By John Helmer, Moscow
For the second time in its short history, United Company Rusal, the loss-making aluminium monopoly run by Oleg Deripaska, has been ordered out of an international court with the ruling that it has acted unlawfully to seize confidential data of its critics. On March 1, by order of the District Court of Nicosia, Cyprus, Rusal has been ordered to destroy all of the information it had illegally taken. By a second order, Rusal has been required to pay all of the costs of the proceeding to date.
The award of costs against Rusal this time is especially significant. Those who have been the targets of Rusal litigation in the past — they include Russian and Tajik smelter operators, international aluminium traders, and Deripaska’s patron, Michael Cherney (Chernoy) — charge that Deripaska pursues personal feuds employing the company’s lawyers and shareholder resources. By multiplying cases in several international jurisdictions simultaneously, former Rusal lawyers say, he is attempting to crush his targets with legal fees, while exposing the company, not himself, to the costs, losses, and damages.
The story of the campaign Oleg Deripaska launched against a former friend, Andrei Raikov, one-time head of alumina and bauxite for Rusal, has been told here. Additional targets of the court campaign are shipping companies – Natica, Aldi Marine – belonging to Dmitry Osipov. Narrow and personal though the allegations against them are, what is of market significance about the case is the consistency of the evidence, and of the international court rulings to date: these show Rusal’s claims are false; its lawyers lie in court; judges reject Rusal’s veracity and dismiss its court claims.
In this case, Deripaska used Rusal shareholder resources and the identities of associated companies, to go after his old friend for the latter’s life savings of $669,022.
Cyprus was the European jurisdiction chosen by Deripaska, when four associated companies – Rual Trade, Alumina & Bauxite Company, Calibre Properties Worldwide Ltd., and Mont Cervin-Consultadoria E Servicos Unipessoal LDA — launched their action against Raikov, Osipov, et al. The allegation is that in shipping contracts and transactions between 2003 and 2007 they had conspired to cheat Rusal of a number that has been growing bigger along with the lawyers’ invoices. It started at $669,022. It was up to $14.9 million last September.
The defence was that the claim contradicted what Rusal knew to be the truth. In September 2007 Rusal had commissioned the independent Doll Shipping Consultancy of the UK to assess its shipping performance; it had reported that the transportation rates charged were six times below the prevailing market prices, and that the shipping arrangements for Rusal cargoes had been in every respect advantageous to Rusal. The shipping group, whom Deripaska is now suing for contract violations, “has honoured the contract to date, in a situation where others might not have done so”, the Doll Shipping report, marked private and confidential, told Rusal.
There was another problem for Deripaska’s courtroom tactics: two months after the Doll report, Rusal signed an agreement with the Natica group in London in November 2007, acknowledging that all its shipping contract claims had been settled and the allegations put to rest.
Notwithstanding, according to the Cyprus court records, on May 23, 2011, Rusal went into the District Court in Nicosia to revive the old claim. In support of the allegations, Rusal’s lawyers also sought to freeze Cyprus bank accounts of Raikov and Osipov’s companies, and get their bank to disclose everything it had recorded in their accounts.
Rusal also engaged lawyers in New York to go into the federal district court there, claiming that in support of the Cyprus litigation, it needed a US court order to extract more data from New York clearing banks. That move has boomeranged badly, because Osipov and his lawyers countered with a disclosure request for Rusal bank information. The company lawyers are now trying to stop an avalanche of Deripaska secrets reaching the courts.
In the latest development, what remains a confidential court ruling in Cyprus has become an open document in the US Court of Appeals for the 2nd Circuit (New York). The 40-page Greek and English texts of the judgement by Senior District Judge Lena Demetriadou-Andreou, were tabled in court on Friday (March 8). The Court of Appeal case is number 12-2474. The Cypriot judge concluded that “in the present case and as it arose from the unchallenged and undisputed facts, there was a disclosure of the bank accounts of Defendant 1/Applicant [Raikov, Osipov, Natica Shipping] without having secured a court order and without the Applicant/Defendant being previously heard.” The court documents also reveal that in pursuit of Raikov and Natica, lawyers acting for Rusal in Cyprus had misled the court, as well as the bank, and kept secret from Raikov and Natica that their bank account data had been seized.
The lawyers for Rusal claim they were justified in going after bank account information and freezing the funds because of their allegation that their targets had acted unlawfully against Rusal. Hellenic Bank in Cyprus, which Rusal lawyers persuaded to hand over the account data, had a duty to do so, Rusal told the judge.
Demetriadou-Andreou found instead that Rusal had gotten hold of the account information by deceiving Hellenic Bank and misleading the court about what it had done. The US court file reports the judge ruling that “it cannot be permitted to one party to secure and hold documents of confidential nature, which belong to another party, without any prior legal authorization to this effect…the disclosure of confidential documents and information of the Applicant/Defendant 1 [Raikov et al.] by the Bank was carried out without firstly securing the necessary Court Order and, therefore, without the Court considering whether it met the necessary requirements set out in the Law.”
Rusal’s tactics, according to the judgement, were as illegal as the outcome because their target “was deprived of his constitutional right to be heard in the context of the Application for disclosure dated 23.5.11, in breach of the principles of a previous hearing and of fair trial but also of the Rules of Natural Justice.”
In her ruling of March 1, Judge Demetriadou-Andreou also ordered Rusal’s lawyers to report back to the court by a sworn affidavit that they had handed over for destruction by the court registrar all copies of the information they had taken from Hellenic Bank. Rusal is barred from using or leaking the information, and penalized by having to pay the costs of those Deripaska had ordered to be attacked.
Lawyers for Raikov and the Natica companies have requested a 3-judge panel of the US Court of Appeals to dismiss Rusal’s lawsuit as “nothing more than an improper end-run around Cypriot law and procedures.”
Leaking information to the press is a tactic which Deripaska has used to intimidate witnesses in another case, in defiance of a New York court order. In that March 2012 case, the information leaked to the press was false; that was the reason for the judge in the case to order Deripaska’s lawyers gagged.
Stealing information is another tactic which the international courts have exposed. In 2006 the UK High Court ruled there was enough evidence to require Rusal to face trial for an operation to hack into the computers of a London aluminium trader against which Rusal was conducting a punitive damages claim at the time. The judge in that case, Jonathan Hirst, ruled to accept the expert evidence that there had been a computer break-in, that spyware had been installed for the purpose of stealing data, and that the origin was “one of the internet addresses registered to Rusal”. Rusal, including Deripaska and his chief executive at the time Alexander Bulygin, were charged with breach of confidence, unlawful interference with business, and unlawful conspiracy.
Rusal argued there was no direct evidence of its involvement in the hacking, and that someone else had stolen the company’s IP address. “Rusal’s Moscow headquarters are only about 100 metres from the Moscow State Aviation Technological University, known as MATI,” the court was told by Rusal’s expert witnesses. “The most likely explanation was that the MAC numbers were obtained and distributed amongst university students, although they could have been used by someone much further away using an aerial attached to their computer.”
Judge Hirst refused to accept these claims, and decided the detailed evidence against Rusal should proceed to trial. In the meantime Rusal was ordered to open its computer systems in Moscow to an independent expert inspection. That did not eventuate. On May 18, 2007, Deripaska and Rusal signed an out of court settlement against those whose computers had been attacked, bringing their litigation to an end. More than $120 million was paid.
Six years later, the Cyprus court proceeding, and the linked one in the New York District Court, are testing the use of illegal means by Rusal to obtain private information, and then use it to attack Deripaska’s targets. The judgements are turning out to be the same.
Rusal’s liability for the costs is buried in the small print of the company’s financial reports where shareholders and auditors can’t detect them. The reports don’t provide a breakdown of the legal fees incurred by Rusal as a group, or by the related companies whose cashflows have been revealed in the New York bank disclosures. Two things, though, are clear from the company financials. One is that during 2012 Rusal’s exposure to court-ordered payouts and penalties jumped 30% from an estimated $164 million as of December 31, 2011, to $213 million by the end of the 2012.
The penalty for unsuccessful deception is also increasing. According to the latest financial report, in 2011 Vera Kurochkina, head of the company’s information operations, was paid $1,342,000 in salary and cash bonus, plus $62,000 worth of Rusal shares. This past year, however, Kurochkina was paid $1,146,000 and $47,000 in shares. The penalty was 15%. The value of Rusal on the Hong Kong Stock Exchange fell by the same margin, and the share price is now at a record low. The original stakeholders have lost 60% of their investment.