VTB Capital Plc Plaintiff v (1) Konstantin Malofeev (2) Universal Telecom Management (3) Universal Telecome Investment Strategies Fund SPC Defendants
| Jurisdiction | Cayman Islands |
| Judge | The Hon Sir Peter Cresswell |
| Judgment Date | 18 August 2011 |
| Judgment citation (vLex) | [2011] CIGC J0928-2 |
| Docket Number | Cause No. FSD 141 of 2011 (PCJ) |
| Court | Grand Court (Cayman Islands) |
| Date | 18 August 2011 |
The Hon Sir Peter Cresswell
Mr Nigel Meeson QC and Miss Bernadette Carey of Conyers Dill & Pearman for the Plaintiff
By ex parte summons dated 11 August 2011, the Plaintiff applies for the following relief:
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(a) An injunction freezing all assets in the Cayman Islands in the First Defendant's own name, whether a solely or jointly owned, up to the value of US$200 million; and
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(b) An injunction prohibiting the Second Defendant and the Third Defendant, who are companies incorporated in the Cayman Islands, from dealing with or diminishing the value of the shares in a Russian company called ‘Rostelecom’ up to a value of US$200 million.
The Plaintiff also seeks ancillary orders requiring the Second Defendant and the Third Defendant to disclose:
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(a) The details of their beneficial owner or owners;
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(b) The location and value of their shares;
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(c) If the Second Defendant and/or the Third Defendant are not beneficially owned by the First Defendant, or he no longer holds shares in those entities, details of:
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(i) when the new beneficial owners obtained their shareholding in the Second Defendant and/or the Third Defendant; and
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(ii) what action has been taken to confirm the details of the new owner or owners of the shares.
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The Plaintiff's Mareva Application is based on (and intended to support) a Worldwide Freezing Order granted to the Plaintiff on 5 August 2011 by the High Court of Justice (Chancery Division) in England in proceedings with Claim Number HC10C04611 (‘the English Proceedings’). On 5 August 2011, the English High Court:
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(a) made the Worldwide Freezing Order; and
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(b) gave the Plaintiff permission to seek to enforce the Worldwide Freezing Order against the First Defendant's assets in Cyprus, the British Virgin Islands (‘the BVT’), and the Cayman Islands.
The application was first made on Monday and Tuesday of this week, but was adjourned until today because, among other matters, the evidence was incomplete.
The materials before the court are set out in schedule 2 to the order which I propose to make.
The Plaintiff is a bank with its registered office in London.
The First Defendant is a Russian citizen with controlling interests in what has been described as ‘a complex web’ of companies located in numerous offshore jurisdictions. The First Defendant is the founder of the Marshall Capital Group of companies (‘Marcap’). Marcap is a group of companies incorporated in a variety of jurisdictions including Russia, Cyprus, the BVT, Panama and the Cayman Islands.
The Second Defendant is an exempted company incorporated in the Cayman Islands.
The Third Defendant is a segregated portfolio company (‘SPC’) incorporated in the Cayman Islands.
The Plaintiff alleges that the Second Defendant and the Third Defendant are administered by an entity based in Cyprus. (See paragraph 30 of Mr. Riem's first affidavit.)
The Plaintiff alleges that the First Defendant holds a significant shareholding in either or both of the Second Defendant and the Third Defendant.
The Plaintiff commenced the English Proceedings on 23 December 2010.
In the English Proceedings, the Plaintiff claims, among other things, that it was induced by fraudulent representations to enter into a facility agreement dated 23 November 2007 (‘the Facility Agreement’). The other parties to the Facility Agreement were:
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(a) a Russian company called Russagroprom LLC (‘RAP’);
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(b) Nutritek International Corp (‘Nutritek’), a company incorporated in BVI; and
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(c) a BVI registered company called Newblade Limited (‘Newblade’), which was a special purpose vehicle which had been incorporated to hold nine Russian dairy plants (‘the Dairy Plants’).
At the time the Plaintiff entered into the Facility Agreement, it was known as ‘VTB Europe PLC’. The Plaintiff changed its name to VTB Capital PLC in January 2009.
Pursuant to the Facility Agreement, the Plaintiff loaned to RAP a total of US$225,050,000, principally for the purposes of enabling RAP to acquire Nutritek's shareholding in Newblade.
At the time the Facility Agreement was signed, the Plaintiff says that it believed that it was a genuine commercial transaction between two independent companies for the sale of shares at market value. The Plaintiff says that it has subsequently discovered that:
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(a) Nutritek and RAP were in fact controlled by the same beneficial owners, Marcap, whose ultimate controlling mind was the First Defendant.
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(b) In order to induce the Plaintiff to enter into the Facility Agreement, Nutritek had in fact provided false information regarding the value and revenues of the Diary Plants held by Newblade.
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(c) The figures provided to the Plaintiff at the time the Facility Agreement was agreed were very significantly overstated.
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(d) The report of Ernst & Young (‘E&Y’) provided to the Plaintiff was based on historical figures and forecast trading figures both provided by Nutritek. Based upon those figures, E&Y provided a valuation of US$366 million. In fact, both the historical figures and the trading forecast were overstated and in addition one of the Dairy Plants was not in fact operating. This is explained further at paragraphs 38 to 57 at the Particulars of Claim.
The Defendants to the English Proceedings are Nutritek, Marshall Capital Holdings Limited (‘Marcap BVI’), Marshall Capital LLC (‘Marcap Moscow’), and Mr Malofeev. The Plaintiff claims from these defendants damages for deceit, and alternatively damages for conspiracy to defraud.
As far as the Plaintiff is aware, the First Defendant has no assets in the United Kingdom. However, the Plaintiff believes that the First Defendant has or is likely to have substantial assets outside the United Kingdom, including in the Cayman Islands,
As to the progress of the English Proceedings:
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(a) The Plaintiff filed its Claim Form on 23 December 2010;
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(b) On 11 May 2011, the Plaintiff was granted permission to serve the Claim Form out of the jurisdiction. Nutritek and Marcap BVI have been served. The First Defendant and Marcap Moscow have not yet been served. Because of the difficulties regarding service of foreign proceedings in Russia, service could take between 12 and 18 months.
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(c) On 5 August 2011, the Plaintiff issued its application for a WFO without notice to to any of the defendants to the English Proceedings. The WFO was granted by the English Court together with an order for alternative service on the First Defendant.
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(d) The Plaintiff is now applying to the courts of the BVI and Cyprus, and to this Court, for freezing orders.
On 8 August 2011, evidence was fded in support of the Application by Nutritek and Marcap BVI to set aside the permission to serve out granted by Chief Master Winegarten. As part of the continuing obligation to disclose, the Plaintiffs English Junior Counsel provided a note to the English Court dated 10 August 2011.
The First Defendant is a named defendant to the English Proceedings.
The Second Defendant and the Third Defendant are not parties to the English Proceedings.
The Plaintiff alleges that the First Defendant has assets in the Cayman Islands, namely his interests in the second and/or Third Defendant, which are being used to hold shares in Rostelecom, and that he may be taking steps to dispose of or diminish those shares which would have the effect of preventing or impairing the Plaintiff's ability to recover the losses it claims in the English Proceedings. The Rostelecom shares are traded on the London and Frankfurt stock exchanges, and on some Russian exchanges, including ‘OTCQS’.
The evidence in support of the Plaintiff's contentions is set out in the affidavit evidence of Mr. Riem and Mr. Chernenko, filed in support of the English Proceedings. The evidence alleges that:
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(a) The First Defendant holds a very substantial shareholding in Rostelecom.
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(b) The First Defendant's shareholding in Rostelecom is 7.4 percent of the issued shares which, with reference to the current market capitalisation, is worth approximately US$1.48 billion.
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(c) The Plaintiff has received information (see below) that the First Defendant holds his shareholding in Rostelecom through one or more Cayman Islands corporate entities (being the Second Defendant and the Third Defendant).
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(d) The Plaintiff has been informed by Mr. Chernenko, who has himself been informed by another confidential source, that the First Defendant is now seeking secretly to realise or conceal his shareholding in Rostelecom by using the Second Defendant and the Third Defendant (referred to collectively hereafter as ‘the Cayman Entities’).
The allegation is that the First Defendant is either liquidating his shares in the Cayman Entities by selling parcels of his shares on the open market at a value of US$15 million each, and/or seeking to obtain a loan secured on the remaining shares held by the Cayman Entities.
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(e) The Plaintiff also contends that the First Defendant has numerous business interests which have recently been the subject of considerable scrutiny and adverse comment in Russia. The level of that scrutiny and adverse comment to which the First Defendant has been subject has, it is alleged, increased in recent weeks and the Plaintiff asserts that there is an increasing incentive for the First Defendant to liquidate his assets and secrete them in jurisdictions around the world.
I refer to the witness statement of Viktor Dmitrievich Savchenko which states:
‘ For 10 years, I was Head of Legal and Corporate...
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