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By John Helmer, Moscow

In the tarot pack, the card of the Hanged Man is not one everyone wants to be dealt. To some it portends doom. Others believe it symbolizes the great awakening to occur the moment after death when, if, there is a resurrection. As cards go, it’s a big bettor who wants this one.

This week Sergei Frank, the chief executive of the state tanker group Sovcomflot, decided to resurrect in the UK High Court allegations of fraud and corruption against Sovcomflot’s former ship-chartering partner Yury Nikitin. Some of these charges were tried by the court in 2009, and dismissed in rulings by Justice Andrew Smith of December 2009 and March 2010.

Frank’s new trial commenced on May 16 in Court No. 30 on The Strand; it will run for up to three weeks. The plaintiff this time is Sovcomflot subsidiary, Novoship (UK) Limited. Dominic Dowley QC is its principal advocate. The defendants are Nikitin and two of his charter companies, Amon and Henriot; a former Novoship executive, Vladimir Mikhaylyuk, and a Venezuelan shipping agent, Wilmer Ruperti. Steven Berry QC is representing Nikitin.

Mikhaylyuk has written to the judge to say he has been delayed by illness but will appear in court next week. Ruperti is likely to stay away for the duration.

The presiding judge is Justice Christopher Clarke. He is the judge who heard the first round of the multi-billion dollar claim by Michael Cherney against Oleg Deripaska in 2008. In that case, Clarke ruled that Russian courts are so vulnerable to corrupt pressure and political interference by individuals of state or commercial power that they are capable of exacting their vengeance on their personal or business rivals. A fair trial in Russia was impossible for Cherney, Clarke ruled.

In the new case, Clarke has already intimated that even if the Russian prosecutors and courts try a trumped-up case against Nikitin in Russia or in Switzerland on grounds denied in the UK, the Russians won’t get far, and Nikitin should be safe. Clarke decided on this ground this week not quash the new claims against Nikitin so that he may hear out, then rule on the evidence, according to UK law and standards.

The largest of Novoship’s claims is for $108 million. This number represents a calculation by Novoship of income resulting from the charter rates fixed by Mikhaylyuk on behalf of Novoship UK, but allegedly tainted because Mikhaylyuk, according to the new claim, was enriching himself, cheating Novoship, and benefiting Nikitin’s companies. Nikitin argues the money was legally earned profit from his chartering operations, as the earlier High Court judgements have upheld, and that the new bribery allegations have been trumped up to strip him of entitlement. Justice Clarke has described this claim in a document he issued on Thursday. “The loss claimed includes, as the fourth claim by NSC [Sovcomflot group] and its subsidiaries, a claim for profits made on the Henriot [Nikitin] charters in the sum of $60,262,900. That was the sum which had been originally claimed in the Intrigue litigation [first Sovcomflot trial decided by Justice Smith]. That claim has now increased to about $108 million, by the addition of claims in respect of the vessels Kuzbass and Kaspiy, which were not managed by NOUK [Novoship UK] , but by NSC [the parent Novorossiysk Shipping Company] in Russia.”

In his opening presentation in court, Dowley for Frank and his associates omitted to say what Nikitin did for, or paid to Mikhaylyuk to pull off these alleged frauds. Nikitin’s lawyers say there is no evidence the fixtures were below-market, and some evidence Nikitin paid more than the going rate. They also argue there is no evidence of bribery.

In presenting his new case, Dowley counted up a series of bribes he alleged Mikhaylyuk had put in his bank accounts between 2003 and 2006. Three add up to a total of $2,937,100; the fourth is £50,000.

There was no mention by the Sovcomflot group advocate that any of this money came directly from Nikitin. The allegation is that, indirectly, an amount of $400,000 was paid by companies belonging to Ruperti to one of Nikitin’s companies. That, according to the allegation this time, was a kickback from Ruperti for a bribe allegedly paid by Nikitin to Mikhaylyuk for fixing a charter rate that allowed Ruperti to re-charter the same vessels to the Venezuelan state oil company at a much higher rate. By generating extra profit for Ruperti, Nikitin deserved a small $400,000 share, so the claim goes. Frank is litigating to get the money back — bribe, kickback and the difference between the two charter rates.

Justice Clarke’s document also records this as a claim by the Sovcomflot group for “at least $19,238,575.82, being, ‘Receipt of unlawful revenue from the commercial operation of vessels belonging to OAO Novoship subsidiaries, in the period when the said vessels were managed by Novoship (UK) Limited’” According to the judge, “it is not clear precisely what claim that relates to, but it may relate to improper payments said to have been made to Mr. Mikhaylyuk by Mr. Ruperti, one of the defendants in the present action, through two of his companies, in respect of vessels chartered to Mr. Ruperti’s company, PMI Trading.”

These claims make small beer beside the $850 million claimed by Sovcomflot in the cases of subsidiaries Fiona and Intrigue in the earlier High Court trial. But that number was thrown out of court two years ago. Then Nikitin was ordered to pay $56 million in compensation to the Sovcomflot group for unlawful commissions on vessel deals arranged by the brokers Clarksons, Galbraiths, and North Star. Frank failed to nail Dmitry Skarga, chief executive of Sovcomflot between 2000 and 2004, and Tagir Izmailov, former CEO of Novoship, who were exonerated. Sovcomflot was ordered to pay Skarga’s costs, and to pay Izmailov costs and an indemnity.

Frank is the only senior Russian official ever to testify on oath in the UK High Court and to be judged a liar. In the records of the judgements in that case, Justice Smith ruled several times on Frank’s dishonesty and that of his subordinates and associates. The judge’s record is damning:

— “The claimants’ [Sovcomflot] disclosure was unsatisfactory, as I explained at paras 41-43 [of the Fiona Trust Judgment]. The claimants made and pursued allegations that were obviously unsustainable when proper disclosure was eventually made, often during the trial”.
— “Many of the specific allegations made by the claimants in relation to the various schemes and the matters relied upon by them in their pleadings and opening submissions were either not developed or not supported by evidence that survived cross-examination. They depended significantly upon the evidence of Mr. Borisenko and Mr. Privalov [Sovcomflot employees], both of whom gave dishonest evidence not only, as Mr. Popplewell [Sovcomflot barrister] suggested, in order to minimise their own corruption but deliberately to support the claim against Mr. Skarga with evidence that they had concocted together.”
— “the claimants’ primary contentions of corrupt conspiracies were pursued almost entirely on the basis of dishonest evidence. Further…, many specific allegations that had been pleaded and relied upon in the claimants’ opening submissions were either not developed or not supported by evidence that survived cross-examination.”
— “Mr Frank, who was largely responsible for the conduct of the Fiona actions on behalf of the claimants, was, as I concluded in the main judgment, dishonest…”
— “Mr Oskirko, part of whose duties as NSC’s [Novoship’s] Vice-President of Corporate Affairs from December 2005 was to deal with the litigation on behalf of the claimants in the Intrigue action, also gave thoroughly dishonest evidence.”
— “the key witnesses called by the claimants gave dishonest evidence, in particular Mr Borisenko and Mr Privalov in the Fiona [Sovcomflot subsidiary] actions and Mr Oskirko and Mr Privalov in the Intrigue[Sovcomflot subsidiary] action…”
— “In the case of those of the claimants’ witnesses who live in Russia, and particularly those who are employed by the Sovcomflot group or NSC group, I recognise the force of the defendants’ submission that they are likely to have felt great pressure to support the claimants’ case, and I am driven to conclude that sometimes untruthful allegations were made or supported by generally honest witnesses called by the claimants…”
— “Mr Privalov and Mr Borisenko were not only willing to lie in their evidence, but had together concocted untruthful evidence and sought to support each other in their dishonest accounts.”
— “The claimants’ witness statements were shown in cross-examination to be distinctly unreliable. Even in the case of a witness such as Mr. Nikolay Lipka, the Head of Sovcomflot’s Legal Department, who gave honest answers in cross-examination, his oral evidence departed so far from his statement that I cannot accept that the statement had ever represented his real account of events or that he understood it in proper detail when he verified it.”
— “Without any significant exception the claimants’ witness statements were shown to be misleading. I could not rely upon the statements even of honest witnesses because their oral evidence departed so far from them. I do not accept that they ever gave the witnesses’ real account of events. This affected the presentation of important issues at trial.”

What happened next is that the General Prosecutor, Yury Chaika, was persuaded to ignore the rulings, and to renew the attack, as if there had been no court case in London at all. Frank ordered Sovocmflot’s lawyers into court in Moscow to pursue the claims which had been dismissed in London.

The UK High Court then issued an injunction in February of 2011 against the duplicate litigation. That order was delivered to Sovcomflot, which claims it complied. But the case it had started in the Russian court has not been withdrawn or suspended. Instead, Chaika ordered his men to stop Nikitin from getting access to his assets in Switzerland, which had been frozen for the duration of the 5-year case before Justice Smith. So, at the moment when Smith was lifting the freeze order in London, the Russian prosecutors wrote their Swiss counterparts to announce they didn’t recognize the validity of the UK court rulings, and intended to substitute their own.

In May of 2009, before there had been a ruling from the London court, Chaika told deputies of the State Duma that Sovcomflot had “won” its case. When that ejaculation turned out to be premature, Chaika hurried to apply a preservative.

The text of a letter from the General Prosecutor to the Swiss authorities, revealed in the London court this week, is a rarely seen display of the muscle that drives the Russian legal system. Here it is, as read into the record by Justice Clarke: “The Russian criminal authorities do not recognise the judgment of the High Court of Justice of England and Wales, dated 10/12/2010, as the final settlement of the civil actions of the injured parties, insofar as the awarded amount of US$56 million is substantially less than the amount of damages inflicted on the Russian injured parties … This judgment has no consequences for criminal case number 18/346253 05, which is being investigated in Russia.”

“The companies of the Sovcomflot OJSC group have been recognised as the injured parties and civil claimants and have filed a civil action in the criminal case for the amount of approximately US$ 850 million. The corresponding resolutions of the investigating officer, dated 16/12/2010, and the judgments of the Russian court, dated 22/12/2010, regarding permission to freeze funds in Switzerland, remain in force …”

Did this position, in support of having the Swiss maintain their freeze on Nikitin’s money in Swiss banks, violate the UK court injunction issued by Justice Smith in February of 2011? Yes, and no.

The text of the injunction says this: “The respondents shall not by themselves, their directors, employees, officers or agents: 2.1, pursue any step in or take any further step in pursuit of the Russian civil claims; 2.2. Procure or assist the pursuit of any step in or the taking of any further step in pursuit of the Russian civil claims; 2.3. Commence (or recommence) or pursue, or procure, or assist the commencement (or recommencement), or pursuit of any proceedings [that term was defined to include Russian criminal cases] to prosecute the Disputes in any court or tribunal other than the High Court or Court of Appeal of England and Wales (or a court of another Member State of the European Union, or of another contracting state of the Lugano convention).“

The High Court ordered Sovcomflot to “forthwith announce in writing to the relevant authority or authorities in Russia that they are withdrawing and agree to the withdrawing of the Russian civil claims and provide a copy of the same to the applicant’s solicitors.”

Sovcomflot has subsequently claimed it did, but Chaika hasn’t. In short, the General Prosecutor has decided that he is free to pursue a criminal case for the almost all of the $850 million Frank’s lying in London lost. As explained to the Swiss, the Russian criminal case charges Nikitin “with committing the crimes in various articles….[as part of an] organised crime group [for]… the amount of US $700 million.”

In London this week, Novoship’s lawyer Dowley claimed that Frank and Chaika were not in cahoots, and that the Russian criminal proceedings were initiated without communication with, or encouragement from Sovcomflot. Initially, the judge didn’t appear to believe it: “You launched the process which enables the Russian prosecutor to act in the way in which he does.”

When Frank was on the stand himself at the High Court in October of 2009, he was asked if he is “an old political ally of Mr Chaika.” Frank responded with a laugh. “No. He is not, sort of, political — you don’t understand the structure of the Russian Government, I think. You should read the Russian constitution first to ask that sort of question.”

This week, in his May 17 ruling, Justice Clarke said he cannot decide what relationship there may have been between the state shipping company and the state prosecutor. The Russians continue with their civil claim for $850 million, he has ruled, with “full force and vigour”. “The prosecution of the criminal case is in the hands of the Russian State… and appears to be able to assert and certainly does assert the civil claim for the benefit of the civil claimants, even though they have withdrawn it.”

Clarke has now ruled that Sovcomflot has “done what lies in their power to withdraw the Russian civil claim. They are not shown to control either their parent companies or the Russian state.” But in case Nikitin may be exposed unjustly, according to UK and international law, Clarke went on: “in those circumstances, it seems to me necessary to consider what may happen in the future. I shall first assume that the claimants [Novoship] fail in the action against Mr. Nikitin and the other applicants. In that event there seems to me no realistic prospect of the enforcement in England of a judgment on a Russian civil claim, insofar as the claim was one which the English court has earlier rejected both because such a judgment would not be enforceable, given that neither Mr. Nikitin nor his companies are domiciled or resident in Russia, and none of them have submitted to the jurisdiction, and because the claim will be res judicata.”

“If the claim succeeded [Novoship wins, Nikitin loses], there would be no possibility of recovering twice in England, even if a Russian civil claim would prima facie be enforceable, there can be no recovery in England in respect of an obligation that has been satisfied. Similar considerations arise in respect of Switzerland.”

Frank’s London spokesman, Bill Spears, was asked if the Novoship litigation repeats claims already rejected by the High Court. He was also asked to say whether the Russian prosecution of Nikitin violates the High Court injunction against parallel claims and double jeopardy. According to the spokesman, there will be no comment from the company.

In his court presentation this week, Dowley for the Sovcomflot group was more voluble. The compilation of the High Court judgements condemning Frank and his subordinates are “an attempt to distract attention from the cold facts of this case. The criticisms are of little or no relevance when the merits of the present proceedings come to be considered.”

And that is exactly how Frank comes to put himself on trial once again. Presentation of evidence and cross-examination of witnesses resume on Monday.

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