Berezovsky v Abramovich [2011] EWCA Civ 153 (23 February 2011)

Mr Berezovsky claimed he was intimidated by Mr Abramovich into selling his interests in Russian oil company Sibneft at an undervalue through threats linked to the Putin regime. He also claimed Mr Abramovich breached fiduciary duties regarding aluminium company Rusal. The Court of Appeal largely upheld permission to amend pleadings and rejected strike-out applications.

Facts

Mr Berezovsky, a Russian businessman and political exile, alleged he had disposable interests in two Russian companies: Sibneft (oil and gas) and Rusal (aluminium). He claimed that Mr Abramovich, who held legal title to shares in both companies, intimidated him into selling his Sibneft interest at an undervalue by threatening to procure Russian state expropriation of his assets. This occurred against a background of alleged similar threats regarding ORT (a television company) and the imprisonment of Mr Berezovsky’s associate, Mr Glushkov.

Regarding Rusal, Mr Berezovsky alleged that at a meeting at the Dorchester Hotel in London, he, Mr Patarkatsishvili, and Mr Abramovich agreed that Mr Abramovich would hold shares on trust for them. He claimed Mr Abramovich later sold 25% of Rusal to Mr Deripaska in breach of fiduciary duty.

Procedural History

Mr Berezovsky sought to amend his pleadings after Mr Abramovich’s defence asserted that Russian law, which does not recognise trusts or beneficial interests, governed the arrangements. The amendments sought to recharacterise Mr Berezovsky’s interest as arising from a joint activity or sui generis agreement under Russian law. Sir Anthony Colman, sitting as a Deputy High Court Judge, permitted most amendments and refused Mr Abramovich’s application for summary judgment.

Issues

The key issues on appeal were:

• Whether the proposed amendments constituted a new claim barred by limitation
• Whether the intimidation claim sufficiently alleged that Mr Abramovich threatened rather than merely warned
• Whether the act of state doctrine barred the claims
• Whether English or Russian law governed the Rusal arrangements
• Whether Mr Berezovsky should be permitted to amend to allege an express agreement for English law

Judgment

New Claim Issue

Lord Justice Longmore held that the proposed amendments did not amount to a new cause of action. The essential ingredients of the tort of intimidation remained the same: Mr Abramovich’s threat, his intention to coerce Mr Berezovsky, Mr Berezovsky’s compliance, and consequent loss. The substitution of a contractual interest for a beneficial interest was merely a relabelling of the same loss, not a new cause of action.

Plea of Threat

The Court rejected the argument that the pleading merely alleged a warning rather than a threat. The pleading alleged that Mr Abramovich communicated that Mr Berezovsky’s interests could be expropriated and that it was intended as a message to sell or face consequences. This sufficiently implied that Mr Abramovich would do what he could to bring about the threatened expropriation.

Act of State

Following the decision in Kirkpatrick v Environmental Tectonics Corporation International and A Ltd v B Bank, the Court held that the act of state doctrine only applies when a court must decide the validity of official action by a foreign sovereign. Mr Berezovsky was not asserting that acts of the Russian state were invalid; he was merely seeking to prove they occurred. The doctrine therefore did not apply.

Rusal and Governing Law

The Court held it was arguable that English law was the implied governing law of the alleged trust over Rusal shares. The circumstances surrounding the agreement, including evidence that arrangements were to be made through offshore structures subject to Western law, and the use of English law clauses in related agreements, made this a matter unsuitable for summary determination. The amendment to allege an express agreement for English law was permitted as a case management decision.

Implications

This judgment clarifies several important points:

• The distinction between adding a new cause of action and merely substituting different particulars of the same loss in tort claims
• The requirements for pleading the tort of intimidation, including that threats may be implied from context
• The scope of the act of state doctrine, confirming it applies to challenges to validity rather than mere inquiries into whether acts occurred
• The approach to determining governing law for trusts under the Hague Convention, particularly where the connected law does not recognise trusts

The case demonstrates the court’s reluctance to grant summary judgment in complex commercial disputes involving disputed questions of foreign law and fact.

Verdict: Appeal substantially dismissed. The Court of Appeal upheld the judge's decision to permit amendments to the Sibneft claim and refused summary judgment. Permission to amend the Rusal claim to allege express agreement for English law was also permitted. The only amendment refused was a restitutionary claim for quantum meruit based on services provided by Mr Berezovsky.

Source: Berezovsky v Abramovich [2011] EWCA Civ 153 (23 February 2011)