. As to limb (i), it held that this is a relative test which requires an evidential basis showing that the claimant has the better argument. Limb (ii) requires the court to seek to overcome evidential difficulties and arrive at a conclusion on any disputed issue of fact if it reliably can, applying judicial common sense and pragmatism. If, however, it is unable to decide which side has the better argument on the material then available, limb (iii) allows some flexibility for the court to move away from a relative test and assume jurisdiction provided there is sufficient plausibility of evidence to support it.

I approach the present application on that basis.

‘But I see no reason why that test [viz that which was applicable in the jurisdictional gateway context] should apply to freezing injunctions where ex hypothesi (or subject to any jurisdictional challenge) the defendant is properly before the court.’

While it is correct that Longmore LJ was there considering a test in the context of jurisdictional gateways of ‘much the better of the argument’, which was subsequently refined to ‘the better of the argument’, that refinement is immaterial to the question here. What is significant is that in Kazakhstan Kagazy v Zhunus Longmore LJ identified that there was no reason why the test for those purposes should be that for freezing orders.

‘It is true that in adopting the good arguable test Mustill J was following the decision of Lord Denning in Rasu Maritima S.A v Perusahaan Pertambangan Minyak Dan Gas Bumi Begara (The Pertamina) [1978] QB 644, and Lord Denning had in turn adopted it in the context of a freezing order because he thought that the jurisdiction test was appropriate, at least where the case involved a foreign defendant (see p.661G). But there have been developments in the law relating to jurisdiction since, and although a claimant in both jurisdiction and freezing order cases must establish a "good arguable case", the policy considerations are different in the two situations and it is far from obvious that this inherently flexible concept must have the same meaning in each context. Indeed, even in jurisdiction cases the good arguable case test only goes to the question whether the claim falls within one of the grounds set out in PD6B para.3.1. We are concerned with the merits of the case, and so far as they are concerned, a claimant in a jurisdiction case has only to show that there is a serious issue to be tried: see Seaconsar Ltd v Bank Markazi [1994] 1 A.C.438, 457 per Lord Goff of Chieveley.’ (emphasis added)

‘The test on the strength of the merits needed for Mareva relief is not the test used to ascertain whether the claimant has brought itself within a jurisdictional gateway. [footnote 147] That test is to be applied at the time that proceedings are commenced because depending on whether it is satisfied there either was or was not jurisdiction at that time, and there does not cease to be jurisdiction because of later developments in the facts. The test used for jurisdiction challenges has been considered in a series of cases and is a tri-part test … In Mareva cases the all-important question is whether, at the time of the hearing and determination of the application for the injunction, in the circumstances of the case, it is “just and convenient” to grant it. Because of the intrusion into the defendant’s affairs resulting from a Mareva injunction there is a threshold test on the strength required on the merits, which is a “good arguable case”. A requirement that a court must form the provisional view that the claimant will probably succeed at trial would be inconsistent with an approach which enables the court to achieve “its great object viz abstaining from expressing any opinion upon the merits of the case until the hearing”. Nevertheless, the court will take into account the apparent strength or weakness of the respective cases in order to decide whether the claimant’s case, on the merits, is sufficiently strong to reach the threshold, and this will include assessing the apparent plausibility of statements in affidavits.’

Footnote 147 in that passage is a reference to Kazakhstan Kagazy Plc v Zhunus [2014] 1 CLC 451.

‘… the concept is reduced in scope when considered in relation to freezing order applications. No findings of the facts are required and the Court is astute to avoid resolving issues of fact which will fall to be determined at a full hearing later in the litigation.’

‘This test is easier for the claimant to pass than is the test applicable in the case of injunctions which will finally dispose of an action … and easier than the “good arguable case” test applicable on challenges to the jurisdiction of the English courts (see … Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 10 and Kazakhstan Kagazy Plc v Arip [2014] EWCA Civ 381 at [25]).’

‘The test of "good arguable case" is well-known in the context, for example, of freezing injunctions. The authorities in this area are summarised in Gee: Commercial Injunctions 7^th edition, paragraphs 12-032 – 12-033 drawing on classic statements of Mustill J. It is not enough to show an arguable case, namely one which a competent advocate can get on its feet. Something markedly better than that is required, even if it cannot be said with confidence that the plaintiff is more likely to be right than wrong. It is therefore not necessary for the applicant to have a case with a better than 50 per cent chance of success.’

Is an Order Appropriate?

Have the Claimants shown a good arguable case on the merits?

That NCSP is an asset of strategic importance to the Russian state.

That the Russian state has a track record of seizing such assets, using corporate raids and criminal prosecutions to order. For this he relied on a report from Professor Bowring.

Although the quality of the evidence about the Threat is criticised, it has to be appreciated that ZM is in prison and has to give instructions from there. It is not to be expected that a threat like this would be put in writing.

The price which was ultimately agreed (US$ 750 million) represented an extraordinary reduction from the price agreed in March 2018. Transneft had produced no documentation showing negotiations between it and Port-Petrovsk leading to that price in the period between ZM and MM’s arrests and the conclusion of the sale. Transneft’s suggestions as to why the price was lower than that agreed in March do not account for the extent of the reduction in the price.

Ms Mammad Zade remained in charge of the transaction in that period. She must have agreed to the price now proposed by Transneft either because ‘she ha[d] now turned’ and was colluding, in which case there is an unlawful means conspiracy, or because, knowing about the Threat, she thought it was in ZM’s interests to do so, in which the Threat was operative and there were various causes of action against Transneft.

Mr Karmokov had only been appointed sole director of Port-Petrovsk three weeks before he signed the SPA. He could not possibly have formed a view, in that time, of whether the deal was in the company’s best interests. He must have relied on others, in particular Ms Mammad Zade.

Ms Mammad Zade gave an interview to the press about a month after the completion of the transaction in which she said that the price of US$ 750 million was ‘in the same category as it was originally’, adding that it was ‘fair and correct’ and that ‘Transneft behaved honestly and decently in the current situation.’ The statement as to the ‘same category’ was, Mr Saoul said, obviously a lie.

The case had to be looked at in the round.

That the case was of an elaborate conspiracy involving a convoluted set of facts and a large cast of conspirators, which was inherently implausible.

That the implausibility of the claim has to be seen in light of the ‘extraordinary delay’ in the Claimants’ bringing it. The alleged facts occurred some 5 years ago, and yet no claim was intimated before this year. ZM is not, Mr MacDonald said, shy of bringing proceedings, as shown by the long-standing litigation in the BVI involving the alleged FESCO Conspiracy.

That no conspiracy was needed to confiscate ZM’s interest in NCSP to the Russian state. The Russian state could have done that much more simply, on the basis that ZM is a convicted criminal and his interest in NCSP was, as the Russian courts have said, the product of corruption.

The Threat lacks a plausible evidential basis. What is said is that Mr Tokarev conveyed the Threat to an unnamed vice president of Transneft, who told Ms Mammad Zade, who told ZM’s unnamed criminal lawyers, who told ZM, who told Mr Bushell who deposed to it. This multiple hearsay, unattributed in two respects, is unsupported by any documentary evidence.

In any event, even if the Threat was made, ZM’s own case is that he did not act on it. Accordingly it was nugatory. To overcome this, the Claimants have to bring in Ms Mammad Zade and Mr Karmokov as the instruments by which the conspiracy produced any effect. The problem with that, Mr MacDonald said, was that there was ‘no evidence at all’ to support it. As to the suggestion that Ms Mammad Zade instructed Mr Karmokov to agree to the SPA, the Claimants had themselves recognised that they did not know whether she gave him instructions. And even if she did instruct or encourage him to do so, it is entirely possible that she did so because she was acting in what were, or at least which she considered to be, Summa Group’s commercial interests.

Matters such as the Putin-Tokarev meeting on 30 March 2018 establish nothing. President Putin has annual meetings with Mr Tokarev and with executives of other important Russian companies. The official transcript of this meeting does not indicate that there was any discussion of NCSP or ZM.

Equally, the point about Transneft seeking personal guarantees is misplaced. The case was originally that personal guarantees had been sought in mid-March and that had delayed execution of the SPA. However, in fact, personal guarantees had been sought since February 2018. The Claimants’ case had therefore evolved to suggest that Transneft put forward certain revised terms for the personal guarantees in order to delay execution. But, Mr MacDonald said, the proposed revisions were entirely consistent with a normal commercial negotiation.

There is no plausible evidence that there was anything wrong with the sale price. The SPA was signed by Mr Karmokov, in the presence of four other members of the management of the Summa Group: Mr Kant Mandal, Mr Mironov, Ms Medvedeva and Mr Economou. They apparently thought it was in the interests of the Summa Group: there is no evidence that they did not. There were a series of reasons why the sale price was lower than had been settled on in March 2018. NCSP’s share price had fallen noticeably between 1 April and 1 July 2018, associated with a change in exchange rates and loss of market confidence related to ZM’s imprisonment; there were additional losses anticipated from possible tax charges; and the fact that there would not be the anticipated personal guarantees from ZM and MM itself had an effect.

It is only ZM who says that the price was too low; and his credibility in this respect is undermined because his current case is that Port-Petrovsk’s share in Omirico was worth some US$ 5 billion (POC para. 253) and yet he himself was prepared to sell it for some US$ 1.3 billion. Furthermore, why should Transneft have agreed too low a purchase price if, as is implicit in the Claimants’ case as to the conspiracy, whatever was paid was going to be seized by the Russian state anyway?

The Claimants got nothing out of Ms Mammad Zade’s interview. She had denied that there was anything wrong with the transaction. The Claimants were trying to ‘cherry pick’ the parts they wanted to rely on and say other parts were untruthful. There were various possible explanations for what she had said and meant as to the price being in the ‘same category’ as previously.

There is material suggesting that the Russian state may previously have engaged in conduct analogous to that alleged here.

The case is founded on ZM’s evidence as to the Threat. While that evidence is based on multiple and in part unattributed hearsay, those points have to be considered in light of the nature of the evidence and the fact that ZM is in a Russian prison.

ZM’s account of the Threat can be said to be corroborated by the fact that the transaction subsequently completed for US$ 750 million (ie the price which had been mentioned in the Threat). While of course it might be that ZM had tailored his account of the Threat to accord with the price of the concluded transaction that would be a matter for trial.

There is at present before the court no documentation or evidence relating to how the price was actually negotiated between Port-Petrovsk and Transneft after ZM’s arrest. One might have expected, if there were documentation or evidence of a commercial negotiation, that it would have been produced or at least summarised, even at this stage in the proceedings.

There are at least serious questions as to why the price had dropped so significantly in the period between March and when the price of US$ 750 million was agreed.

Is there a real risk of dissipation of assets?

The nature of their case on the merits. This, they said, was ‘ample evidence of the type of deliberate, immoral and wholly untrustworthy conduct which supports a conclusion that there is a real risk of dissipation here.’

Evidence of what they described as ‘actual and recent dissipation’ of assets. They referred to the redomiciliation of CPC Investments Company (Cayman Islands).

An incident of October or November 2022, before ZM’s and MM’s convictions. This concerned the debt of US$ 150 million which Omirico had owed to Torresant. Omirico had not paid, and as a result Omirico, a Cypriot company, was placed in provisional liquidation. Mr Tokarev then intervened, in October or November 2022, by writing to the Russian Deputy Minister of Internal Affairs to say that Omirico had an irrevocable deposit with Sberbank PJSC in the amount of US$ 150 million which the liquidator of Omirico planned to use to pay Torresant. Mr Tokarev said that given that Torresant might be associated with ZM and MM one of the liquidator’s goals might be to transfer funds in favour of ZM and MM ‘currently defendants in criminal case number […], whose property may be of value for repaying the damage caused to the Russian Federation as a result of crimes.’ He continued: ‘Please take into account the information provided as part of resolving the issue of seizing funds placed with Sberbank in order to pay off property damage caused to the Russian Federation, as well as preventing their exit (under the guise of liquidating and repaying a loan) in favour of the beneficiaries of the group “Summa”.’ As a result of that letter, the Claimants say, the Sberbank funds were frozen, and ultimately confiscated by the Russian courts.

That it had put in detailed evidence as to its asset position in Stepanchuk -1.

What this indicated was that Transneft is the largest oil pipeline company in the world. It is a holding company for a corporate group which holds in aggregate some US$ 40 billion of assets. Nearly all of Transneft’s and the Transneft Group’s assets are in Russia. Most are of a nature which could not be dissipated, comprising largely oil pipeline infrastructure and ancillary assets. Transneft itself has only very limited non-Russian assets, namely representative offices in Hungary, Poland and Belarus, and bank accounts holding c. £80,000. The Transneft Group, whose assets are in any event irrelevant because the order sought is only against Transneft, holds limited assets outside Russia, which are either of no value, or not of a type which could be dissipated (such as the Transneft Group’s 7% interest in CPC-K JSC which owns the Kazakh section of the Caspian Pipeline Consortium pipeline network).

The redomiciliation of CPC Investments Company (Cayman Islands) was unconnected to the Claimants’ claim and was for legitimate reasons.

The nature of the claim itself was not evidence of a risk of dissipation. Even if the Claimants had a good arguable case, Transneft had arguable defences to it. Moreover, its nature was not such as to be evidence of a risk of dissipation.

There was no reason to believe that Transneft’s evidence in relation to its assets had been in any way incorrect.

Is it just and convenient to grant the order?

I do not consider that there should be an order that Transneft give advance notice of its intention to acquire shareholdings in companies or stakes in partnerships. It may be that there should be a requirement for any such acquisitions to be notified after the event. In relation to the disposal of shareholdings/stakes in partnerships, there should be a separate, and higher, threshold, in relation to shareholdings/stakes in partnerships in Russia, as opposed to elsewhere in the world in relation to which the threshold of US$ 10 million appears appropriate.

I do not consider that there should be an order that Transneft give advance notice of its intention to take on or pre-pay debt facilities; or of its intention to commence, settle or discontinue litigation proceedings. But there should be advance notice of an intention to reorganize or alter Transneft’s own capital structure.

There should be a financial threshold in relation to the requirement to notify an intention to declare or pay dividends.

In relation to the matters summarised in paragraph 9(2) above, the order should be confined to the provision of information as to assets outside Russia.

There should be provisions for a ‘confidentiality club’ or other confidentiality measures.

Cross Undertaking

Conclusion