Quillon Law successfully defends Oleg Deripaska in contempt proceedings



April 6, 2023

Partner Mark Hastings led a team including Abigail Healey, James Clark and Laurence Crees in successfully defending Oleg Deripaska in (1) Navigator Equities Limited (2) Vladimir Chernukhin v Oleg Deripaska, in which the Claimants (the “Chernukhin Parties”) had applied for an order to commit Mr Deripaska to prison for contempt of court.

All aspects of the Chernukhin Parties’ application were successfully defended, and HHJ Pelling KC, sitting as a judge of the High Court, dismissed the application following a three-day hearing in March 2023, and awarded partial indemnity costs against them.

The application arose in the context of a long running dispute between the Chernukhin Parties and Mr Deripaska. Following the imposition of US sanctions on Mr Deripaska, the Chernukhin Parties obtained a worldwide freezing order (“WFO”) in support of an award of approximately $95 million, which had been awarded to the Chernukhin Parties in an arbitration and which was the subject of challenge by Mr Deripaska.

In place of the WFO, three sets of undertakings were offered over 45.5 million shares in En+ Group plc (“En+”), which Mr Deripaska indirectly owned through B-Finance Limited (“B-Finance”).

Prior to the undertakings being given, and due to the serious negative impact of the US sanctions on the business interests of Mr Deripaska, a plan was devised by the then Chairman of En+, by which Mr Deripaska would relinquish control of En+ by divesting a proportion of his indirect shareholding and a majority of independent directors being appointed to En+’s board. As part of that plan and to satisfy the requirements of VTB (a lender to Mr Deripaska’s businesses), En+ redomiciled to Russia in July 2019.

Mr Deripaska procured payment to the Chernukhin Parties in full satisfaction of the sums due under the arbitration awards in September 2019.

Notwithstanding that, the contempt application was issued in November 2019, in which the Chernukhin Parties alleged that Mr Deripaska deliberately breached the undertakings. The Chernukhin Parties alleged that at a meeting of En+ shareholders in December 2018, Mr Deripaska (being the ultimate owner of B-Finance) procured and/or permitted B-Finance to vote in favour of a special resolution to approve the redomicile to Russia.  The Chernukhin Parties alleged that the effect of the redomicile was that the shares, which were the subject of the undertakings, were “automatically cancelled”.

In his judgment, HHJ Pelling KC held that the Chernukhin Parties were confined to the alleged breaches set out in their application notice. The common theme of each of the alleged breaches was that the shares had been “automatically cancelled” and replaced with “new shares”.  The Chernukhin Parties adduced no expert evidence from a lawyer qualified to opine on either Jersey or Russian law as to the effect of the redomiciliation.  Nor did they plead any relevant proposition of Russian law in the application notice.

The Judge held that the Chernukhin Parties had neither pleaded nor proved to the criminal standard that the effect of En+’s redomiciliation was to cancel the shares which were the subject of the undertakings, and to create a new company, or new shares, in their stead.  Therefore, the contempt application must fail and, following the handing down, the Judge observed that it did so “at a fairly fundamental evidential basis”.

HHJ Pelling KC undertook an analysis of the relevant provisions of Jersey and Russian law, finding: “It follows that the central premise of the claimants’ case namely that the shares in EN+ Group PLC were automatically cancelled on re-domiciliation and the entity in Russia was a new entity are simply wrong”.

As a matter of Jersey law, the Judge found that En+ did not cease to exist and indeed, “the whole intent and purpose of the legislative scheme would appear to be to permit companies to change domicile, whilst otherwise continuing as a going concern”.  In respect of Russian law, the Judge found that it was “at least realistically arguable” that the effect of Russian law is that a company redomiciling to the country is not dissolved and replaced with a new company, and nor are the existing shares automatically cancelled. Rather, the existing shares are recognised as shares in the redomiciling entity, which is how the effect of the redomiciliation was described to En+ shareholders in 2018.

His Honour Judge Pelling KC’s judgment was handed down on 5 April 2023, and can be read here.