Chvetsov v Matuzny

The parties to this action are two businessmen who are Russian nationals. The dispute between them relates to a limited liability company incorporated under Russian law, Parma Resource LLC (“Parma”). Parma was incorporated in August 2005 and has its registered office in Perm. Its principal activity is the development and exploitation of oil fields in the Perm region. In November 2005 it acquired a 25 year licence enabling it to explore and extract hydrocarbon resources within the Romanshor area in Perm. On 16 April 2009 it was declared insolvent by the Arbitration Court of that region.

Both parties to this action are shareholders and had invested money in Parma. Mr Matuzny was an original shareholder together with a Mr Gupta and certain minor shareholders, including Mr Baryshev. In 2006 Mr Gupta withdrew and at Mr Matuzny’s invitation Mr Chvetsov in effect took his place.

The parties are each highly educated and experienced and Mr Chvetsov owns or controls substantial capital which he invests. Mr Matuzny’s background is in engineering and the oil industry. Mr Chvetsov’s background is in economics and finance. They each have homes in London, and the Defendant also has British nationality. They met in about 2006 shortly before they embarked upon the discussions and agreements out of which this dispute arises.

The parties entered into two formal agreements drawn up by English solicitors acting for each party. One is dated 22 November 2006 (“the November Loan Agreement” or “NLA”) and the other 1 December 2006 (“the December Loan Agreement” or “DLA”). Less than two weeks after the DLA the parties visited Parma’s site in Russia where they each signed a document in the Russian language dated 14 December 2006 (“the December Document”). Mr Chvetsov claims under the December Loan Agreement, and Mr Matuzny contends that the DLA was discharged by the December Document (amongst other defences).

In very broad terms the purpose and effect of the two Loan Agreements was to enable Mr Gupta to withdraw from Parma, for Mr Chvetsov to be introduced in his place, and for the capital of Parma to be increased. Mr Chvetsov was unwilling to deal direct either with Mr Gupta, or, in the first instance, with Parma. In the first instance he was willing to deal only with Mr Matuzny.

Under the NLA Mr Chvetsov lent to Mr Matuzny $2,380,044 (all dollars referred to in this judgment are of the USA) to enable Mr Matuzny to acquire Mr Gupta’s shares in Parma, and to transfer them on to Mr Chvetsov. The loan was for a very short period, namely to 31 December 2006 and interest free. Transfer by Mr Matuzny to Mr Chvetsov of Mr Gupta’s shares was agreed to be a method of discharging that loan. It was not a sale of the shares, because Mr Matuzny was not obliged to transfer the shares to Mr Chvetsov. Mr Matuzny acquired Mr Gupta’s shares, but not until 5 February 2007, and he later transfer them to Mr Chvetsov, but not until May 2007. Little turns on these delays.

The DLA is more complicated, as explained below, but the following is not in dispute. Under the DLA Mr Chvetsov lent to Mr Matuzny $1,660,524 expressly for the purpose of enabling Mr Matuzny to acquire a further shareholding in Parma (“the Sale Shareholding”). This is defined as “34.81% of the issued share capital or ownership of Parma as at the date of this agreement to be acquired by [Mr Matuzny]”.

However there are problems with that definition (as discussed below) and I prefer to use the expression the Sale Shareholding rather than 34.81% of the share capital.

This loan was for a period of three years, and bore interest at 3% above the Central Bank of Russia’s interest rate from time to time (clauses 4 and 7). It contained provisions for repayment of capital by instalments starting one year after drawdown (clause 5) – in other words repayment over two years deferred by one year. It provided for immediate repayment of the outstanding principal on the occurrence of an Event of Default (Clause 9.2.). By clause 9.2 it was provided that upon such an occurrence Mr Matuzny would, on written notice, transfer the Sale Shareholding to Mr Chvetsov. There is a choice of English law and exclusive jurisdiction, under which the matter comes before this court.

Mr Matuzny did not make any payments by way of repayment of capital, and he paid no interest pursuant to the DLA. Mr Chvetsov did not at first complain of this.

At some point in December 2006 the Charter capital of Parma was increased. The date is uncertain. In his witness statement Mr Matuzny states that that had occurred by 11 December. According to a document headed “History of changes in Founders …” it was on 20 December, but this document was prepared long after December 2006, and it must have been prepared from sources which are not amongst the papers I have. The Minute recording the Resolution authorising the increase in Charter capital is dated 16 February 2007.

It seems probable to me, and I find, that Mr Matuzny is correct on this point. The date was 1^st December. That is the date mentioned in the payment order of 11 December relating to a payment to Parma by Mr Matuzny in the sum of 26,516,000 roubles (about $1.1m) referred to below. Moreover, the solicitors for each party appear to have acted with great care, and taken instructions throughout the drafting. I think it unlikely that the draftsman would have defined the Sale Shareholding as it is defined if the increase in Charter capital did not take place at least contemporaneously with the DLA.

The Charter capital of a Russian company appears, so far as is material to this judgment, to correspond broadly to the issued share capital of an English company.

After Mr Matuzny had acquired Mr Gupta’s shares, and after the increase in Parma’s Charter capital, Mr Matuzny became the registered holder of 99.04% of the Charter capital of Parma. On 15 May 2007 Mr Matuzny transferred Mr Gupta’s shares to Mr Chvetsov. As from that moment Mr Matuzny was the holder of 47.16% of the Charter capital, and Mr Chvetsov was the holder of 52.71%. There were also in the meantime certain dealings with the shares of the small shareholders which I do not need to recount. But there were further transactions on 15 May 2007. The Charter capital of Parma was again increased, with the result that Mr Matuzny became the holder of 42.5%, Mr Chvetsov of 47.5% and Mr Baryshev of 10%.

On 15 December 2009 Mr Chvetsov served a notice under clause 9.2 of the DLA, relying on the insolvency declared on 16 April 2009 as an Event of Default. Mr Chvetsov claims an order that Mr Matuzny transfer to him 34.81% of the share in Parma. In the alternative he claims repayment of the loan of $1,661,000. Mr Chvetsov also claims interest in the sum of US$847,678.98 as being outstanding under the December Loan Agreement.

Mr Matuzny denies on various other grounds, that he is under any obligation to Mr Chvetsov, whether to repay the money advanced under the DLA, to pay interest on that loan, or to transfer the Sale Shareholding to Mr Chvetsov. His primary case is that the December Document discharged the DLA. But in the alternative he seeks rectification of the December Document, and relies on waiver, or a collateral contract. He also denies that there was any Event of Default.

As to the December Document, Mr Chvetsov contends that it was not intended to be a legally binding agreement, that it is not supported by consideration, and even if it were binding, it does not on any view have the effect for which Mr Matuzny contends.

The above information as to the shareholdings in Parma appears in table form as follows. The nominal Charter capital is expressed in roubles. For the purposes of this judgment the approximate exchange rate can be taken to be US$ (“$”) 1 = 30 roubles. So the initial Charter capital was the equivalent of no more than about $33,000. And the shareholdings of the Defendant and Mr Gupta were each the equivalent of about US$12,500:

I have already stated my finding that the increase in the Charter capital happened on 1^st December. Further reasons for this finding are as follows. One of the first difficulties with the DLA (if the date were later than 1^st December) would be in understanding the definition of the Sale Shareholding:

“34.81% of the issued share capital or ownership of Parma as at the date of this agreement…”

In his pleaded Defence and up to the start of the hearing, it was Mr Matuzny’s case that the 34.81% was a reference to a part of Mr Gupta’s shareholding. He submitted that he had discharged his debt under the DLA by transferring to Mr Chvetsov the shares he had acquired from Mr Gupta. In other words, Mr Chvetsov had lent him nearly $4.1m for him to acquire the shares of Mr Gupta for Mr Chvetsov, and that he had done that. Those were the only shares he could be asked to transfer to Mr Chvetsov.

However, as appears from the table, the share capital of Parma before the date of the DLA was 1 million roubles, of which 34.81% would represent shares with a nominal value of 348,100 roubles. But the only shareholders other than Mr Matuzny himself from whom shares could be acquired in that number were Mr Gupta and (up to the figure of 250,000 roubles) the other shareholders. But Mr Gupta’s shareholding was to be acquired under the NLA.

This submission by Mr Matuzny was never plausible and was quickly abandoned. Neither Mr Chvetsov nor Mr Matuzny in their witness statements stated what information they had given to their respective solicitors on the basis of which the solicitors drafted the definition of the Sale Shareholding. Like many successful businessmen they had left the form and detail of their agreements to the lawyers, and I do not find it surprising that they were unable to help with this drafting point. Nevertheless, I think it likely that the solicitors were provided with detailed instructions and documents.

As both counsel brought to light the history of the matter, the explanation became clear.

The first discussion between the parties about an investment by Mr Chvetsov was in about September 2006. At that time Mr Matuzny had told Mr Chvetsov that he needed him to invest a figure of about $4.4m. “for settlement with the current owner” as he put it in a note (handwritten in Russian). The note also explained that an investment of $10.6m was what Mr Matuzny was looking for soon after. He added that if all these investments were made Parma would have recoverable resources of 4 million tonnes with an estimated value, by the middle of the following year, of $40m to $60m. In the event Mr Chvetsov did invest more money, but not the $10.6m discussed at this stage.

At that time in September 2006 Mr Matuzny was already in negotiation with another potential investor, a Mr Gun. He was a Turkish national. He was proposing to use as a vehicle a company called Sersale Holdings Ltd (“Sersale”), incorporated in Cyprus.

The plan was set out in an agreement made in September 2006 (“the September Agreement”). This was made between Sersale, Mr Gupta and Mr Matuzny. There was to be an increase in the Charter capital of Parma. Sersale would contribute $1,660,524 (44,426,000 roubles) to the Charter capital of Parma. Mr Gupta would contribute $202,585 (5,420,000 roubles). On or before 30 November 2006 Sersale would buy Mr Gupta’s share in the Charter capital of Parma for $2,380.044. Parma was to pay off three loans said to total $1,863,109. According to the September Agreement, these loans were under three agreements made with two companies, and they total $1,839,976 (the discrepancy in the figures is not material to this judgment): Alcon Developments Ltd (“Alcon”) and New Far East Ltd (“NFE”).

Alcon had lent $600,000 under an agreement of 16 September 2005 and $639,976 under an agreement of 7 November 2005 (a total of $1,239,976). NFE had lent $600,000 under an agreement dated 16 September 2005. These two figures total $1,839,976.

If the price of $2,380,044 was not paid (as defined in the September Agreement) by 30 November 2006, Sersale would be liable to pay to Mr Gupta $200,000.

The source of the loans referred to in the September Agreement is a matter about which there was dispute before me. Mr Matuzny refers to these at “the Gupta loans”. In the financial statements prepared by KPMG for Parma for the period 31 August to 31 December 2005 they are referred to as “loans and borrowings from the members”. I shall refer to them as “the Members’ loans”.

The result that the September Agreement would produce for Parma and Sersale’s share capital was set out in tables in the agreement. It is from there that I have taken the figures in the table below. It was agreed that, immediately before Sersale acquired Parma’s Charter capital, that capital would be increased to 127,635,000 roubles, and it was to be held, as follows:

The September Agreement was not performed. Mr Gun withdrew on 20 November 2006. Mr Gupta made a claim for the $200,000, but did not press it.

The NLA and DLA took the place of the September Agreement, albeit with a very different structure. But it is clear that the figures in the NLA and the DLA must have been derived from the September Agreement. Moreover, the draftsman of the DLA must have been informed that the Charter capital of Parma would have been increased by the time that the DLA came to be executed, or that it would so increased contemporaneously. In fact, as set out above, the increase that occurred was to a slightly lower figure than that provided for in the September Agreement, namely 108,345,000 roubles (about $3.6m).

I find, that the Sale Shareholding meant 34.81% of the Charter capital as it stood after the increase. That is the equivalent of shares to the nominal value of 37,714,895 roubles of the Charter capital of Parma. It was for the purpose of enabling the increase of the Charter capital by that sum that Mr Chvetsov had lent to Mr Matuzny $1,660,524. Under the DLA Mr Matuzny was to be entitled, as between himself and Mr Chvetsov, to be registered as the holder of that number of shares in Parma. Parma would, with this new capital, also be in a position to repay to Mr Gupta the sum of $1.4m that he had advanced to enable to Parma to acquire its licence (see para 102 below). It was only in that indirect sense that the DLA could be said to be for paying the Members’ Loans.

Neither of the parties gave evidence along these lines. As mentioned above Mr Matuzny offered the explanation that the Sale Shareholding was part of the shareholding of Mr Gupta that was also to be acquired by him under the NLA. He also said that it was Mr Gupta’s advisers who had requested that the payment of $1,660,524 should be equated with a sale of 34.81% shareholding and that this was for tax and accountancy reasons. The former contention was soon abandoned, and the latter is not supported by any contemporaneous document. It is not credible. It may well be that Mr Gupta’s advisers had a role in introducing the figures of $1,660,524 and 34.81% in the September Agreement. But I find that they had no direct role in the use of those figures in the DLA, with which Mr Gupta was not in any way concerned.

The DLA is impossible to understand without reference to an increase in the Charter capital of Parma. Mr Matuzny includes in his witness statement detailed descriptions of the September Agreement and other arrangement, including numerous references to the percentages of the Charter capital of Parma. None of this is comprehensible to a reader who does not know about the increase the in the Charter capital. Mr Matuzny did mention the increase in Charter capital, but he did not explain its relevance to the DLA.

I find that in the case of Mr Chvetsov this omission is understandable. He appears to have left all matters of detail to his lawyers and paid very little attention to them himself. What he sought and obtained was the assurance of Mr Matuzny’s personal liability under each of the NLA and the DLA.

In the case of Mr Matuzny I find his original contention that the 34.81% was part of the shareholding of Mr Gupta more difficult to understand. He had been the driving force behind Parma from the start, and I do not understand how he could have failed fully to understand the arrangements which he had agreed with Sersale, and later with Mr Chvetsov. Under the NLA and DLA he was assuming personal liabilities for very large sums of money. He was clearly uncomfortable with this, which explains why he obtained the signature of Mr Chvetsov to the December Document.

In approaching this issue through the contemporaneous documents rather than the evidence of the witnesses I have followed the guidance of in The Ocean Frost [1985] 1 Lloyd's Rep 1 at [57] and other authorities to similar effect. A judge faced with conflicting oral evidence is required to test the evidence given in the witness box against the objective facts, the overall probabilities and the motives of those involved.

As before, I start with the contemporaneous documents. On 21 October 2006 the parties met and signed a document handwritten in Russian (“the October Agreement”). It is headed “Agreement” and identifies Mr Chvetsov and Mr Matuzny as the parties. It records the parties as acknowledging that Sersale “owns a 100% interest in” Parma, and that Mr Matuzny “is recognised as a holder of 42.2% interest in” Parma, that Sersale “acknowledges a debt in the amount of US$1 mln to” Mr Matuzny. It also states that “Company [which I take to be Parma or Sersale] also recognises [Mr Chvetsov] as a holder of 42.2% interest to an amount of US$2.8 mln and acknowledges a debt in the amount of US$3.7 mln to [Mr Chvetsov] at an annual interest rate of RF CB plus 1% which equals 12%”.

It is the last sentence that Mr Chvetsov regarded as significant. It refers to the possibility of fraud (not by Mr Matuzny) in the input of funds into Parma, and provided that Mr Matuzny “shall guarantee the return of lost funds”. This may reflect a discussion the parties had that day. It explains how the solicitors came to draft the NLA and DLA as they did, that is to say, why these agreements provide for personal liability on the part of Mr Matuzny in relation to all sums to be advanced by Mr Chvetsov. The letter seems to me to have no other significance.

The documents show that, under the system of share registration applicable to Parma, there occurred long delays between the date on which an agreement was made for the transfer of shares and the date on which the transferee came to be registered as the holder of the shares. These delays gave rise to an obvious risk of non-delivery. As between Mr Chvetsov and Mr Matuzny the scheme devised by the solicitors placed that risk upon Mr Matuzny, as Mr Chvetsov had required.

The translation of the October Agreement is not in dispute. The first part of the document is impossible to understand. Mr Matuzny wrote that in his own handwriting. It reflects very poorly on his ability to draft a legally binding agreement. I have seen no document explaining the statement in that document that Mr Matuzny was the holder of 42.2% of the Charter capital of Parma, and there are many other parts of the letter which I cannot understand. Fortunately it is not necessary for this judgment that I do so.

In his witness statement Mr Matuzny states that he and Mr Chvetsov entered into this agreement with the consent of Mr Gun. As Mr Matuzny explains it in his witness statement, this document records what it was agreed would happen in relation to Sersale and Parma. But that is not how the October Agreement is expressed. Mr Matuzny explains the loan of $1m as money he had lent to Parma between 16 September and 16 December 2005 totalling $1.39m. He explains that these funds were advance through the intermediary of Alcon. It will be necessary to return to this.

On 24 October solicitors now acting for Mr Matuzny prepared the draft of a loan agreement to be entered into by Mr Chvetsov, by which he was to lend $3.7m to Sersale. On the same day there was a discussion between them and the solicitors instructed by Mr Chvetsov. Shortly afterwards Mr Chvetsov paid $650,000 to Sersale. However, the parties had second thoughts.

On 1^st November 2006 a formal agreement was entered into between Mr Matuzny, Mr Chvetsov and Sersale. It is typewritten in English and appears to have been drafted by lawyers. It recited that the parties had entered into agreements and understandings that they no longer wished to pursue, and that Mr Chvetsov had paid the $650,000 to Sersale. By this document Sersale agreed to transfer $650,000 to Mr Matuzny at a Russian bank account, the details of which are set out. Mr Matuzny acknowledged that he would be personally responsible for this money and that Sersale would be under no further liability in respect of it. Mr Gun approved this and on 7 November Sersale made the payment to Mr Matuzny.

On 9 November 2006 Mr Matuzny paid a sum equivalent to $650,000 (1,730,000 roubles) to Parma. The payment order states that it is in respect of a loan agreement dated 3 November 2006. No such loan agreement between Mr Matuzny and Parma has been disclosed, but it seems likely that the arrangement was a loan by Mr Matuzny to Parma.

On 13 November Mr Chvetsov’s solicitor wrote to Mr Matuzny’s solicitor referring to a meeting that Mr Chvetsov had had with him that day, and proposing what came to be the NLA and DLA, drafts of which he attached. Numerous e-mails and drafts were exchanged between the two solicitors. It was agreed that the $650,000 which Mr Chvetsov had paid to Sersale would count towards the $1,660,520 that Mr Chvetsov agreed to lend to Mr Matuzny.

On 20 November 2006 Mr Gun withdrew. He explained that Mr Chvetsov did not accept the deal with Sersale, as was the case.

On 22 November Mr Chvetsov attended the offices of Mr Matuzny’s solicitors and signed the NLA. The proposal for what became the DLA was discussed, as was a proposal for a shareholders’ agreement to be entered into between the parties to this action, Mr Baryshev (as the third shareholder) and Parma. On 24 November Mr Chvetsov’s solicitor sent drafts to Mr Matuzny’s solicitor. On the same day Mr Chvetsov paid $2,380,024 to the credit of Mr Matuzny’s account in Russia, thereby performing his obligation under the NLA.

On 30 November Mr Chvetsov’s solicitor e-mailed to Mr Chvetsov, Mr Matuzny and Mr Matuzny’s solicitor attaching a first draft of the proposed Shareholders’ Agreement. He expressed a number of concerns. These included that Parma was a Russian company, and so that an English agreement might not be suitable. He recorded that he had suggested that it would be better if it were drafted by Russian lawyers, but that Mr Chvetsov and Mr Matuzny did not want this. He also included the following paragraph relating to what was to become the DLA:

“In relation to the $1.6m loan, I would like you to note that, although there is nothing unlawful in a third party (ie Parma) taking over the obligations of another party ([Mr Matuzny]), if Parma had been an English company, it would have to show that taking over the burden of the loan made to [Mr Matuzny] was in the best interests of the company. I do not know if the position is the same in Russia and I will therefore have to rely on your guidance on this issue.
Although you have confirmed that you do not want the agreement reviewed by a Russian lawyer, I would advise you to reconsider the position since we need a document that is valid…”.

If Parma were to take over the burden of the loan of $1.66m, then, since Mr Matuzny was already the registered owner, or entitled to be the registered owner, of the 34.81% of the Charter capital of Parma, the effect would be that Parma had issued those shares to Mr Matuzny for little consideration (and no consideration moving from Mr Matuzny). The consideration would have been the receipt by Parma of the $1.66m loan from Mr Chvetsov which Parma would be bound to repay within three years. It is difficult to see the commercial purpose of such a transaction. And it is that which, as I understand it, gave rise to the solicitor’s concern that it might not be seen to be in the best interests of Parma. It is not surprising that the solicitors did not proceed with the drafting of the proposed assignment to give effect to this.

On 1^st December the DLA was executed.

On 2 December Mr Matuzny’s solicitor sent an e-mail to each of the parties and to Mr Chvetsov’s solicitor referring to the draft Shareholders’ Agreement. After saying it needed a lot of input from the parties he added:

“I would like to see an acknowledgement from [Parma] that it has received the monies in question and that it will take over the burden of the loans.
I think we also need to have a contemporaneous assignment and release of [Mr Matuzny] a[s] previously discussed”.

On 4 December Mr Chvetsov’s solicitor replied, with copies to the parties. He repeated previous expressions of concern as to whether Mr Baryshev was taking advice and said:

“Once we have finalised the structure with the parties and the exact documents required for evidentiary purposes in Russia, I can draft the assignment (which can contain the acknowledgement from [Parma] that it will take over the burden of the loan)”.

On 4 December Mr Matuzny paid to Mr Gupta 57,875,000 roubles. The payment order recorded that it was “under Contract of purchase and sale interest in [Parma] dated 4 November 2006”.

On 5 December Mr Chvetsov’s solicitor wrote to Mr Matuzny’s solicitor by e-mail:

“Although the principle (that the loan would be taken over by [Parma]) was agreed at the meeting [on 1^st December] I am not sure we agreed the final structure. In the meeting [Mr Chvetsov] talked about being able to enforce the loan agreement by bringing one document to a Russian court. With an assignment, you would need to have both documents as you would need to refer to the original to determine what rights are being assigned”.

On 5 December the General Director of Parma e-mailed to Mr Matuzny a reminder that the September Agreement had not been performed and that Mr Gupta had, since 30 November, been entitled to $200,000 under that Agreement. Mr Matuzny states that he discussed this with Mr Gupta on about 6 or 7 December, and subsequently (Mr Matuzny does not say when) Mr Gupta did not pursue it.

On the same day Mr Matuzny paid 4,000,000 roubles to Parma. On 7 December Mr Chvetsov paid $1,010,504 to the credit of Mr Matuzny’s bank account in Russia, thereby completing the performance of his obligations under the DLA.

On 11 December Mr Matuzny paid to Parma 26,516,000 roubles, as noted above. The payment order records the purpose as “Payment under Statement … dated 1 December 2006. Registered capital increase”. This was the consideration for the issue to him of the Sale Shareholding, or 34.81% of Parma’s Charter capital.

On 11 December Mr Chvetsov’s solicitor wrote to Mr Matuzny’s solicitor attempting to arrange a meeting to discuss and finalise the Shareholders’ Agreement. He was not successful. Mr Chvetsov and Mr Matuzny were on their way to Russia. On the same day Mr Gupta sent to Mr Matuzny a declaration addressed to Parma stating that he had decided to sell his shares in Parma to Mr Matuzny. He described them as being 53.44% of the Charter capital with a nominal value of 57,900,000 roubles. That is the figure which applied after the increase in the Charter capital which I find probably occurred on 1^st December 2006.

On 13 and 14 December Parma paid to Alcon the sums of $600,000 and $80,000 respectively. The Payment Orders refer to the Loan Agreements with Alcon dated 16 September 2005 and 7 November 2005. Parma made a further payment to Alcon on 27 December of $400,000 also by reference to the 7 November 2005 Loan. $600,000 was the total sum paid by Alcon to Parma under the Loan of 16 September 2005, so all of that was repaid. The total under the Loan of 7 November was $639,976, so the two payments of $80,000 and $400,000 did not amount to full repayment. Further payments were made later. On 9 January 2007 Parma paid $159,976 to Alcon in respect of the 7 November 2005 Loan, fully repaying that loan. On 10 January 2007 Parma paid NFE $550,000 in respect of the Loan agreement of 16 September 2005 under which NFE lent $600,000. The apparent shortfall of $50,000 is not material to this judgment.

The total payments to Alcon and NFE together were thus $1,789,976. That sum exceeds (by $389,976) the $1.4m that Mr Gupta had agreed to lend to Parma under the agreement of 1^st September 2005, to enable it to acquire its licence. It also happens to coincide with the difference between what Mr Matuzny lent to Parma ($1.39m) and what he states that he is still owed by Parma. But I am unable to make any finding as to whether that is a co-incidence, or whether that is the explanation for that difference. Mr Matuzny states that he had foregone repayment of that difference.

It was on 13 December that the December Document was signed in Russia, although it is dated 14 December. It had been drafted by Mr Baryshev, but he did not sign it. The translation is disputed, and expert evidence was called by each party as to the correct translation.

Before turning to the December Document, I set out the following further provisions from the DLA:

“5 REPAYMENT

5.4

[Mr Matuzny] agrees and undertakes that:

5.4.1

until repayment of the Loan in full, any and all dividends issued or paid by Parma to [Mr Matuzny] in respect of any shareholding held by [Mr Matuzny] in Parma (including the Sale Shareholding) shall be used to make payments of interest due to [Mr Chvetsov] under this agreement;

5.4.[2] he shall, within 5 days of the date of this agreement, give Parma an irrevocable instruction to pay, during the period commencing from the dated of the notice to the expiry of the Loan Period [ie December 2009], any dividends due to him in respect of any of his shareholding in Parma (including the Sale Shareholding) directly to [Mr Chvetsov] to such account nominated by [Mr Chvetsov] from time to time.

6 PREPAYMENT AND CANCELLATION

6.1

If a Sale occurs:

6.1.1

[Mr Matuzny] shall immediately prepay the Loan together with accrued interest and all other sums payable under this agreement to [Mr Chvetsov]…

15.

VARIATION AND WAIVER

The rights of [Mr Chvetsov] in relation to this agreement (whether arising under this agreement or under general law) shall not be capable of being waived or varied otherwise than by an express waiver of variation in writing. Any failure to exercise, or delay in exercising, any such rights shall not operate as a waiver or variation of that, or any other such right … No act or course of conduct or negotiation on [Mr Chvetsov’s] part shall, in any way, preclude it from exercising any such right or constitute a suspension or any variation of any such right”.

For the purposes of clause 6,

“Sale means a sale or disposal (whether in a single transaction or a series of related transactions) or the granting of any encumbrance over any of the shareholding or assets held by [Mr Matuzny] in [Parma] (including the Sale Shareholding) (other than the transfer of the Sale Shareholding to [Mr Chvetsov]) ”

In the translation submitted to the court by Mr Matuzny the December Document reads as follows:

“Agreement No 2

Between [Mr Matuzny] and [Mr Chvetsov]

[1] It is hereby acknowledged that further to the Contract of 21.10.06 and the loan agreement of 22.11.06 in the amount of US$2.380 mln and of 01.12.06 in the amount of US$1.650 mln signed in London and the debt owed by [Parma] to [Mr Matuzny] in the amount of US$1 mln it is agreed [:] that under the loan agreement in the amount of US$2.380 mln [Mr Chvetsov] shall receive 47.5% interest in [Parma] and shall have no further claims to [Mr Matuzny], while under the loan agreement in the amount of US$1.650 mln the loan amount shall be repaid out of [Parma]’s profit or after sale of Parma.

[2] Debt to [Mr Matuzny] in the amount of $1.00 mln shall also be repaid out of [Parma]’s profit or after sale of [Parma].

[3] From the date of signing of this Agreement [Mr Matuzny] and [Mr Chvetsov] shall have no financial claims to each other regarding the above”.

The names in square brackets are, of course, substituted. The colon inserted in square brackets can be seen clearly on the original and is not in dispute. The paragraph numbers in square brackets are added for convenience. It is clear that the December Document echoes phrases used in clauses 5.4 and 6 of the DLA.

It is the last sentence of para [1] and para [3] of the December Document that are mainly relied on by Mr Matuzny. He submits that the effect is to discharge him from all financial obligations under the DLA.

The main issue of translation between the parties is that Mr Chvetsov submits a translation of para [3] as follows:

“[Mr Matuzny] and [Mr Chvetsov] do not have any financial claims against each other as of the moment of signing this agreement”.

In other words, Mr Chvetsov submits that para [3] is simply recording an agreed fact, and has no other effect.

However, after reading their opinions and hearing the experts give evidence, it was clear to me that the difference between them was not one that experts could resolve. The real issue between them is an issue as to the true construction of the December Document. And that is an issue for the court to decide. The experts are each highly qualified and conscientious. Ms Wilson (called by Mr Chvetsov) accepts that in the Russian language, the words that she has translated in the present tense in para [3] of the document are capable of bearing the meaning attributed to them by Mr Yegikyan (called by Mr Matuzny). And Mr Yegikyan accepts that in the original Russian the words in that paragraph are indeed in the present tense, as translated by Ms Wilson. They each signed an agreed statement to that effect on 1^st December 2010.

I shall consider the intention of the parties and the meaning of the December Document first, and then consider the submission of Mr Templeman that, if the document would otherwise assist Mr Matuzny, it does not do so because he gave no consideration for any promise it might contain.

The parties agree that it was at the meeting in Russia on 13 December that they agreed that Mr Chvetsov would receive a further 5.3% of the Charter capital. Mr Matuzny was to acquire that from the small shareholders and transfer the shares to Mr Chvetsov. Mr Matuzny did do that, and Mr Chvetsov paid to him $500,000 for those shares. They were registered in Mr Matuzny’s name on 5 February, and in Mr Chvetsov’s name on 14 May 2007.

The evidence of Mr Matuzny in his witness statement is that it had been understood between himself and Mr Chvetsov that there would come a time when he would cease to be personally liable for the loans made under the NLA and the DLA. Mr Matuzny also states that it had been agreed that that time would come “once formal notice was given by Mr Gupta that he was transferring his shares to me, I would cease to have any personal liability”. Mr Chvetsov disputes that there was any agreement as to the cessation of Mr Matuzny’s personal liabity, other than appears in the NLA and DLA.

In the case of the NLA the condition for Mr Matuzny’s release was set out in the Agreement. It was when Mr Matuzny transferred Mr Gupta’s shares to Mr Chvetsov: see clause 5.2. In the case of the DLA there was no such release. As recited above, Mr Matuzny was to repay the loan by instalments of capital and interest (clause 5) and only if there was an Event of Default was it provided that the Sale Shareholding was to be transferred by Mr Matuzny to Mr Chvetsov in satisfaction of the loan made under that agreement.

There is no record in the contemporaneous documents that there was any agreement that Mr Matuzny would be released from personal liability at the point at which Mr Gupta confirmed that he was transferring his shares to Mr Matuzny. Mr Matuzny states that this oral agreement was reached at the meeting on 1^st December. I reject that evidence without hesitation. Such an oral agreement would have been inconsistent with the DLA which was executed in writing at that same meeting.

I accept that there was a discussion at the meeting on 1^st December to the effect that Mr Matuzny would in some way be released from the personal liability he had undertaken by the DLA. That much appears from the e-mails sent by the solicitors, addressed to the parties and to each other, as set out above. The solicitors had advised that, if there was to be the release Mr Matuzny wished for, a further agreement would have to be entered into in which the burden of the loan was undertaken by Parma, and that Parma would have to be a party to that new agreement.

I am sure that up to the time of the signature of the December Document, there was no agreement between the parties for any release of Mr Matuzny from his personal liabilities, other than as set out in the NLA and the DLA.

Mr Matuzny states that he received the letter of 11 December from Mr Gupta while he was in Moscow, and showed it to Mr Chvetsov as they were travelling to Perm. He states that it was in the light of that letter from Mr Gupta that Mr Chvetsov said he would release Mr Matuzny from all personal liability and they asked Mr Baryshev to draft what became the December Document. Mr Baryshev did so. Mr Matuzny then copied it out in his handwriting. Each of Mr Chvetsov and Mr Matuzny read it through and signed it.

Mr Chvetsov states in his witness statement that at the meeting in Russia Mr Matuzny asked Mr Chvetsov for some forbearance against the strict requirement of the DLA set out above, so that Mr Matuzny would have to make payments to Mr Chvetsov which were linked to payments by Parma to Mr Matuzny in respect of the profits of Parma, or to the sale of Parma. I interpose to note that the DLA already contained such a link in clause 5.4 set out above, but that link did not cap Mr Matuzny’s obligations in relation to the periodical payments. So, if Parma paid no dividends, the DLA required that he fund the payments from other sources.

In his witness statement Mr Chvetsov states that when he visited the site at Perm and met the staff, there was no sign of oil production. One reason for this was that a permanent road needed to be built, or a pipeline, to transport the oil. He understood that Mr Matuzny had cash flow problems. That would not be surprising. Mr Matuzny had undertaken onerous obligations under the DLA (to repay $1.66m plus interest within three years), even though the first instalment would not be due until one year after the loan had been drawn down (the First Payment Date referred to in clause 5.2). And his loan to Parma of $1.4m to enable it to acquire its licence had been funded by a loan secured on his home in London (see para 103 below). Parma was not yet paying any dividends.

Mr Chvetsov states that he agreed to give the forbearance that Mr Matuzny sought, and that he signed the December Document because he understood that it set out the forbearance he had agreed to give. He did so because he believed that Parma would make profits soon.

Mr Templeman accepts that the burden of proving that the parties did not intend to create legal relations rests on Mr Chvetsov. It is not in dispute that that must be judged objectively, but intention can be negatived impliedly. The principles are set out in Chitty on Contracts 13^th ed para 2-160ff. Mr Templeman relies in particular on para 2-164 and 2-183. In Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752, para 7 and 71 the judge found that the parties to a contract of sale of land did not consider themselves to be making a binding contract in circumstances where each would have expected there would be negotiated in the future matters upon which agreement might be difficult. So too the use of vague language can give rise to the inference that the parties were not intending to be bound contractually.

Ms Kyriakides submits the cases on vague language referred to in Chitty para 2-183 do not support the proposition for which Mr Templeman contends. Vaughan v Vaughan [1953] 1 QB 762, was a matrimonial case where Evershed MR at p765 found that an agreement by a husband that the wife could remain in the house was not contractual because there were no terms agreed “about paying rent or rates, or what was to happen about repairs”. Jones v Padavatton [1969] 1 WLR 328 concerned a family arrangement between mother and daughter as to the daughter’s right to occupy a house. In family arrangements there is a presumption of fact against agreements being contractual (p332H). I agree that that case (where the agreement was found to be binding) does not assist. In JH Milner & Son v Percy Bilton Ltd [1966] 1 WLR 1582 at 1586C-1587A the Judge held that a letter written by a solicitor to a prospective client using the vague word “understanding” meant something different from a binding legal contract.

In my judgment two of the three authorities cited do support the proposition that in principle the vagueness of the language used may be an indicator that the parties are not intending to be contractually bound. It is not clear how this principle is to be related to another principle in contract law, namely that an agreement may be void as a contract for uncertainty. The editors address this point in para 2-183 at footnotes 840 to 843, stating that the two principles are related in borderline cases.

Mr Templeman submits that there are a number of factors indicative of a lack of contractual intention. Less than a fortnight before the parties had concluded the second of two detailed and formal contracts drafted by English solicitors. The DLA dealt with the subject matter of the December Document, and there had been discussion between the parties about a further agreement, and the solicitors had not stopped work on the proposed agreement by 13 December. On 5 December Mr Chvetsov’s solicitor had referred to an agreement “in principle” for Parma to take over Mr Matuzny’s liability, while pointing out that further matters needed to be provided for, including the involvement of Parma itself. But they had also advised of the need for Russian lawyers to be instructed if the agreement was to be enforceable. The handwritten December Document is carelessly drafted, with inaccurate figures ($1.650m instead of $1.66m). There are other points.

A point of particular importance is that there is no express provision as to who is to make the repayments referred to at the end of para [1]. Repayment after the sale of Parma must mean repayment by Mr Matuzny from the proceeds of sale of his shares in Parma. But if that is so, then that is an obligation (or “financial claim” against him) that is created or perpetuated by the December Document (in so far as it is not a mere repetition of clause 5 of the DLA). So on that ground alone, there is no discharge of Mr Matuzny by this agreement.

There is in principle a possible ambiguity in the words of the first alternative, namely that “the loan amount shall be repaid out of [Parma]’s profit”. Those words do not say by whom the payment will be made. The most likely intended payer is Mr Matuzny (as with the second alternative discussed above, namely repayment from the proceeds of sale). But on this interpretation, once again, the agreement perpetuates an existing obligation under the DLA clause 5, or creates a new one, and in either case does not discharge Mr Matuzny from all financial claims in the future.

The only way out of this problem for Mr Matuzny, would be if the words meant that Parma was to pay Mr Chvetsov out of its profits. But that introduces problems, as the solicitors had pointed out: for example, there would need to be a further agreement to which Parma was a party.

There would also need to be an agreement as to what was to happen to the 34.81% shareholding. There is no hint in any of Mr Matuzny’s evidence that he had ever discussed with anyone a proposal whereby he was to receive 34.81% of the Charter capital at no cost at all to himself. And yet that is what he is contending is the effect of the December Document. Moreover it is an effect which (if it exists) has to be implied. It is not expressed in any way in the agreement alleged to have been reached.

There is a further vagueness in the last sentence of para [1]. According to Mr Matuzny, it provides that Mr Chvetsov’s entitlement to repayment is to be capped at the amount of Parma’s profits, or the amount of the proceeds of sale of Mr Matuzny’s shares. But that is not expressed in that paragraph. The words “shall have no further claims” apply to the transfer of the 47.5% shareholding, not to the source of the funds for repayment. There is also no reference to interest. The implication which Mr Matuzny must be contending for is that Mr Chvetsov was foregoing all entitlement to interest.

Further Mr Templeman submits that the claim in this action for transfer of the shares is not a financial claim. Ms Kyriakides was constrained to accept that. Finally, he submits that terms said to be implied in the December Document are squarely within clause 15 of the DLA which precludes variation or waiver otherwise than by an express variation in writing.

Further, the words “It is hereby acknowledged that further to the Contract of 21.10.06 and the loan agreement of 22.11.06 in the amount of US$2.380 mln and of 01.12.06” are words which are not apt to discharge any of the agreements thus mentioned. What is agreed is “further to” the previous contracts.

Ms Kyriakides sought valiantly to counter these submissions, mainly by reference to Mr Matuzny’s oral evidence. But she had no real material upon which to do so. The points are unanswerable in so far as it is Mr Matuzny’s case that the December Document discharged the NLA and DLA.

Ms Kyriakides would be on stronger ground in so far as Mr Chvetsov himself states that the December Document was intended to record his agreement to forbear from insisting on his strict rights to the repayment by instalments of principal and interest. But this does not advance Mr Matuzny’s case. As a matter of fact Mr Matuzny made no such payments, and Mr Chvetsov did not complain.

In my judgment, it is plain that the December Document could not, objectively, have been intended by the parties to effect a discharge of Mr Matuzny’s obligations under the NLA and the DLA. And if that is wrong, then as a matter of construction, I find that it does not in any event purport to do so. It cannot be read as an agreement that Parma will repay the loan, or that the amount of the repayments of principal and interest will be capped at the value of Parma’s dividends paid to Mr Matuzny or to the amount of the proceeds of sale of Mr Matuzny’s shares. On the contrary, it records Mr Matuzny’s agreement that the loan will be repaid, and is an acknowledgement that he will be subject to financial claims by Mr Chvetsov in the future, but not for the present.

In the light of that finding, the question whether Mr Matuzny gave consideration does not arise. But in case I am wrong about the foregoing, I shall deal with this point as briefly as possible. There are a number of points made, in particular by Mr Templeman, in relation to this aspect of the case which I do not find it necessary to deal with.

This issue requires a return to the events of 2005. Mr Matuzny relies as consideration upon the $1m loan which is referred to in the December Document, and what he submits was his agreement that that should be repaid as set out in para [2] above.

Para [2] is in similar terms to the last sentence of para [1] and so suffers from the same defects. It does not say there is to be a cap, or who is to make the payment. The reference to the sale of Parma would suggest a payment out of the proceeds of sale of shares in Parma. This could only be a payment by Mr Chvetsov. But that would be a benefit to Mr Matuzny, since Mr Chvetsov owed no such debt to Mr Matuzny before 13 December 2006.

However, the main thrust of Mr Templeman’s attack on this point is that he submits that Mr Matuzny has not established that there was such a debt owed by Parma to Mr Matuzny.

As stated in para 27 above, in September and November 2005 Parma received loans in the form of payments from Alkon and NFE under three Loan Agreements with those companies. These loans totalled $1,839,976. I shall assume that, as Mr Matuzny submits, those companies were controlled by Mr Gupta. Mr Templeman challenged that, but there is no evidence upon which I can find that either company was controlled by Mr Matuzny, as Mr Templeman suggested.

Nevertheless, it is common ground that the source of at least part of the funds lent to Parma in 2005 was Mr Matuzny, or interests controlled by him. The loans were required because Parma need to fund the costs associated with the acquisition of its licence to exploit the oil deposits in Perm. On 1 September 2005 all four of the shareholders entered into a contract. It is typewritten in the Russian language. It recorded that by 19 September Parma would required 80,000,000 roubles (about $2.8m), and that Mr Matuzny and Mr Gupta would fund this in equal shares (of $1.4m). But Mr Matuzny did not have a Russian bank account at that time, so there was a further provision that his half share would be paid into an account of Mr Gupta or “to his affiliated company”, and then passed on to Parma. The last clause of this agreement is in terms that resemble those of the December Document:

“3.

The amount to be transferred by [Mr Matuzny] via Mr Gupta’s accounts shall be compensated to [Mr Matuzny] from the profit of [Parma] or after the sale of the company at the market / at the stock exchange”.

The funds payable by Mr Matuzny were paid to Alcon by a company registered in the Bahamas, Arlington Management Services Ltd (“AMS”). AMS paid to Alcon $600,000 on 20 September 2005, $320,000 on 14 November 2005, and $470,000 on 14 December. The total of these sums is $1,390,000. The source of these funds was the increase on the debt secured by mortgage on the property in London where Mr Matuzny lives.

On 1 December 2005 Mr Gupta entered into agreement with Parma to lend it 40,000,000 roubles, repayable by 15 December 2015. This was in accordance with his agreement with other shareholders dated 1 September 2005.

In the Financial Statements prepared by KPMG for the period ending 31 December 2005 it is recorded that under Russian company law contributions by shareholders to the Charter capital are repayable on notice, and are therefore to be recorded along with the other liabilities of a company. The 1m roubles Charter capital appears in those statements as $35,000. The loans advanced through Alcon and NFE are recorded as $1,706,000. It is said that they had been discounted to reflect the fact that the loans were interest free, and the difference was recognised as additional contributions to the Charter capital. A further $1,524,000 is recorded as “additional paid in charter contributions”, making the total liability to the shareholders the equivalent of $3.2m. $0.9m of this was in relation to an event subsequent to the balance sheet date, namely the approval of an increase in the Charter capital to $5.2m.

It is not readily apparent how these figures relate to the $2.8m that Mr Gupta and Mr Matuzny agreed to advance in equal shares on 1 September 2005. The total paid by AMS to Alcon of $1.39 was paid to Parma, together with the payment from NFE. These are the total sum of about $1,839,976 referred to in the September Agreement. But as noted above, these loans were substantially repaid in December 2006 and January 2007. Who ultimately benefited from these repayments is not evidenced in any document.

Mr Matuzny stated in evidence that the repayments were for the benefit of Mr Gupta. This seems probable to me as to $1.4m, in so far as Mr Gupta had lent that sum to Parma as his half share of the money needed for Parma to acquire its licence. It is to be expected that upon selling his shares Mr Gupta would have wished to be repaid that loan.

The September Agreement provided that Mr Gupta was to make an additional contribution of $202,585 to Sersale, but since that agreement was not performed, it is unlikely that he made that payment.

The agreement dated 21 October 2006 includes the words “[Sersale] acknowledges a debt in the amount of $1mln to [Mr Matuzny] at annual interest rate of RF CB plus 1%, which is 12%”. That document is impossible to understand because it is drafted as if the September Agreement had been performed, whereas in fact it was not. It is unclear what the debt of £1m referred to there might be. No documentary evidence for it is available, if it is different from the $1.39m.

Apart from the reference in the document dated 21 October 2006, the other references to $1m are in notes and drafts written by the solicitors, presumably from instructions given by Mr Matuzny. But that takes the matter no further.

There is a document issued by the Arbitration Court of Perm Region head Resolution and dated 25 June 2009. That states:

“Under the loan agreement dated 03.11.2006 … [Mr Matuzny] agreed to provide to [Parma] funds amount to 23,000,000 roubles …”

I have referred above to another reference to what is said to be an agreement of 3 November 2006. I concluded that when Mr Matuzny made that payment to Parma it probably was a loan. But subsequently shares were issued on 1 December 2006, and I also think it likely that what had been a loan up to that point became a contribution to the Charter capital when that capital was increased. When asked about this Resolution in cross examination, Mr Matuzny was unable to remember what it was about. Nor could he remember the 3 November loan agreement referred to in the Payment Order.

Drawing this unsatisfactory evidence together as best I can, I think it more probable than not that Parma remained indebted to Mr Matuzny in respect of $1m of the $1.4m that Mr Matuzny had lent to Parma in accordance with the agreement of 1 September 2005.

On the assumption that I might make that finding Mr Templeman made a further submission to the effect that Mr Matuzny had given no consideration for the December Document. He submitted that by clause 3 of the agreement of 1 September 2005 Mr Matuzny had already committed himself in contract in the terms set out in para 102 above, that is to be repaid “from the profit of [Parma] or after the sale of the company at the market / at the stock exchange”.

To this Ms Kyriakides responds that a promise by Mr Matuzny to Mr Chvetsov to perform what was pre-existing contractual obligation to Mr Gupta, Mr Baryshev and the other small shareholder is good consideration for the promise to Mr Chvetsov. She relies on the statement to that effect in Pao On v Lau Yiu Long [1980] AC 614, 632B. Mr Templeman distinguishes that case. He submits that the December Document was at most a promise by Mr Matuzny not to insist on a right against Parma that he did not have.

On the assumption that Mr Matuzny did have a right against Parma to be repaid $1m of the $1.39m which he had advanced pursuant to the agreement of 1 September 2005, then in my judgment a promise to Mr Chvetsov (a shareholder in Parma) not to enforce that claim against Parma except out of profits of Parma (if Parma made any) would have been consideration moving from Mr Matuzny to Mr Chvetsov, if I had found that the December Document was intended to be contractually binding.

Another point taken by Mr Matuzny in support of the contention that he gave consideration for the December Document was that he agreed, by para [3] to give up any financial claim against Mr Chvetsov. This point has no substance. He had no such claim and was never likely to have one. Mr Chvetsov had performed all his contractual obligations to Mr Matuzny.

The claim by Mr Matuzny for rectification is hopeless. For the reasons given above, I am quite satisfied that Mr Chvetsov did not agree to the discharge of the NLA and DLA, and even if he had done, there would have had to be further agreements, including one by Parma to assume the obligation to repay Mr Chvetsov. That would have been expected to contain a provision as to what was to happen to the Sale Shareholding, since it had never been suggested by anyone that Mr Matuzny should receive this for no consideration.

The defence of estoppel or waiver is equally hopeless. There was no clear and unequivocal promise or representation by Mr Chvetsov, and no reliance by Mr Matuzny. The payment Mr Matuzny made to Parma on 11 December was what was contemplated by the DLA, and resulted in his acquiring the Sale Shareholding.

The defence of collateral contract fails for the same reasons.

The DLA provided further;

“clause 9.1.2: that Mr Chvetsov might, ‘at any time after the occurrence of an Event of Default…, by notice to [Mr Matuzny] declare that … the outstanding principal amount of the loan [and] all interest accrued … have become immediately due and payable’;

Clause 9.2: that ‘on and at any time after the occurrence of an Event of Default [Mr Matuzny] will on written notice from [Mr Chvetsov] transfer the Sale Shareholding to [Mr Chvetsov] in satisfaction of the loan but without prejudice to [Mr Chvetsov]’s rights … in relation to any interest outstanding’

Definitions and Schedule 2 para (q): ‘There shall be an Event of Default if … there occurs a change in the financial position of [Mr Matuzny], or any other event occurs or circumstances arise which, in the opinion of [Mr Chvetsov] may have or may be reasonably likely to have a Material Adverse Effect’;

Definitions: ‘Material Adverse Effect includes … an effect which, in the reasonable opinion of [Mr Chvetsov] is likely to be materially adverse to … the business, assets or financial condition of [Mr Matuzny]”.

Mr Chvetsov relies, as Events of Default, two resolutions of the Arbitration Court of the Perm Region of Russia. The first is that on the resolution dated 16 April 2009 in respect of Parma, referred to above. The second is that dated 9 April 2009 in respect of Staratel Ltd.

Accordingly, by letter from his solicitor dated 15 December 2009 Mr Chvetsov gave notice to Mr Matuzny. The letter enclosed copies of the two resolutions and stated that in Mr Chvetsov’s opinion these procedures were “likely to be materially adverse to … the business, assets or financial condition of [Mr Matuzny]”. The letter invited Mr Matuzny to provide information to demonstrate that these insolvencies were not materially adverse to his business. In default of compliance with that request, Mr Chvetsov declared the outstanding principal and interest and all interest accrued would, on 22 December, become immediately due and payable and made demands for payment of the interest and the immediate transfer of the Sale Shareholding of 34.81% in Parma.

There is no dispute that Mr Matuzny owned shares in Staratel as well as in Parma, and that the resolutions were made.

Mr Chvetsov has confirmed that he held the belief set out in the letter of 15 December 2009.

Mr Matuzny denies that Mr Chvetsov held the relevant belief, or, if he did, that it is a reasonable belief. He refers to the fact that Mr Chvetsov caused other notices of default to be served. In one dated 9 April 2009 he had relied on Mr Matuzny’s failure to pay interest, and not on anything said to be adverse to “the business, assets or financial condition” of Mr Matuzny. Mr Matuzny submits that the fact that Mr Chvetsov is demanding the shares instead of the principal in the form of money demonstrates that Mr Chvetsov’s claimed belief is not genuine. The implication is said to be that the shares are worth more than the $1.65m. This is because “the insolvency is commercial and not balance sheet insolvency”. Mr Matuzny refers to evidence that the shares are in fact worth substantial sums, and that there are prospective buyers of Parma, and other similar evidence. He complains that Mr Chvetsov’s claim is opportunistic. He refers to points arising out of Mr Chvetsov’s evidence in earlier proceedings brought by Mr Chvetsov against Mr Matuzny.

There is nothing in any of these points. The DLA is a loan agreement. The Events of Default are defined, and there can be no real dispute that Mr Chvetsov holds the belief that he claims, and that he does so reasonably. The terms of the DLA do not require this court to investigate the worth of the shares in Parma, or whether there are buyers for the shares, and if so at what price. In any event Mr Matuzny said in evidence that he was trying to sell Parma, but had not succeeded. What the clauses direct attention to is the question whether there has been an event which may have, or may reasonably be likely to have an effect which is materially adverse to “the business, assets or financial condition” of Mr Matuzny.

Mr Matuzny has made no real attempt to demonstrate the contrary. It is difficult to see how he could possibly do that, in any event. I find that the event of default relied in the letter of 15 December 2009 has occurred.

For the reasons set out above, the claim succeeds. Mr Chvetsov is entitled to have transferred to him the Sale Shareholding, namely shares to the nominal value of 37,714,895 roubles in the Charter capital of Parma, and interest. I invite the parties to submit a form of order.