By John Helmer, Moscow
Leonid Lebedev (lead image), the former Russian senator and energy trader, has lost fraud and deceit claims against Len Blavatnik and Victor Vekselberg in a New York Supreme Court ruling. After considering the case for eight months, state judge Salliann Scarpulla has also rejected Blavatnik’s and Vekselberg’s application to dismiss Lebedev’s entire lawsuit. This leaves one question to be decided next year — Lebedev’s claim of breach of a contract from 2001, which remained unsigned at the time; and which depends, according to Lebedev, on a conversation during a walk in New York’s Central Park.
The US judge has also ruled to allow Blavatnik and Vekselberg to continue their litigation in a London arbitration court, and the opportunity to file elsewhere. In London Blavatnik and Vekselberg say they paid Lebedev the $600 million he asked for and received through Irish and Cypriot front companies he is claiming didn’t pass on the money to him for more than a decade.
Lebedev unexpectedly resigned his seat in the Federation Council, the upper chamber of the Russian parliament (pictured below), in April of this year. He had been serving for twelve years, and his term was not scheduled to expire for another 20 months.
He then left the country, and is believed to be living in the UK on a Cyprus passport. In Moscow, before he left, Lebedev said he was the target of a campaign of “deliberately distorted facts”.
His claims against Blavatnik and Vekselberg for the value of a 15% share he once owned in the Russian oil company, Tyumenneftegas (TNK, Tyumen Oil Company), were originally filed in the New York Supreme Court on February 4, 2014. The court docket reveals this was amended and resubmitted to the court eight months later, on October 13. Blavatnik and Vekselberg countered that they paid Lebedev the $600 million he had asked for his stake between 2003 and 2006; that his money went through two cut-outs, Coral Petroleum of Dublin and Agragorn of Cyprus; and that he isn’t entitled to be paid again.
In a series of judgements and orders issued on December 2, Scarpulla decided to overrule Lebedev’s request for secrecy, and opened the court files of witness statements, agreements, and testimony which have been closed until now. These include the 2003 agreement with Coral Petroleum Lebedev says he didn’t control and didn’t benefit from.
LIST OF THIS MONTH’S DECISIONS BY JUDGE SALLIANN SCARPULLA ON LEBEDEV CASE
According to Judge Scarpulla, “it is certainly true that the issues raised in this action and the London Arbitration are closely related, but they are not identical because they are being litigated by different parties. In this court, Lebedev is litigating his claim that Blavatnik and Vekselberg breached a joint venture agreement between them by failing to pay him a portion of the TNK-BP sale proceeds. In contrast, in the London Arbitration, Rochester and Coral two companies that appear to be acting for Blavatnik and Vekselberg on the one hand, and Lebedev on the other – are arbitrating the issue of whether the 2003 agreement extinguished all of Lebedev’s claims to the joint venture. Although parallel litigation is often burdensome to litigating parties, there is no evidence that the defendants commenced the London Arbitration in bad faith. Both Rochester and Coral have the right to pursue arbitration under the 2003 agreement’s arbitration provision.”
Here is the text of Lebedev’s Coral Petroleum agreement.
Scarpulla’s order to open the files also reveals confidential testimony already given by Lebedev in London; and by Vladimir Kuznetsov, the negotiator for Blavatnik and Vekselberg of the Coral Petroleum deal. “It was common practice at the time among Russian businessmen,” said Kuznetsov, “for principals to nominate corporates through which to act in their transactions, and Mr Lebedev recognises this in his witness statement (Lebedev, paragraph 37). Mr Lebedev, by his own admission, appears willing to accept the use of legal entities acting on behalf of principals in a number of his significant dealings except the Acquisition Agreement [Coral Petroleum].”
“The Acquisition Agreement simply could not work unless Mr Lebedev were a party to it and bound by it. This is because the purpose of the Acquisition Agreement was to buy out fully and finally all of Mr Lebedev’s purported rights in relation to TNK…Mr Lebedev’s interpretation of the Acquisition Agreement would mean that he was negotiating on behalf of a company over which he had no control, and which was not authorised to contract on his behalf, for the purpose of that company selling rights
belonging beneficially only to him. Had this been my understanding at the time, it is inconceivable that I would have advised Messrs Vekselberg and Blavatnik to enter into such a contract.”
According to Kuznetsov’s testimony, Lebedev gave the game away when he added a second cutout company, Agragorn, to the payment trail. “Mr Lebedev claims that he was uncomfortable with Coral receiving US$ 600,000,000 on his behalf under the Acquisition Agreement, because he claims that he had no control over it, and so nominated Agragorn to receive the funds (Lebedev, paragraphs 60-61). It is not clear why he was uncomfortable with Coral receiving his US$ 600,000,000… in any event, it was my understanding at the time that Mr Lebedev nominated Agragorn because of the requirement at clause 4.1 of the Acquisition Agreement that payments be made to a company ‘designated by the Seller’ and of which the Seller was the “sole registered and beneficial shareholder” (VVKt, 58). Tellingly, it was Mr Lebedev and not Coral who made this designation (as he accepts).”
The official Cyprus records confirm that Agragorn belongs to Lebedev.
Lebedev has told the New York court that in 1997, when privatization of the oilfields comprising TNK occurred, he owned 1.8% of TNK, and 10.5% in Nizhnevartovskneftegas, one of TNK’s lucrative oilfield companies. As Blavatnik and Vekselberg increased their stake in TNK – along with Mikhail Fridman’s Alfa Bank group – Lebedev says he negotiated a joint venture in which he held 15% of 50% of TNK, and accepted a $200 million promissory note for the deal. “Lebedev nominated Coral Petroleum (“Coral”) to receive the payments from the promissory note on his behalf,” the judge has written. TNK then merged with BP to form TNK-BP in 2003. Lebedev claims he was entitled to 7.5% of the payments BP made to the Russian shareholders of TNK-BP. In 2013, they – Blavatnik, Vekselberg, Fridman – sold out, as did BP, to Rosneft for $55 billion. Lebedev has told the court his initial stake had turned into 3.75% of the deal; that’s $2.06 billion.
Scarpulla (pictured below), a specialist on financial fraud before her court appointment, heard oral argument from the case attorneys on April 9. For details, read this.
After considering New York law on the time limits allowing court claims for fraud, the judge decided that if Lebedev was to be believed, he had been deceived and defrauded by Blavatnik and Vekselberg twelve years ago, in 2003, when he first made the Coral Petroleum deal. Scarpulla didn’t believe Lebedev could have missed such a sizeable fraud when he claims his arm was twisted into allowing it to happen. She ruled: “Lebedev’s second allegation, that the defendants coerced him to designate a nominee [Coral Petroleum] to enter the 2003 agreement is time-barred. This claim accrued in 2003, at the time of the alleged coercion. Lebedev failed to bring this claim until 2014, after the three year limitations period expired.”
On his second claim of fraud, Scarpulla was also sceptical of Lebedev’s veracity. “He could have discovered the defendants’ fraud with reasonable diligence,” she has ruled. “A reasonable investor with knowledge of the defendants’ actions would have inquired into whether his ownership interest in the joint venture was safe, and the location of the joint venture’s shares. Because Lebedev had constructive knowledge of the alleged fraud in 2003, his fraud based claims accrued that year and are now time-barred because they were not commenced until 2014.”
By focusing on Lebedev’s relationship to Coral Petroleum, Scarpulla has allowed Lebedev to return to her court to make his case that the $600 million from Blavatnik and Vekselberg had disappeared into thin air. By allowing the London action to continue, she has also invited the LCIA to test the evidence first, and decide whether the 2003 contract had been completed, and Lebedev paid off. By opening the court records, Scarpulla also reveals what the rules of the High Court and LCIA proceedings have so far kept from view.
On both sides of the Atlantic the case now depends on Lebedev’s claim that he didn’t own Coral Petroleum, didn’t receive the $600 million from Blavatnik and Vekselberg, and didn’t move it on to a Cyprus operation called Agragorn, and from there through trusts into US bank accounts. The new ruling allows proceedings in the courts of Ireland, Cyprus, and in federal US court to open the official records of Coral Petroleum, Agragorn, and the US banks to trace what Lebedev did with the money.
Jonathan Hirst (right), ruling as a deputy judge of the UK High Court, expressed his own disbelief, writing in his ruling last year: “It is not at all clear what (if any) credit he [Lebedev] has given for the $600 million paid under the [Rochester-Coral 2003] Acquisition Agreement.” According to Hirst’s judgement(pars 41-42), “I am sure that, as he [Lebedev] stated in the Interview, he regarded Coral as being under his control/supervision as regards dealings with the 2001 Promissory Note. As a precaution, however, he made quite sure that in practice Coral could do little without his agreement because he took possession of the Note and put it into the custody of one of his companies… I am also sure that the Claimants [Blavatnik and Vekselberg] are correct that the Acquisition Agreement was negotiated with Mr Kuznetsov [for Blavatnik and Vekselberg] by Mr Lebedev and not by other representatives of Coral. Those negotiations concerned what he regarded as his Note and his rights, both of which were hugely valuable. He would not have left it to representatives of Coral to negotiate the disposal of his property as they thought best.”
After Scarpulla ruled, Lebedev’s lawyer issued a statement that “we are pleased with the court’s decision. It means that Mr. Lebedev is now one important step closer to vindicating his rights against Messrs. Blavatnik and Vekselberg.” According to Blavatnik’s spokesman, “we were pleased that the court yesterday dismissed a number of Lebedev’s claims and said that the document he cited as the principal basis for his claim is not an enforceable contract.”
Scarpulla’s judgement adds a footnote to her disbelief in Lebedev, reporting that he won’t comply with court rulings if they go against him. “Lebedev asserts,” according to Scarpulla, “that Coral has not appeared in the [London] arbitration and intends to default on that proceeding.”