“Kremlin’s banker” switches

The international journal of gacommercial and trearty arbitration counsel for claim against

Tom Jones NEWS 1 July 2016

Sergei Pugachev (Credit: wikicommons/Visuals Editor)

A former adviser of President once known as “the Kremlin’s banker” has replaced King & Spalding with Parisian boutique Lazaref le Bars as his counsel in a US$12 billion investment treaty claim against Russia. As of 2 June, a team led by managing partner Benoit Le Bars is advising Sergei Pug- achev, a French national since 2009, in a claim at the Permanent Court of Arbitration in The Hague over the alleged takeover of shipbuilding, energy, mining and real estate assets in Russia. The claim is thought to be the largest ever brought by an individual against a state. Russia has yet to appoint counsel and is expected to decline to participate in the case. Le Bars says that Pugachev has already appointed French academic Thomas Clay as his arbitrator for the claim, which is being brought under the French-Russia bilateral investment treaty. He says they are now awaiting Russia’s nominee and the appointment of a chair. In keeping with the time limits imposed in the BIT, Le Bars says he expects the tribunal to be constituted by September – even if the PCA is required to select arbitrators without Russia’s input. “There have been cases in the past where Russia has said it won’t participate – this is something we may have to handle, and we are prepared for this,” Le Bars says. Pugachev’s senior litigation adviser J Michael McNutt of Labyrinthium Investments and Risk Management, says that his client is “extremely excited” to be working with Le Bars and his team and is “fully supportive of their eforts”. “We have instructed Lazaref Le Bars to proceed as quickly as possible to obtain provi- sional measures against Russia to stop its continued abuse and harassment of our client, as well as to freeze Russian assets wherever possible to ensure a payment of any award,” he says. Pugachev previously took counsel from King & Spalding, with New York-based partners Edward Kehoe and Caline Mouawad leading the team. The team had also been acting for Pugachev in proceedings in the UK High Court, but in January won permission from the court to withdraw as counsel.

The international journal of gacommercial and trearty arbitration GAR understands that King & Spalding withdrew from both proceedings because of NEWS “issues relating to payment” but Le Bars insists that he has no concerns on that score. The story to date Born in the , Pugachev made billions in the early 1990s as co-founder of Russia’s Mezhprombank, senator to a Siberian province and adviser to both and Putin. He later fell out of favour and was found liable by the Russian courts for Mezh- prombank’s failure. In the wake of alleged threats to his life, he made the UK his principal base in 2011. In the UK High Court proceeding, he is accused by a Russian government-owned insur- ance company of siphoning nearly US$700 million from Mezhprombank, including bailout funds paid by taxpayers during the fnancial crisis. As part of the proceeding, the court imposed a worldwide freezing order against £1.7 billion of his assets in July 2014, reportedly allowing him £10,000 a week to cover legal fees and living expenses. Originally represented in the litigation by Fried Frank, Pugachev later represented him- self, complaining he had only £45,000 left in accounts. Despite having been ordered to forfeit his passport to the court, Pugachev fed the UK for the south of France, where he has a chateau, in June 2015. He said he feared for his life after fnding mysterious devices attached to his car. He fled his treaty claim against Russia from France last September, having notifed the state of his intention the year before. By this time, he had retained King & Spalding as coun- sel for both the litigation and arbitration. Pugachev’s departure from the UK gave rise to a contempt of court proceeding against him in the High Court. In the course of that proceeding, Mrs Justice Rose held this February that his arrangements to pay for the treaty claim were in breach of the worldwide freezing order. Rose J found that Pugachev had agreed that a New Zealand trust of which he is the ben- efciary should pay US$800,000 to King & Spalding and “maintenance payments”, in return for a share of the proceeds of the claim. King & Spalding was not a party to the agreement and returned the money received via the deal. In a letter to the judge, Pugachev said he had entered into the agreement “in desperation and to keep King & Spalding as his lawyers”. Though sentenced to two years imprisonment for contempt by Rose J, Pugachev remains in the south of France, where he was recently interviewed for a BBC Panorama documentary about “Putin’s secret riches”. He has fled a further legal action, this time before the Euro- pean Court of Human Rights, over the forfeiture of his passport by the UK courts. His partner – British broadcaster and adventurer – lives in with their children. In interviews with the UK media, Tolstoy has said she fnds it difcult to survive on £10,000 a week and is living primarily of a private income bequeathed to her by her late step grandfather Patrick O’Brian, author of the “Master and Commander” series of novels about naval exploits during the Napoleonic Wars. She is also a descendant of Russian novelist Leo Tolstoy. Tolstoy says that her husband continues to have fears for his life, which Rose J accepted to be genuine.

Harassment? According to McNutt, the continuing legal action against Pugachev in the UK is simply Russian-orchestrated “harassment” of him to dissuade him from pursuing his treaty claim.

The international journal of gacommercial and trearty arbitration With the help of Lazaref Le Bars, French law frm Bourdon & Forestier and counsel else- where, he expresses confdence that Pugachev will obtain “just and equitable compensation for NEWS the expropriation of his assets and recompense for his persistent unfair treatment by Russia.” “Mr Pugachev should not be underestimated,” McNutt warns.

Pugachev v Russian Federation at the PCA

Counsel to Sergei Pugachev • Lazare f Le Bars (from June 2016) Partners Benoit Le Bars and Jean-Claude Najar, with associates Athina Fouchard Papaefsttratiou, Lucian Ile and Hermann Prodel in Paris • King & Spalding* Partners Edward Kehoe, Caline Mouawad and Nicholas Cherryman with counsel Viren Mascarenhas and associate Jessica Beess und Chrostin in New York *now withdrawn from the case

In UK court proceedings

JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev [2016] EWHC 192 (Ch) (08 February 2016)

JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2016] EWHC 258 (Ch) (12 February 2016)

High Court bench • Mrs Justice Rose

Counsel to Mezhprombank and Deposit Insurance Agency • Stephen Smith QC, Ben Grifths and Anna Scharnetzky of Erskine Chambers • Hogan Lovells Partners Michael Roberts, Rebecca Wales and Chris Hardman in London and Alexei Dudko in

Counsel to Sergei Pugachev • King & Spalding* Stuart Isaacs QC, Nicholas Cherryman and Moeiz Farhan in London * now withdrawn from the case