IN THE HIGH COURT OF JUSTICE Case No 2006 Folio 1218 QUEEN‘S BENCH DIVISION COMMERCIAL COURT Before the Honourable Mr Justice Andrew Smith BETWEEN: MICHAEL CHERNEY Claimant - and - OLEG VLADIMIROVICH DERIPASKA Defendant ___________________________________ CLAIMANT‘S WRITTEN OPENING SUBMISISONS FOR TRIAL ___________________________________ References to documents in the trial bundles are in the form {Bundle/Tab (if relevant)/Page}. Various agreed documents will also be lodged with or shortly after these submissions. A preliminary reading list will be lodged at the same time as these submissions. A dramatis personae, a procedural chronology and a substantive chronology are still in the process of being agreed between the parties, and so shall be lodged separately shortly. OUTLINE CONTENTS Page A: INTRODUCTION 1 B: FORMATION OF THE PARTNERSHIP 14 C: EVENTS IN 1994 25 D: 1995-1997: TRADALCO AND TWG 30 E: MR CHERNEY‘S CONTRIBUTION TO THE PARTNERSHIP 41 F: THE BALANCE SHEETS 49 G: THE ROLE PLAYED BY MR MAKHMUDOV 54 H: SYNDIKUS AND THE ROLE OF THE RADOM FOUNDATION 61 I: THE ALLEGED KRYSHA ARRANGEMENT AND DOLYA PAYMENTS 82 J: ALLEGATIONS OF CRIMINALITY MADE AGAINST MR CHERNEY AND THIRD PARTIES 95 K: 2000-2006, AND IN PARTICULAR THE EVENTS OF 10 MARCH 2001 106 L: ANALYSIS OF THE AGREEMENT AND THE RELIEF SOUGHT BY MR 131 CHERNEY ANNEXES 1 – 5 142-150 i CONTENTS IN DETAIL Para Page A: INTRODUCTION 1 1 Agreement No 1 and Supplement No 1 10 8 The structure of these submissions 12 12 B: FORMATION OF THE PARTNERSHIP 13 14 The position of Mr Cherney when he met Mr Deripaska 14 14 The position of Mr Deripaska at the time of his first meeting with Mr Cherney 30 20 Mr Cherney‘s meeting with Mr Deripaska and their partnership 37 22 C: EVENTS IN 1994 46 25 Acquisition of shares by entities controlled by Mr Deripaska 47 25 The joint share-buying agreement with TWG 49 27 Mr Deripaska‘s appointment as director general of Saaz 52 28 Neoton Management 54 28 D: 1995-1997: TRADALCO AND TWG 56 30 The formation of Bluzwed Metals 59 31 The involvement of CCT, Bluzwed Foundation and the Megannetty Foundation in 66 33 profits made by Bluzwed Metals The failure to challenge Mr Cherney‘s involvement in Bluzwed Metals 71 34 Mr Cherney ceases to be a partner in TWG 75 35 The joint venture between Mr Cherney and Mr Deripaska, and TWG, begins to break up 84 37 Litigation with TWG 92 39 E: MR CHERNEY’S CONTRIBUTION TO THE PARTNERSHIP 94 41 Mr Cherney‘s contacts 96 41 Mr Cherney‘s financial contribution 97 42 The January Further Information 97 42 Payments which were made for the aluminium business 99 43 The position in 1994 99 43 The position in 1995-1998 100 43 The position in 1999 and 2000 106 44 The significant of payments made for the purposes of the copper business 112 46 F: THE BALANCE SHEETS 116 49 The evidence from Mr Deripaska‘s witnesses as to the balance sheets 117 49 The balance sheets 120 50 ii Issues which arise as to the balance sheets 128 52 What happened after 2000? 130 52 G: THE ROLE PLAYED BY MR MAKHMUDOV 132 54 Mr Deripaska‘s relationship with Mr Makhmudov 134 55 Mr Cherney‘s relationship with Mr Makhmudov 139 56 Mr Deripaska‘s shifting case 144 58 Dealings between Mr Cherney, Mr Deripaska and Mr Makhmudov 147 59 H: SYNDIKUS AND THE ROLE OF THE RADOM FOUNDATION 148 61 Mr Cherney‘s introduction to Syndikus 156 63 Mr Deripaska‘s introduction to Syndikus 161 65 DKK Development & Research Foundation 165 66 Events in the period between 1994 and 1996 173 68 Mr Cherney‟s delegation of authority 173 68 The UOB reports 176 68 The establishment of the Meganetty Foundation 180 70 Events in 1997 – the establishment of the Radom Foundation 181 70 Events in 1998 – the position of Mr Maskhmudov and the introduction of Mr Popov and 193 73 Mr Malevsky to Radom LLC Aluminproduct 199 74 Events in 1999 – the restructuring of the Radom group and the creation of Sibal 204 76 The Paris meeting 211 77 Implementation of the restructuring plan 216 79 Events in 2000 and beyond – the liquidation of the entities controlled by Syndikus 219 79 I: THE ALLEGED KRYSHA ARRANGEMENT AND DOLYA PAYMENTS 224 82 The shifting nature of Mr Deripaska‘s case 228 82 Evidence of the relationship between Mr Deripaska and alleged extortionists 230 84 Mr Deripaska‟s witnesses fail to support the alleged krysha 232 84 Evidence of Mr Deripaska‟s relationship with the alleged extortionists 236 85 Mr Deripaska‘s relationship with Mr Malevsky and Mr Popov 238 85 Mr Deripaska‘s relationship with Mr Cherney 241 88 The true nature of the dolya payments 243 90 Alleged dolya payments during the course of the alleged krysha relationship 246 91 Yudashkin 246 91 Soyuzcontract and Archers Trading 248 92 Alleged dolya payments made pursuant to Supplment No 1 253 93 J: ALLEGATIONS OF CRIMINALITY MADE AGAINST MR CHERNEY 254 95 AND THIRD PARTIES Relevance of the allegation to the issues 263 97 The way in which Mr Deripaska‘s case has developed 266 97 iii The nature of the evidence relied on in support of the allegation 268 98 Mr Deripaska‘s relationship with Mr Malevsky and Mr Popov 273 102 Similarities in the evidence relating to Mr Makhmudov 274 102 Mr Deripaska‘s use of komprommat: Mirepco 177 103 K: 2000-2006, AND IN PARTICULAR THE EVENTS OF 10 MARCH 2001 281 106 Events leading up to the meeting 283 106 The merger between Sibal and Sibneft 283 106 Mr Cherney‟s interview in November 2000 299 111 Mr Deripaska‟s meeting with bankers in January 2001 302 112 The meeting on 10 March 2001 305 112 Events after the meeting 322 121 Events in 2001 324 122 Events in 2002 328 123 Events in 2003 336 126 Events in 2004 342 127 Events in 2005 346 128 Events in 2006 349 129 L: ANALYSIS OF THE AGREEMENT AND THE RELIEF SOUGHT BY 352 131 MR CHERNEY The Agreement 358 132 The position of the parties at the time of the Agreement 358 132 The terms of the Agreement 362 133 Translation issues 363 133 Agreement No 1 364 133 Supplement No 1 366 134 Objections raised by Mr Deripaska 373 136 Sham transaction / no commercial sense 374 137 Uncertainty 376 137 The Agreement did not impose any obligation upon Mr Deripaska 377 138 Relief sought by Mr Cherney 378 138 Choice of law 385 140 ANNEX 1 – ALLEGATIONS OF AND KRYSHA, CRIMINALITY AND DOLYA: THE 142 DEVELOPMENT OF MR DERIPASKA‘S CASE ANNEX 2 – THE SOURCE OF FUNDS USED FOR THE ACQUISITION OF 144 SHARES IN SAAZ IN 1993 AND 1994 ANNEX 3 – PAYMENTS MADE BY COMPANIES CONTROLLED BY MR CHERNEY AND USED FOR MR CHERNEY‘S PARTNERSHIP WITH MR 146 DERIPASKA FROM 1995 ANNEX 4 – EXAMPLES OF MR DERIPASKA‘S SELECTIVE USE OF EVIDENCE 148 IN HIS HEARSAY NOTICE OF 25 MAY 2012 ANNEX 5 – THE OWNERSHIP STRUCTURE OF SIBAL IN 1999 149 iv A. INTRODUCTION 1. This case arises out of a meeting between Mr Michael Cherney and Mr Oleg Deripaska at the Lanesborough Hotel on 10 March 2001. It is common ground that they met. It is common ground that they reached an agreement of some sort. Little else is. In essence, the position is as follows. 2. Mr Cherney says: 1) Mr Deripaska and he were partners. 2) By 2001, their relative status and positions had changed, and at the Lanesborough Hotel Mr Deripaska agreed to buy him out of their joint aluminium business. The terms of their agreement were, for the most part, recorded in two documents drafted by Mr Deripaska and signed by both of them, prosaically entitled ―Agreement No 1‖ and ―Supplement No 1‖.1 3) Under the former, Mr Deripaska agreed to make a preliminary payment of US$250 million to Mr Cherney for his interest in Sibal. Under the latter, Mr Deripaska undertook to pay Mr Cherney the value of 20% of the shares in OJSC Russky Alyuminiy (the vehicle that was intended to hold the entirety of the merged Sibal/Sibneft business), minus the US$250 million, within a specified number of years. 4) Agreement No 1 has been performed; Supplement No 1 has not; on the contrary it has been repudiated by Mr Deripaska. 3. Mr Deripaska says: 1) He agrees that he drafted Agreement No 1, which appears on its face to provide for the sale by Mr Cherney to Mr Deripaska of an interest in a company known as Sibal and the making of a preliminary payment by Mr Deripaska in return. 2) He agrees that he and Mr Cherney signed that document on 10 March 2001. 3) He accepts that he did in fact pay Mr Cherney $250 million. 1 Both parties have put forward proposed translations of both agreements. In addition, the translation experts have also agreed a translation for the purposes of, and on the basis explained in, their Joint Memorandum. The translations of Ms Edwards (Claimant‘s expert) can be found in Appendix D to her report at {15/2/47} - {15/2/52} (there are two versions: ―clean‖ versions and versions showing the differences between her translation and that originally prepared for the Claimant and relied on at the jurisdiction stage and in advance of the expert translation evidence). The translations of Professor Konurbaev can be found in paragraph 6.2 of his report at {15/3/76} - {15/3/78} .