Slocom Trading Ltd & Anor v Tatik Inc & Ors [2012] EWHC 3464 (Ch) (04 December 2012)

Neutral Citation Number: [2012] EWHC 3464 (Ch) Case No: HC10C00139 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION Royal Courts of Justice Strand, London, WC2A 2LL 04/12/2012 B e f o r e : MR JUSTICE ROTH ____________________ Between: SLOCOM TRADING LIMITED DERBENT MANAGEMENT LIMITED Claimants/ Part 20 Defendants - and - TATIK INC SIBIR ENERGY plc MARITIME VILLA HOLDINGS SCI Defendants/ Part 20 Claimants ____________________ Dominic Chambers QC and Benjamin John (instructed by Reed Smith LLP) for the Claimants Simon Birt (instructed by Russell-Cooke LLP) for the 1st Defendant Ian Mill QC, Andrew Hunter QC and Richard Power (instructed by Jones Day) for the 2nd and 3rd Defendants Hearing dates: 23, 24, 27, 28 29 February and 1, 2, 5, 6, 7, 16 and 20 March 2012 ____________________ HTML VERSION OF JUDGMENT ____________________ Crown Copyright © CONTENTS Paragraph INTRODUCTION THE PARTIES THE EVIDENCE THE FACTS The First Tchigirinski Loan The Second Tchigirinski Loan The introduction of Derbent The "April 2006 agreement" The misuse of Derbent The Sibir unauthorised payments and fraud The August 2008 "Agreement" The Russian Land Loan The return of the Tatik Shares The events of December 2008 The 19 December 2008 agreements The assignments to Slocom Mr Peter Thomas Towers Mr Schneebeli's accounts The Sibir proceedings and settlement with Mr Haener The April 2009 Agreements The Amended Haener Settlement Deed Sibir's settlement with Derbent July – December 2009 The Sibir-Tchigirinski settlement and sale of the Villa The start of the present proceedings and the interim injunction THE ACTION DISCUSSION (1) Is the Derbent-Tatik Loan Agreement a sham? (2) Is the Derbent-Tatik Loan Agreement and/or the Second Tatik Stock Pledge voidable under section 423? (3) What is the effect of the Derbent-Tatik Loan Agreement? (4) Was the Derbent-Tatik Loan Agreement procured by fraudulent misrepresentation? (5) Are the assignments to Slocom voidable under section 423? (6) Is Slocom precluded from relying on the April 2009 Agreements by reason of misrepresentation? (7) Are Tatik and/or Sibir in breach of obligations owed to the Claimants under the April 2009 Agreements? (8) Did Sibir and/or Maritime induce a breach of contract by Mr Tchigirinski and/or Tatik? (9) Can the sale of the Villa be impeached under section 423? (10) Is Maritime's ownership of the Villa subject to an equitable mortgage? (11) Is Sibir entitled to set aside the Derbent Settlement Agreement? CONCLUSION APPENDIX 1 : Schedule 1 to the Derbent-Tatik Loan Agreement APPENDIX 2 : Extracts from the April 2009 Agreements APPENDIX 3 : Extracts from the January 2010 Agreements Mr Justice Roth : INTRODUCTION The asset which is notionally at the centre of this litigation is the Villa Maria Irina on Cap Martin in the South of France ("the Villa"). It is said to be one of the largest private properties on the Côte d'Azur. It was bought in 2001 by Mr Chalva Tchigirinski, who has been described in these proceedings as a Russian oligarch and was at the time one of the wealthiest men in Russia. The Villa was purchased in the name of Tatik Inc ("Tatik"), the 1 st Defendant, and was Tatik's only asset. These proceedings concern the alleged liabilities of Mr Tchigirinski or Tatik as a result of a series of transactions entered into at various times between 2004 and 2010, and the competing claims to a share in the proceeds of sale of the Villa in 2010 which arise as a result. Mr Tchigirinski acquired his fortune in particular through acquisition and development of property in Russia. Like other very wealthy Russians, he held his interests both personally and through a number of companies. Apart from Tatik, the most relevant of his companies (i.e. companies of which he was the directing mind and beneficial owner) for the purpose of these proceedings are Russian Land Ltd ("Russian Land"), a company incorporated in Jersey, and Gradison Consultants Inc ("Gradison"), [1] a company incorporated in the British Virgin Islands ("BVI"). From about mid-2001, Mr Tchigirinski used in the management of his financial affairs the assistance of Mr Urs Haener, a Swiss national who had previously been the head of the Moscow division of HSBC. Mr Haener was variously described as Mr Tchigirinski's "right hand man" or " homme d'affaires ", and he was a director of both Russian Land and Gradison at the material time. The individual whose interests are involved on the other side of the material transactions that took place with Mr Tchigirinski and his companies is Mr Anatoly Kruglov. Between 1991 and 1998, Mr Kruglov was head of the Russian Federation's State Customs Committee, and his family was involved in the ownership of a number of Russian customs terminals (which were privately owned, subject to state supervision). As head of the family, Mr Kruglov assumed responsibility for management of the family's money. By 1999, that money amounted to a very substantial fund, although there is no suggestion that Mr Kruglov and his family were wealthy on the scale of Mr Tchigirinski. Neither the question whether that fund all belonged beneficially to Mr Kruglov or was partly the property of his children, nor the source of the money, is relevant to the issues in these proceedings, and I shall refer to the fund simply as "the Kruglov money". What is very relevant is that Mr Kruglov also engaged Mr Haener, starting around mid-1999, to invest and manage the Kruglov money. Mr Haener carried out that task with the benefit of various powers of attorney granted to him. Initially, the Kruglov money was transferred to be held by some Liechtenstein foundations, but they were dissolved in 2006. A curious but significant feature of this case is that not only was there no direct contact at any time between Mr Kruglov and Mr Tchigirinski, but that each was unaware, until well after the material events had occurred, of the involvement of the other in the various transactions concerning their respective interests. Indeed, Mr Kruglov said that although in general he was not concerned how Mr Haener invested the Kruglov money (provided that it was secure and obtained a good return), if he had known that his money was being lent, directly or indirectly, to Mr Tchigirinski he would never have agreed to that. Accordingly, this case concerns individual Russians of great wealth and the dealings they carried out both personally and through separate legal entities which were used to hold their interests. Although all the relevant contractual documents are in English and most contain both English law and English jurisdiction clauses, it is necessary to bear in mind that the individuals involved conducted their affairs in a manner and in a commercial and social environment that is very different from that which prevails in the United Kingdom. THE PARTIES The 2 nd Claimant ("Derbent") is a Cyprus company, incorporated in November 2005 and beneficially owned by Mr Kruglov. Derbent was established on the instruction of Mr Haener, who operated the company, ostensibly on behalf of Mr Kruglov, until March 2010 when Mr Kruglov discovered the way in which Mr Haener had been handling his affairs and asserted control. The 1 st Claimant ("Slocom") is also a Cypriot corporation. It was incorporated in March 2004 and was beneficially owned by Mr Haener and his wife. On 22 December 2008, Mr and Mrs Haener transferred their shareholding in Slocom to Mr Kruglov. Slocom brings its claim on the basis of a deed of assignment executed on 24 December 2008 whereby Derbent assigned to Slocom its rights under various agreements in circumstances which will be described below. Prior to that date, Slocom had no involvement in the various dealings with which this case is concerned. Although the Claimants' primary case is that Slocom is now the proper claimant, because the Defendants challenge that assignment under section 423 of the Insolvency Act 1986 ("section 423") as a transaction intended to prejudice creditors, Derbent was added as 2 nd Claimant by way of amendment at the outset of the trial. The 2 nd Defendant ("Sibir") is engaged in oil and gas exploration and production in Russia. It is an English company with its registered office in London but its operational headquarters are in Moscow. Sibir was previously admitted to trading on the AIM market in London, until suspended on 19 February 2009. From June 2000 until 18 December 2008, Mr Tchigirinski was a director of Sibir, in which he held a very substantial shareholding. Sibir is now wholly owned by Gazprom-Neft. It is not in dispute that between mid-September 2008 and about 4 December 2008 Mr Tchigirinski misappropriated sums in excess of $400 million from Sibir ("the Sibir fraud"). In March 2009, Sibir commenced proceedings in the Commercial Court against Mr Tchigirinski and others (including Mr Henry Cameron, the former CEO of Sibir) seeking to recover those sums. Sibir's claim as against Mr Tchigirinski in that action was settled in January 2010, in circumstances to which it will be necessary to refer. Subsequent to the trial in the present case, the Court gave Sibir permission to join Mr Haener as a defendant in that action, and I understand that those proceedings as against him and all remaining defendants have now been settled. However, there is no suggestion that Mr Kruglov was personally involved in, or had knowledge at the time of, the Sibir fraud. The 1 st Defendant, Tatik, is a Delaware corporation incorporated in June 2001 for the benefit of Mr Tchigirinski, on the instruction of Mr Haener, specifically for the purpose of purchasing the Villa. Mr Tchigirinski was the sole owner of Tatik except for the period September 2004 to December 2008 when the shares were transferred to a third party in circumstances which I shall explain below. Mr Tchigirinski was the sole director of Tatik from 12 January 2010, and thus at the time these proceedings commenced, until a further director (Mr Konradi) was appointed by him in September 2010. As a result of the overall settlement reached between Mr Tchigirinski and Sibir, Sibir has the right to purchase Mr Tchigirinski's shareholding in Tatik for a nominal sum, but has not yet done so. The unchallenged evidence of Mr Konradi is that since his appointment, Mr Tchigirinski while remaining the sole shareholder has taken no interest in the affairs of Tatik nor given Mr Konradi any instructions. Mr Tchigirinski resigned as director of Tatik on 22 February 2012, a few days before this trial commenced. The 3 rd Defendant ("Maritime") is a French company and a wholly owned subsidiary of Sibir. It was incorporated on 15 December 2009 for the purpose of acquiring and owning the Villa, and in January 2010 Maritime agreed with Tatik on the purchase of the Villa. That sale was completed, following the discharge of an interim injunction granted in these proceedings, in May 2010. The Claimants were represented at trial by Mr Dominic Chambers QC and Mr Benjamin John; Tatik by Mr Simon Birt; and Sibir and Maritime together by Mr Ian Mill QC, Mr Andrew Hunter and Mr Richard Power. I am grateful to all Counsel for their very full and detailed written and oral submissions. THE EVIDENCE The dealings between the parties gave rise to a very large number of contractual documents, mostly executed as deeds under English law. There were no less than 70 such contracts in evidence, and although some are of no or little relevance, a number are very relevant and it is necessary to quote from them at some length. Apart from such documents and bank statements and financial reports of various kinds, there is in this case rather less contemporaneous correspondence (whether letters or emails) than might be expected given the scale of the transactions concerned. That is a reflection of the fact that most of the key individuals involved tended to communicate by telephone or in person. These individuals were Mr Kruglov, Mr Tchigirinski, Mr Haener, Mr Paul Melling of Baker & McKenzie, who acted for Mr Tchigirinski and his companies, and Mr Roger Frick. The oral evidence at trial therefore assumed particular importance. Before addressing the facts and my findings in that regard, it is therefore appropriate to set out my assessment of the witnesses in some detail. (1) The Claimants' evidence Four witnesses gave oral evidence for the Claimants: Mr Kruglov, Mr Haener, Mr Frick and Mr Felix Schneebeli. There were a further two witnesses whose witness statements were not challenged, and four witnesses whose statements were covered by notices under the Civil Evidence Act 1995 ("CEA"). Mr Anatoly Kruglov Mr Kruglov does not speak or read English. He gave his evidence to the court through an interpreter. He said that when dealing with Mr Haener, either Mr Haener could make himself understood in Russian or his business associate, or Mr Haener's then secretary who was fluent in English, would interpret. Mr Kruglov had been a very senior customs official who was able to use his position at the time of the dismantling of the Soviet Union to profit from the reorganisation of customs administration, both through his family coming to operate customs terminals and by providing consulting services to enterprises seeking to cope with the rapidly changing arrangements. He was cross-examined intensively about the source of the Kruglov money, and how that money was apportioned as between him and his two daughters. In that questioning there was the clear insinuation that he had derived his money less than honestly. Mr Kruglov clearly resented being asked about these matters and I consider that he was less than frank in his answers. But I do not regard those answers as of any relevance to the issues in this case. There is no defence of ex turpi causa , nor could there be; and as for the arrangements as to the interests in the Kruglov money as between Mr Kruglov and his daughters, they are not pertinent to the questions before the court. In my view, it would be quite wrong to regard Mr Kruglov's response to this line of questioning as reflecting on his general credibility in dealing with matters that are germane to this claim. Moreover, whether the money as a matter of Russian law is the property of Mr Kruglov or his daughters (a matter on which I heard neither evidence nor submissions), I accept that, as Mr Haener said, it is normal in Russia for a father in these circumstances as head of the family to control the investment of the family wealth. On the issues that are relevant to the case, Mr Kruglov's general position was that he had no real understanding of financial investments or currency matters and left everything to Mr Haener in whom he had complete trust. He said that his only interest was in the bottom line, i.e. the total value of the investments, and that they were safe. He was referred to a letter which he wrote in July 2001 to the professional trustee in Liechtenstein then holding the Kruglov money, stating that he had decided that the money should not simply remain in US$ bank accounts because of the low rate of return but would be used for investment in different ways. Mr Kruglov said that Mr Haener had discussed this with him, but that he was content to follow Mr Haener's advice and thus sign this letter, drafted by Mr Haener, setting out what Mr Haener had told him was the best thing to do. Mr Kruglov said he received from Mr Haener financial reports incorporating detailed spreadsheets, and he looked at the total of his investments but not the details, and would also report this to his daughters and son-in-law when they visited as this was the family's money not just his own. However, he emphasised repeatedly that from 2006 to about 2009, he went through periods of very serious illness and hospitalisation, when he said financial matters were of no interest to him. I fully accept that his medical condition was very serious and worrying. But I consider that Mr Kruglov over-played the extent to which this led him to ignore his financial affairs. Two matters that emerged in the evidence illustrated this. First, in 2006 very substantial withdrawals were made from the accounts holding the Kruglov money to fund various property purchases in Portugal and Moscow. Mr Kruglov accepted when it was put to him that he would have been involved in those matters and I consider that he would have been actively concerned, despite his ill-health, in those decisions. However, it is common ground that they fall outside the scope of the decisions and loans made by Mr Haener. Secondly, in 2006, the four family foundations were dissolved and the funds in them moved to a new account in the name of Derbent. Mr Haener said that he took those steps on the instruction of Mr Kruglov and not on his own initiative: Mr Kruglov had become concerned about keeping monies in Liechtenstein after reading an article somewhere about greater transparency concerning Liechtenstein holdings, and Mr Haener therefore told him about alternative possibilities as to where money could be kept in a corporate vehicle. That led to the transfer of the Kruglov money to Derbent. I accept that evidence of Mr Haener and do not think Mr Kruglov was telling the truth when he said that closing the foundations was entirely at the instigation of Mr Haener and that he simply followed Mr Haener's advice. Moreover, Mr Frick in his evidence confirmed that after 2005 a number of his clients became concerned about the greater degree of information that had to be provided in order to maintain a financial foundation in Liechtenstein. However, the critical question in this regard is the extent to which the lending of the Kruglov money and corresponding security arrangements were managed by Mr Haener, on Mr Kruglov's authority but without Mr Kruglov's direct knowledge or involvement. Save for his receipt of the financial reports, I accept that Mr Kruglov did leave these matters to the sole discretion of Mr Haener, to an extent which may appear surprising to those accustomed to a different cultural environment. Mr Kruglov had worked in the public administration in Russia for most of his career. I find that he was very impressed by a Swiss banker who came with strong credentials. He saw in Mr Haener someone who could arrange the placing of his family money outside Russia in a manner that was both discreet and secure, and then oversee its investment. He was therefore prepared to give Mr Haener broad authority to deal with the Kruglov money, and when his signature was required on documents, he would sign them on the briefest explanation from Mr Haener or, in some cases, with no explanation at all. For example, I consider that when the currency in which part of the Kruglov money was held was changed to euros, this was a decision made entirely on Mr Haener's advice and Mr Kruglov did not seek to exercise any independent judgment in that regard. Therefore, on many of the matters which go to the heart of these proceedings, I find that Mr Kruglov was basically an honest witness. I also accept that although his trust in and reliance upon Mr Haener meant that he had no view as to how the Kruglov money was being used for private loans which Mr Haener arranged, if he had known that large sums were being advanced to Mr Tchigirinski, he would have objected in that particular case. Mr Tchigirinski was a well-known figure in Russia, and when asked to explain why he would have objected, Mr Kruglov responded: "We're people who are baked out of different dough." He did not wish to expand on this, but I consider that he clearly meant that from all he knew about Mr Tchigirinski, this was not the kind of man with whom he wished to do business. From the way Mr Kruglov dealt with this question, I find that he was replying truthfully. Mr Urs Haener Mr Haener gave evidence by video link from a hotel in Germany close to the Swiss border, pursuant to the order of Henderson J permitting his evidence to be given that way. Although there were some unfortunate technical problems that caused disruption early on in his testimony, once those were overcome the video link worked well and I was able to assess Mr Haener as a witness as readily as if he had been physically present in court. Mr Haener was cross-examined exhaustively – and at times exhaustingly – by Mr Mill over a period of four days. That is a stressful process for a witness whose professional integrity and honesty were subject to sustained challenge. Moreover, although Mr Haener is fluent in English, it is nonetheless necessary to bear in mind that it is not his first language and that he occasionally uses words and expressions (both in his answers in court and in earlier documents) in a manner that is different from a native English speaker. The Defendants submitted that I should reject Mr Haener's evidence as fundamentally dishonest and that he is an individual who acted only for his own financial gain. In their written closings, the Defendants' counsel set out a series of respects in which Mr Haener's evidence is said to be false. There were three striking examples of this. First, although Mr Haener strongly resisted in his answers the assertion that Mr Tchigirinski practised a fraud on Sibir, that is the term he used in his own witness statements and there is no doubt that Mr Tchigirinski arranged for unauthorised withdrawals of very substantial sums from Sibir for his own benefit supported by fictitious invoices, and that Mr Haener was directly involved in signing and processing those invoices knowing that they were false. Secondly, it emerged that he had allowed Derbent to be used not only as a vehicle for those dishonest transactions concerning Sibir, but also to funnel money from other third parties. Those further transactions had nothing to do with the Kruglov family or the proper activity of Derbent. Mr Haener was distinctly evasive as to the nature of those other transactions, I have no doubt in order to protect the confidentiality of the beneficiaries. Thirdly, when there arose a real risk that investigations would be made into Derbent and Slocom to trace the monies taken out of Sibir, Mr Haener instigated a transfer of those companies to a Mr Thomas Towers, a straw man used to hide Mr Kruglov's interests, for which purpose Mr Haener arranged for Mr Kruglov to sign documents in English without any proper explanation and which I am sure Mr Kruglov would have questioned if they had been explained to him or translated. Those documents are now admitted to be a sham, but they were relied on by Mr Haener when instructing lawyers to respond to inquiries from Sibir's solicitors about the ownership of Derbent. On many occasions, Mr Haener said in his evidence that he did things that "with hindsight" should not have been done. That is a considerable understatement and I have no doubt that some of Mr Haener's conduct was not only discreditable but dishonest. However, that does not necessarily mean that all his evidence in this case is to be rejected. The fact that an individual has acted dishonestly does not mean that he is therefore dishonest in all that he says or does. Having observed Mr Haener under intensive cross-examination, and assessing his answers against the numerous contemporary documents, I do not find that he is someone who is lacking in all credibility. Rather, he is, in my view, an individual for whom the end very often justified the means. Hence, although the episode regarding Mr Towers was nothing short of disgraceful, I find that Mr Haener created those documents because Mr Kruglov had stressed to him at the outset that the Kruglov money should be invested in a way that protected his identity and, knowing that Mr Kruglov had had nothing to do with the misuse of Derbent in the Sibir fraud, Mr Haener felt he should do anything possible to prevent Mr Kruglov's name emerging in the investigation. That is not, of course, a good excuse for the deceit, but I accept that it was the explanation. And as regards the fictitious Derbent invoices, I accept also that Mr Haener was under strong pressure from Mr Tchigirinski to execute these documents, and that he would in all likelihood have lost his lucrative position as Mr Tchigirinski's advisor if he had done what he should have done and refused to go along with what was proposed. In my view, it is significant that Mr Haener agreed to give evidence and subject himself to what he no doubt realised would be a very uncomfortable cross-examination. He is not a party and, living in Switzerland, he was not a compellable witness. I consider that he knew that he had badly let down Mr Kruglov who had trusted him, and that he should now assist Mr Kruglov in his attempt to recover what had been lost. That also explains why, when he still had power of attorney over Slocom, Mr Haener acted on behalf of Slocom in commencing these proceedings to try to prevent the sale of the Villa, instructing Cleary Gottlieb Steen & Hamilton ("Cleary Gottlieb") and, with their help, English solicitors and obtaining an interim injunction, all without Mr Kruglov's knowledge, in what he saw as a last ditch attempt to preserve the security for the loans of the Kruglov money that Mr Haener had made. Mr Haener was also challenged on the basis that he was acting improperly in representing both the Kruglov family interests as lenders and Mr Tchigirinski as borrower, which created an inherent conflict of interest. However, in my judgment it is important not to impose, or expect, the standards of fiduciary obligations that apply to an agent under English law on financial consultants and advisors acting in Russia over this period for wealthy private individuals. Mr Haener said, and I accept, that it was not uncommon for such advisors to act on behalf of both sides and to receive commissions from each, and I consider that in that environment it would be wrong to regard Mr Haener with suspicion because he did so. As result, I do not reject Mr Haener's evidence as such, but treat it with great care. That means that I examine his evidence against the contemporaneous documents and other evidence directed to the relevant issues, and of course the inherent plausibility and consistency of his answers. As will become clear, on some matters I find his evidence was less than frank or is to be rejected altogether. But on other matters I find that, on the balance of probabilities, Mr Haener was telling the truth. In that regard, I have no doubt that Mr Haener was correct in saying that he felt under intense personal stress at the very end of 2008 and in early 2009 when Mr Tchigirinski's dealing with Sibir, in which Mr Haener had been closely involved, started to unravel. Mr Roger Frick Mr Frick is a member of the Board of Allgemeines Treuunternehmen ("ATU"), a long-established Liechtenstein trust company that specialises in the establishment and management of national and international trusts. The Kruglov money was initially placed in Liechtenstein foundations managed by ATU, and the investment was largely made through the vehicle of Willow Tree Investments Ltd ("Willow Tree"), a company incorporated by ATU in the BVI and managed by Mr Frick. I found Mr Frick to be a careful and honest witness who had a good knowledge of the way ATU handled the matters concerning the dealings with Willow Tree and the Kruglov money. The Defendants do not seek to challenge his evidence. Mr Felix Schneebeli Mr Schneebeli is a Swiss financial consultant and accountant. He was first introduced to Mr Haener, with whom he had no previous connection, in February 2009 when Mr Haener was seeking the assistance of an independent accountant. Mr Schneebeli was instructed by Mr Haener to prepare accounts for three companies operated by him on behalf of an unnamed client, i.e. Willow Tree, Derbent and Slocom. Mr Schneebeli proceeded to do so on the basis of various agreements and bank statements, having requested and been provided with all the bank statements of the companies. Although Counsel for Sibir and Maritime sought to characterise Mr Schneebeli as "not a wholly satisfactory witness", I reject that criticism. I found him to be a frank witness, seeking honestly to assist the court by explaining what he did and what he did not do, and at what date. He agreed very readily that he did not carry out any audit of the companies' transactions, but sought to trace flows of money in and out by reference to the bank statements. When he had a query, he relied on Mr Haener for the answer. Other witnesses for the Claimants There were also witness statements from Mr Daniel Braverman, Ms Jocelyn Roberts, Ms Anna Kruglova-Arutyunyan and Ms Margarita Nerodenkova-Kruglova (Mr Kruglov's two daughters), Mr Andrey Nerodenkov (Margarita's husband and thus Mr Kruglov's son-in-law) and a Mr Xenios Xenopoulos concerning Mr Kruglov's beneficial ownership of Derbent and Slocom. Mr Braverman is a New York lawyer and a partner in Cleary Gottlieb based in London. Ms Roberts is an English solicitor and an associate at Cleary Gottlieb. Mr Braverman was first consulted by Mr Haener in February 2009, and his and Ms Roberts' statements deal with the discussions and exchanges which Cleary Gottlieb had between March and June 2009 with Jones Day, the lawyers acting for Sibir. Subject to two minor qualifications to his statement that were accepted by Mr Braverman, the Defendants did not challenge these statements and Mr Braverman and Ms Roberts were therefore not cross-examined. The other four statements are covered by CEA notices and essentially attest to the authenticity of documents which had been put in issue by the Defendants. (2) The Defendants' evidence Sibir and Maritime called two witnesses, Mr Shuttleworth and Mr Goold. Tatik had one witness, Mr Konradi, whose statement was covered by a CEA notice. Mr Craig Shuttleworth and Mr James Goold Mr Shuttleworth is the partner in Jones Day with overall conduct of this litigation on behalf of Sibir and Maritime. He is also one of two partners in overall control of the attempts by Sibir to recover the monies which Mr Tchigirinski had misappropriated from the company, including by way of the litigation in the Commercial Court to which I have referred. Mr Goold is now a partner in Jones Day but was at the material time a senior associate. He was closely involved in the negotiation of the settlement agreements with Mr Tchigirinski and Derbent regarding that litigation. As one would expect, both Mr Shuttleworth and Mr Goold were honest witnesses but as they came on the scene only in 2009, they have no direct knowledge of the underlying facts nor were they involved in the conclusion of any of the earlier agreements. Mr Brian Konradi As mentioned above, Mr Konradi's statement constituted the sole testimony put forward on behalf of Tatik. Mr Konradi is an American lawyer resident in Moscow who became a director of Tatik on 10 September 2010. His statement is of very limited relevance since he states: "I have no contemporaneous knowledge of any of the matters which are the subject matter of these proceedings." Unsurprisingly, in those circumstances his evidence was not challenged. The main thrust of his evidence is that Mr Tchigirinski had no further involvement in the conduct of Tatik's affairs after Mr Konradi was, with Mr Tchigirinski's consent, appointed. However, Mr Konradi confirms in his statement that Mr Tchigirinski remains the legal and beneficial owner of Tatik. As I have already stated, the Court was informed during the hearing that Mr Tchigirinski had resigned as a director of Tatik on 22 February 2012. Other potential witnesses Accordingly, Tatik did not put in evidence from Mr Tchigirinski, nor did Sibir. Mr Konradi says that Mr Tchigirinski declined Tatik's request to give evidence. The witness statement of Mr Shuttleworth says that Sibir wished to call him and discussed this possibility with Hogan Lovells, the solicitors acting for Mr Tchigirinski, but received the response that Mr Tchigirinski (who is believed now to live in Israel) was not prepared to give evidence. Evidence from Mr Tchigirinski would be extremely relevant to this case, and to rebutting (if that were his evidence) the evidence of Mr Haener regarding transactions for which they were the only two natural persons involved. Therefore Counsel for Sibir and Tatik went to some lengths to urge the Court not to draw adverse inferences from the absence of evidence from Mr Tchigirinski, contrary to the submissions of Counsel for the Claimants. The leading authority on the extent to which a court is entitled to draw inferences from the absence or silence of a witness is the Court of Appeal decision in Wiszniewski v Central Manchester Health Authority (1998) Lloyd's Rep Med 223 . Having reviewed both principle and authority, Brooke LJ set out the following four principles (at 240), with which Aldous and Roch LJJ agreed: "(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in the action. (2) If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness. (3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. (4) If the reason for the witness's absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified." Here, I note the following: i) At earlier stages in these proceedings, when Slocom obtained without notice an interim injunction to restrain transfer of the Villa, Mr Tchigirinski was actively involved in giving instructions and supplying information to Tatik's then solicitors, Lovells. That is clear from the evidence filed on behalf of Tatik seeking a discharge of the injunction by Mr Grierson (then a partner in Lovells) which repeatedly states that the account set out by Mr Grierson is based on information from Mr Tchigirinski. ii) Mr Tchigirinski continues to have a direct interest in the outcome of at least one part of these proceedings. In the Deed of Acknowledgment of Liability concluded between Sibir, Mr Tchigirinski and Tatik of 13 January 2010, which forms part of the overall settlement reached between Sibir and Mr Tchigirinski and which Mr Tchigirinski signed both on his own behalf and on behalf of Tatik, Mr Tchigirinski acknowledged that he owed Sibir (and its subsidiaries) a sum of over $424 million, less any monies recovered by Sibir in its High Court action ("the Accepted Liability"). Further, Mr Tchigirinski agreed to satisfy close to $72 million of that Accepted Liability by the issue on the part of Tatik to Sibir of a promissory note in that amount. Clauses 2.4-2.5 of this Deed then provide: "2.4 Subject to clause 2.5 below, upon the completion of the acquisition by [Maritime] of the [Villa] pursuant to the Sale Deed (and to the Promissory Sale Agreement and the Final Sale Agreement referred to therein) Sibir shall covenant not to demand repayment of the Accepted Liability from [Mr Tchigirinski]. 2.5 The covenant set out in clause [2.4] [2] shall cease and terminate absolutely and automatically if the acquisition by [Maritime] of the [Villa] is avoided, unwound, or otherwise ceases to be effective for any reason." As one head of relief in their claim, the Claimants seek an order under section 423 to set aside the transfer of the Villa to Maritime. Accordingly, if that claim were to succeed, Mr Tchigirinski would be exposed to a very significant liability to Sibir. iii) Mr Tchigirinski remains the legal and sole beneficial owner of Tatik. Even if he is no longer interested in the company now that its only asset has been transferred to Sibir's subsidiary, Tatik is still "his" company. iv) Where a company is wholly owned by an individual, when that company is sued I do not consider that it can rely on its separate corporate identity as an adequate reason for its owner not giving evidence at a trial where the question of the company's liability is heavily dependent on the factual findings regarding dealings which he conducted on its behalf. v) Although Mr Tchigirinski may be reluctant to travel to England to give evidence, that does not preclude him from giving evidence by video link, as in the case of Mr Haener. In short, if Mr Tchigirinski were able to challenge the account by Mr Haener of the dealings between them, I would have expected him to give that evidence on behalf of Tatik. Accordingly, having regard to Wiszniewski , I bear this in mind as an additional factor when assessing the evidence on such matters given by Mr Haener. I should add that I do not reach this conclusion on the basis of clause 2.6 of the Deed of Acknowledgment of Liability, whereby Mr Tchigirinski, Tatik and Sibir agreed to use their "best endeavours" to defend any legal challenges relating to the acquisition of the Villa by Maritime. In my view, this does not create any legal obligation on Mr Tchigirinski to give evidence. But it does give some support to my conclusion in that it expresses a common intention that each should do what he or it could to defend any such legal challenge. At the material time, Mr Melling was (and I believe still is) a partner in Baker & McKenzie, based at that time in their Moscow office. He indeed describes himself in one of his letters as the founding partner of that office. He did a lot of work for Mr Tchigirinski (whom he referred to in one of his emails as his client) and Mr Tchigirinski's various companies (thus including Tatik), and in that regard was frequently instructed by Mr Haener concerning matters that lie at the heart of these proceedings. He was personally involved in the drafting of many of the agreements referred to in this case, including those of late 2008 and early 2009 signed on behalf of Tatik which are of central importance. The Defendants place considerable weight on certain communications between Mr Haener and Mr Melling, which it will be necessary to describe in due course, and Mr Haener was challenged at various points on his account of what he told Mr Melling or what Mr Melling told him. Mr Haener also said that Mr Melling saw Mr Tchigirinski very frequently, which is hardly surprising given the number of transactions in which Mr Tchigirinski was engaged. There can be no doubt that Mr Melling would have been a relevant witness and, given his professional status, a potentially reliable witness. Indeed, apart from Mr Haener and Mr Tchigirinski, he was the one other person identifiably and directly involved in many of the material transactions at the time. If the Defendants are correct, he too would have been a valuable witness in rebutting Mr Haener's evidence at various material points. However, there was no evidence from him, and when I asked Mr Birt whether there was any particular reason why Tatik had not sought to call him, he had no explanation to offer. Of course, it is very likely that Mr Melling would not have been prepared to give evidence without the consent of his principal client, Mr Tchigirinski, even if Tatik itself had formally been his client as well at certain stages. It is possible, although by no means certain, that Mr Tchigirinski would have refused such consent. Moreover, it appears that at certain points Mr Melling was acting for Willow Tree and Derbent. The Claimants did not invite the Court to draw any inferences from the absence of evidence from Mr Melling and, in all the circumstances, I do not think that it would be appropriate to do so. Given the absence of evidence from Mr Tchigirinski, or indeed Mr Melling, the Defendants' version was dependent on inferences to be drawn from the documents and from Mr Haener's answers in cross-examination. In the light of the above, in seeking to ascertain, where it is important to do so, what happened, I sometimes find on the balance of probabilities that it was not in accordance with the evidence of Mr Haener but also that it was not what was suggested or submitted on behalf of the Defendants. Since the Defendants called no contemporary witnesses, there were obviously no witnesses on their side to whom any alternative version of the events from that given by Mr Haener could be put. THE FACTS Mr Kruglov first met Mr Haener in about 1999 in Moscow when Mr Haener was still head of the Moscow operation of HSBC. He had previously been head of the Moscow operation of Republic National Bank of New York. Mr Haener left HSBC in 2001 to develop his own consulting business. Mr Kruglov told Mr Haener that he had a significant sum of money belonging to himself and his family that he wished to invest and stressed that he wished the investment to be discreet. Mr Haener recommended to Mr Kruglov that he could establish foundations in Liechtenstein for that purpose. Mr Haener arranged for Mr Kruglov to visit ATU in Liechtenstein, which he attended in June 1999 accompanied by his two daughters and son-in-law, and also his business partner, Mr Ramil Suyunov, who acted as interpreter. Mr Haener was also at the meeting, held with Mr Edmund Frick, a member of the Board of ATU, and his son, Mr Roger Frick, who also worked there (and subsequently joined the Board). Prior to the meeting, ATU had satisfied itself that it was willing to accept Mr Kruglov as a client, and at the meeting it was agreed that ATU would establish trusts in favour of Mr Kruglov and his children and son-in-law. Accordingly, four Liechtenstein foundations were established on 24 June 1999, called the Amurela, Bilanda, Hanipen and Lemala Family Foundations ("the Foundations"). Mr Kruglov and the three members of his family were each a sole beneficiary of one of the Foundations. The two Messrs Frick were members of the board of each of the Foundations. A bank account for each of the Foundations was established with Verwaltungs und Privat Bank AG in Liechtenstein ("VP Bank") on 29 June 1999. A little over $31 million was deposited in these accounts, with one Foundation receiving just over $8 million and equal amounts of about $7.7 million deposited for the other three. Further deposits were made subsequently. Also in January 2000, the four Kruglov family members as beneficiaries of the Foundations each signed letters of authority giving Mr Haener authority to give instructions to the boards regarding the funds of the Foundation and their investment and distribution. Mr Frick said that it was normal practice for ATU to be instructed in this way on behalf of family foundations by what he calls a "contracting party" who would be responsible for conducting their affairs rather than the actual beneficiaries. Mr Haener stated that as far as he was concerned, he had "a free hand" in investing the Kruglov money, and Mr Kruglov did not dissent from that. Mr Haener did not, however, have authority over the Foundations' bank accounts at VP Bank and thus had to give instructions to Messrs Frick for the transfer out of any monies. Willow Tree had been established by ATU in 1996 as an off-the-shelf company for potential use by its clients. Mr Haener apparently himself became a client of ATU at that time, and he used Willow Tree as a vehicle for trading in Russian shares. A bank account for Willow Tree was opened with VP Bank by Mr Edmund Frick, who was a director. The shares in Willow Tree were held by ATU and, as with the Foundations, Mr Haener did not have signing authority on the bank account. However, in 2000 Mr Haener decided to use Willow Tree as the vehicle for investment of the Kruglov money held by the Foundations. Mr Roger Frick (who became the sole director of Willow Tree in 2003 on his father's retirement) explained the position in his evidence as follows: "Willow Tree acted as an intermediary between the Foundations and any third party. This arrangement was not recorded in any fiduciary agreement but it was accepted by ATU and Mr Haener that Willow Tree was a 'face company' which would be used to provide a level of discretion to the Foundations." From April 2000, Mr Haener started to invest some of the Foundations' funds by way of loans to third parties. The first such instruction came from Mr Haener on 26 April 2000 for a loan of $5 million to Viksburg Trading Ltd ("Viksburg"), to be provided by Willow Tree and funded by loans of $1.25 million from each of the Foundations. Viksburg is a Cyprus company but was controlled by a Mr Igor Kesaev and the loan states it was for the purpose of financing commercial activities in Russia. Mr Haener said (and this was not challenged) that Mr Kesaev was then a business partner of Mr Tchigirinski. A loan agreement between Willow Tree and Viksburg was drawn up by Mr Melling at Baker & McKenzie on Mr Haener's instructions, and that provides for an interest rate of 15% and repayment by instalments over a year. Mr Edmund Frick signed that agreement on behalf of Willow Tree. The Viksburg loan was duly advanced and repaid in accordance with that agreement. In October 2000, Mr Haener decided to make a more substantial loan out of the Kruglov money to another of Mr Kesaev's companies, Landers Industries Ltd ("Landers"). This was in the sum of $25 million with interest at 10% and repayable by instalments over a period until April 2005. This loan was similarly the subject of a formal loan agreement, drafted by Baker & McKenzie, between Willow Tree and Landers. It was funded by money transferred from the Foundations' accounts to the Willow Tree account, and secured by guarantees in favour of Willow Tree. Mr Melling wrote to Mr Edmund Frick confirming the security arrangements. It is common ground that the Landers loan was duly repaid. In 2001, there was a change in Liechtenstein banking regulations such that for the first time the beneficiary of bank accounts had to be declared to the bank, along with any subsequent changes in ownership. Accordingly, in July 2001, ATU submitted declarations of the individual Kruglov family members' interests in the respective Foundation accounts. In respect of Willow Tree, the declaration form completed by Mr Edmund Frick on 16 May 2001 stated that Mr Haener was the beneficiary. Mr Roger Frick said that this had been a mistake due to the fact that Liechtenstein trustees had only a short time to complete the declarations of the beneficiaries of all their bank accounts so that many errors were made as many accounts were held for complex trust arrangements. On 3 January 2002, the error was corrected when ATU submitted further declarations that the ultimate beneficiaries of the Willow Tree account were Mr Kruglov, his two daughters and son-in-law. On that form, signed by Mr Roger Frick, the main objective of Willow Tree was stated to be the "granting of loans." It was not suggested in the trial that, as from about April 2000, the beneficial owners of Willow Tree were anyone other than the Kruglov family. In February 2002, additional bank accounts were opened for each of the Foundations at Wegelin & Co in Zurich ("Wegelin Bank"), and the declarations submitted by Messrs Frick stated the beneficial owners as, respectively, the four members of the Kruglov family. Mr Haener gave evidence as to his remuneration, which he said was agreed with Mr Kruglov on the basis of 50% share of any profits on the investment above a basic level return plus a small percentage of the capital he was managing. The threshold return was originally agreed at 5% but increased in about 2002 to 5.8%, and the share of capital was originally agreed at 1% but then reduced to 0.8%. Mr Haener readily accepted that he also received commission from the borrowers under these loans, and said that this was common practice in Russia at the time for financial advisers arranging private loans and would not have caused any surprise. As I stated above, I do not regard this in itself as casting doubt on Mr Haener's probity. He was in effect acting as an intermediary between wealthy individuals willing, on the one side, to make private loans and, on the other side, seeking to borrow money outside the financial system. I note that Mr Haener also said that he had to share the remuneration that he received from Mr Kruglov with the individuals who had introduced him to Mr Kruglov, and that this was the expected practice. Mr Haener said that he provided regular written reports to Mr Kruglov on the financial position regarding the Kruglov money, setting out the position on the various loans and showing the inflow and outflow of capital. He said that these reports were prepared by his secretary, but she would obviously be acting on his instructions. They were either delivered personally to Mr Kruglov's home or Mr Kruglov would collect them from Mr Haener's office as he did not want them sent by post or electronic means. That again demonstrates Mr Kruglov's concern about confidentiality. Mr Haener said that these reports were prepared "more or less quarterly" until September 2008, and they were referred to for convenience in the trial as the "Quarterly Reports". However, even on the assumption that some may have been lost, it is clear that they were not always prepared for a quarter. The First Tchigirinski Loan Shortly after Mr Haener started working for Mr Tchigirinski in mid-2001, Mr Tchigirinski became interested in buying the Villa, which he went to see along with Mr Haener. The Villa was in poor condition as it had been empty for some time. It was apparently on the advice of a lawyer in Paris, whom Mr Tchigirinski went to see with Mr Haener, that Tatik was established as a Delaware corporation and acquired by Mr Tchigirinski as the vehicle through which the Villa would be held. The directors of Tatik at that time were Ms Renee Snyder and Mr Richard Davidoff of the American lawyers who helped to set up the company. The purchase price of the Villa was about $13.8 million. Mr Haener says that at that time Mr Tchigirinski's wealth was tied up in illiquid assets and so he asked Mr Haener to find the money for him to make the purchase. Mr Haener decided that $13 million of the Kruglov money could appropriately be loaned to Mr Tchigirinski, against the security of his shares in Tatik and thus, in effect, the Villa. Mr Melling was instructed by Mr Haener to draw up the documentation. On 24 August 2001, Mr Melling wrote to Mr Edmund Frick confirming that Baker & McKenzie were drafting both the loan and pledge agreements under his supervision, and also confirming his personal acquaintance with Mr Tchigirinski. Mr Melling also sent Mr Frick a copy of a side letter dated 21 August 2001 from Tatik to Willow Tree offering various covenants in consideration for Willow Tree granting the loan to Mr Tchigirinski, including that it would use the proceeds of the loan to be transferred to it in order to purchase the Villa and that it would not dispose of or grant any security over the Villa. Mr Haener provided Mr Frick with an analysis of Mr Tchigirinski's assets and wealth. Also on 24 August, Mr Haener visited ATU in Liechtenstein with the two agreements already signed by Mr Tchigirinski. The loan agreement ("the First Tchigirinski Loan") was for $13 million with interest at 10%, and subject to English law and jurisdiction clauses. The stock pledge agreement of the shares in Tatik ("the First Tatik Stock Pledge") was governed by New York law (apparently on the advice of Baker & McKenzie, since Tatik was an American corporation). Mr Edmund Frick signed the loan agreement on behalf of Willow Tree. An addendum to the loan agreement was signed on 27 August 2001, and on the same date Mr Frick received the original certificate of the Tatik shares. Interest under the loan was payable quarterly, starting on 30 November 2001, with the repayment of the principal to be made by 22 August 2003. $13 million was duly transferred on 28 August from the Foundations to Willow Tree, and then further transferred on the same day by Willow Tree to an account called "Tatik" at Coutts Bank (Schweiz) AG ("Coutts") in Zurich. Despite its name, this was in fact a personal account of Mr Tchigirinski. From there, the money was transferred to the French notary acting on the purchase of the Villa. On 6 November 2001, Mr Kruglov, his daughter and son-in-law, accompanied by Mr Haener and an interpreter, had a meeting in Liechtenstein with Mr Edmund Frick at which they confirmed that Mr Haener was seeking high yield investments for the Foundations' funds and that Mr Frick could follow Mr Haener's instructions "without concern." In 2002, Mr Tchigirinski apparently needed additional funds and Mr Haener accordingly arranged a series of increases to the monies loaned from Willow Tree and funded by the Foundations. There were three such further advances: $4 million on 28 June 2002; $4 million shortly after 15 August 2002; and $2.5 million in late November 2002. In each case the advance was preceded by the entry into of a Supplemental Loan Agreement, drafted by Mr Melling and signed by Mr Tchigirinski and Mr Frick, restating the principal as comprising the added amount. Accordingly, there were three such supplemental agreements, dated 27 June, 15 August and 15 November 2002. The pattern of transfer of funds to Mr Tchigirinski's "Tatik" account at Coutts followed that of the original loan. For the First Supplemental Loan Agreement of $4 million, no additional security was provided. However, for the Second Supplemental Loan Agreement for a further $4 million, Mr Haener arranged further security by way of a pledge of the shares held by Mr Tchigirinski (through a nominee company) in ST Oil Ltd ("ST Oil"), a Cyprus company. Mr Tchigirinski held 52% of the share capital of ST Oil in that way. ST Oil itself was the minority shareholder in a joint venture with BP, STBP Holdings Ltd ("STBP") which operated the BP service stations in the Moscow area. No further security was provided for the Third Supplemental Loan Agreement, apparently on the basis that the First Tatik Stock Pledge and ST Oil share pledge provided sufficient cover. Although ATU had received and held the share certificate in Tatik under the First Tatik Stock Pledge, it did not receive the share certificates in ST Oil. Mr Frick said that it was not ATU's general practice prior to 2007 to hold share certificates in such circumstances and that they assumed that Mr Haener had arranged for the certificates to be held securely. Similarly, ATU never received the certificates for the subsequent pledges of ST Oil shares that I describe below. Mr Haener's evidence was that these additional loans were partly to pay for the renovation and upkeep of the Villa (which he said cost some €100,000 - €150,000 per month) but also for Mr Tchigirinski's substantial personal expenses and to fund further investments he was making. Interest payments were made under the loan agreements by Mr Tchigirinski to Willow Tree, the money coming from various personal or company accounts that he controlled. Mr Haener said that he organised these payments on behalf of Mr Tchigirinski and that the money came from "whichever of Mr Tchigirinski's accounts (or company accounts) had funds available at the time." Given that there is no suggestion that Mr Haener did not have authority to organise these payments, it is evident that Mr Tchigirinski did not seek to make a clear distinction between the corporate and personal funds that he controlled. Around July 2003, in order to consolidate the various agreements and also extend the time for repayment, Mr Melling, on Mr Haener's instructions, prepared an Amendment Agreement which re-stated the previous agreements into a loan of $23.5 million and provided for repayment on 23 August 2004. The Amendment Agreement, dated 4 August 2003, was duly signed by Mr Tchigirinski and Mr Roger Frick (for Willow Tree). In the report that Mr Haener prepared for Mr Kruglov to show the investment of the Kruglov money, this was shown under the heading "Loan France", which he explained on the basis of its relation to the purchase and upkeep of the Villa. In 2004, Mr Tchigirinski required a further loan of $12.5 million, which would bring his total indebtedness to Willow Tree up to $36 million. Mr Haener therefore arranged for Mr Melling to prepare a Second Amendment Agreement. This agreement, dated 17 February 2004, was signed by Mr Tchigirinski and Mr Frick, and Mr Tchigirinski also signed a Supplementary Agreement to the ST Oil share pledge agreement, to extend the definition of "pledged shares" to cover also any further shares in ST Oil that Mr Tchigirinski would acquire. The First Tatik Stock Pledge also remained in place. The additional $12.5 million was largely funded by the Foundations save for some $290,000 that was paid by Willow Tree from the interest payments received by it under the previous loans that had been retained. Payments of interest under the loan were made regularly between 2001 and 2004, variously by companies belonging to Mr Tchigirinski or from his personal account. Those payments were organised by Mr Haener. According to Mr Haener, in September 2004 Mr Tchigirinski entered into an arrangement with another wealthy Russian businessman, Mr Victor Rashnikov, whereby a Cyprus company largely owned by the latter would acquire a 50% share in Leondaris Holding Ltd ("Leondaris"), another Cyprus company involved in property development in Moscow, from Mr Tchigirinski for $150 million, payable in two instalments of $100 million and $50 million. Only a very rudimentary account was given to the court of the arrangement made between Mr Tchigirinski and Mr Rashnikov (through their companies), which Mr Haener said were set out in full written agreements drafted by lawyers (Mr Melling was involved on behalf of Mr Tchigirinski), of which he did not have copies and of which he could not remember the details. As Mr Birt, who cross-examined Mr Haener about these arrangements, accepted, Mr Haener cannot be criticised for that. But the relevant aspect for present purposes is that Mr Tchigirinski was said to have undertaken to Mr Rashnikov that he would invest $150 million in Leondaris or in development projects owned by Leondaris. And further, since Mr Tchigirinski did not have sufficient liquid funds to do so, he would in the meantime transfer his shares in Tatik to Leondaris. However, as those shares had been pledged to Willow Tree under the First Tatik Stock Pledge, it was necessary for Mr Tchigirinski to obtain release of the shares and therefore to repay his loan. On 16 September, Mr Melling wrote to Mr Roger Frick, [3] stating: "I am currently advising Mr. Tchigirinsky in connection with a transaction that will generate within the next few days approximately $100 million in revenue. It is Mr. Tchigirinsky's expressed intention - as a first priority - to use such funds for the purpose of repayment of all amounts outstanding under the above mentioned loan facility. Urs Haener, whom you know very well, will have full signature authority over these funds once received and will ensure that they are indeed used in this manner. In order to complete this transaction, however, it is necessary to ask you for your agreement to a termination of the pledge over the shares in Tatik Inc. The other security, namely the pledge over the ST Oil Limited shares, will remain in place and continue in full force and effect until such time as you have been repaid in full under the above mentioned facility." Mr Haener had already spoken to Mr Frick to the same effect, and on 18 September Mr Frick released the Tatik share certificate to a Mr Christian Stock, who was apparently an employee of Sibir. The certificate was held thereafter by Mr Melling in his office in Moscow, presumably pursuant to the Leondaris agreements. Mr Rashnikov's company duly paid the $100 million, which was credited to the account of another company owned by Mr Tchigirinski, Hitchens Global SA ("Hitchens"), from where a part was transferred to a company controlled by Mr Haener, out of which fund he made four transfers of $9 million to each of the four Foundations on 24 September 2004. Accordingly, the full amount of the First Tchigirinski Loan, as progressively increased, was repaid. However, for reasons which Mr Haener could not explain, and perhaps simply by oversight, the ST Oil share pledge was never released. Mr Haener said that the transfer of the Tatik shares to Leondaris was not seen as a long-term arrangement but was intended by both sides as an interim measure to provide security for Mr Tchigirinski's obligation to invest $150 million. He said that those involved with Leondaris did not want to hold on to those shares, since Mr Rashnikov's lawyers were concerned about possible tax implications. Mr Tchigirinski proceeded to invest over the following year in two substantial Moscow property development projects involving Leondaris, one concerning the Rossiya Hotel site and the other the Russia Towers. However, Mr Haener said that although Mr Tchigirinski had invested the promised $150 million by around the end of 2006 or early 2007, there were accounting issues to be resolved with Leondaris which led to a prolonged delay over the release and return of the Tatik shares. Mr Haener said that he was not very happy at the time about the release of the Tatik shares before the loan was repaid, and indeed without the First Tatik Stock Pledge being formally terminated, but that he was prepared to proceed on this basis "because I knew that the Willow Tree loan would be repaid as I would have control of the money which was to be paid by [Mr Rashnikov's company], and so I could ensure that the Willow Tree loan was repaid." I have set out the arrangements and steps taken as regards the First Tchigirinski Loan and First Tatik Stock Pledge in some detail although they form only the background to the transactions with which this case is directly concerned, since they illustrate the manner in which Mr Haener conducted affairs on behalf of both Mr Tchigirinski and the Kruglov family. This involved a combination of formal documentation, comprising all the detailed drafting one would expect from an international law firm, and somewhat loose arrangements based on expectation and personal trust. Further, although the funding came from the Foundations (or money held to their account), only Willow Tree was named in the documentation and it was clearly understood between Mr Frick and Mr Haener that Willow Tree was acting for the benefit of the Foundations, and would be liable to account to them for any monies received. As Mr Frick put it, Willow Tree was "a mere firewall" for the Foundations. And in his internal note prepared at the time the Foundations were dissolved, he set out the payments made by each of the Foundations towards the loans to Mr Tchigirinski and the distribution to the Foundations of the interest received for those loans. I should add that alongside the First Tchigirinski Loan, a separate advance had been arranged by Mr Haener of $5 million from the Kruglov money to Sibir in May 2003. The loan agreement between Willow Tree and Sibir is dated 30 May 2003 and was signed by Mr Cameron on behalf of Sibir. The loan was repayable by 4 June 2004 with interest again at 10%. The circumstances of this loan were not explored in evidence: in his letter to the Messrs Frick, Mr Haener said that it was by way of short-term financing until the company could set in place a larger bank financing scheme. It was repaid early (with accrued interest) by Sibir on 27 January 2004. In the reports prepared by Mr Haener for Mr Kruglov, in 2003, this was shown under the heading "Loan Oil." The Second Tchigirinski Loan Mr Haener said that Mr Tchigirinski would have preferred not to have paid off the First Loan at that time and that he did so only to obtain release of the Tatik shares for the purpose of the deal with Leondaris. As a matter of law, that ignores the fact that Mr Tchigirinski was then obliged to repay the principal under the terms of the loan, but I think the implication is that a further extension would otherwise have been put in place. In any event, Mr Tchigirinski soon needed further funds again. In late October 2004, Mr Tchigirinski concluded a new loan agreement for $42 million with Willow Tree, repayable by 1 May 2006 with interest again at 10%. The agreement ("the Second Tchigirinski Loan") was again drafted by Mr Melling. The security for the loan was three-fold: first, a mortgage over Mr Tchigirinski's shares comprising about 80% of Mantrac Invest, Inc ("Mantrac"), a BVI company engaged in oil trading; secondly, a pledge of the shares held by Hitchens in ST Oil; and thirdly a pledge of Mr Tchigirinski's own shareholding (held through a nominee company) in ST Oil. The loan agreement for the Second Tchigirinski Loan, the ST Oil share pledge agreements between Hitchens and Willow Tree (the "Hitchens SPA") and between Mr Tchigirinski and Willow Tree (the "Tchigirinski SPA"), and the mortgage agreement regarding the Mantrac shares (the "Mantrac mortgage") were all drafted under the supervision of Mr Melling (with assistance from Cyprus lawyers as appropriate), on instructions from Mr Haener. The Hitchens SPA and the Tchigirinski SPA are in similar form and are subject to Cyprus law. By clause 5.2 of each agreement, the pledgor was to deliver the share certificates for the ST Oil shares to Willow Tree (although in fact this was never done). By clause 5.3, the pledgor warranted that it would remain the beneficial owner of the shares until the security was discharged and that it would not sell the secured assets without the prior written consent of Willow Tree. The loan agreement and the Tchigirinski SPA were signed by Mr Frick and Mr Tchigirinski; the Hitchens SPA by Mr Frick and Dr Bruppacher, a Swiss lawyer who was a director of Hitchens, and co-signed by Mr Tchigirinski; and the Mantrac mortgage by Mr Tchigirinski and Mr Frick. The documents bear the typed date 28 October 2004, which is when Mr Haener says they were signed by Mr Tchigirinski and Dr Bruppacher, but they were signed by Mr Frick a few days later when the originals were received in Liechtenstein. By then, Mr Frick would have received fax letters of explanation from both Mr Melling and Mr Haener. It is appropriate to quote from Mr Melling's letter, dated 29 October 2004: " Re: Secured Loan - Willow Tree Investments Limited/Chalva Tchigirinsky … I have recently prepared documentation for a further loan from Willow Tree Investments Limited to Mr. Tchigirinsky in the principal amount of US $ 42 million. Again, Mr. Tchigirinsky's shares (including those shares owned by Hitchens Global S. A. a BVI company controlled by Mr. Tchigirinsky) in ST Oil Limited are being pledged as security for this transaction - the value of that shareholding has been conservatively estimated at US$ 78.25 million and I understand that Mr. Haener has previously sent to you details of that evaluation. Furthermore, in anticipation of a possible restructuring of Mr. Tchigirinsky's oil interests (including ST Oil Limited), we have drafted the Loan Agreement so as to ensure that - in the event that your security over the ST Oil Limited shares loses its value as a result of such restructuring - that security will be replaced by a security over shares in Sibir Energy plc to a value not less than US$ 105,000,000. In addition, Mr. Tchigirinsky's 80% shareholding in Mantrac Invest Inc. is also being mortgaged as an additional security for this borrowing. Mantrac, a company incorporated in the British Virgin Islands, is an oil trading company controlled by Mr. Tchigirinsky through which refined oil products are sold in Western markets. I am advised that Mantrac's profits in 2003 were approximately US $ 10 million and its current year profits are projected as being twice that amount. All the documentation for this transaction has been drafted by Baker & McKenzie and personally overseen by me. I believe that it satisfactorily documents the commercial terms of this transaction and provides the lender with the customary legal protection for a transaction of this nature. By now I am sure that you are well aware of Mr Tchigirinsky, his reputation and his extensive oil and real estate interests. You will also be aware of the long working relationship that I have had in Russia with Urs Haener. However, if you have any additional questions as to this transaction or any related issue, please do not hesitate to contact me either by e-mail ( paul.melling@bakernet.com ) or at the contact numbers listed above." Reflecting what Mr Melling said in his letter, clause 9.2 of the Second Tchigirinski Loan provides: "9.2 The Lender hereby acknowledges the intention of the Borrower to transfer to Sibir Energy plc ownership rights to either the ST Oil Shares or to the STBP Shares in exchange for the issuance to the Borrower (or to ST Oil, as the case may be) of shares in Sibir Energy plc and hereby consents to such transfer of ST Oil Shares for this purpose. The Lender hereby undertakes that it shall execute such documentation as may be required of it as pledgee so as to enable a transfer of ST Oil Shares to take place (subject to the ST Share Pledges). Lender further undertakes that, provided the Sibir Energy plc shares issued in exchange for the ST Oil Shares or the STBP Shares (as the case may be) have a market value in excess of US $105,000,000 it will consent to a replacement of the ST Share Pledges with a mortgage or pledge in its favour over such Sibir Energy plc shares and execute such documentation as is necessary to give legal effect to such replacement. In the event that the Sibir Energy plc shares issued in exchange for the ST Oil Shares or the STBP Shares (as the case may be) have a market value less than US $105,000,000, the Borrower may mortgage or pledge additional Sibir Energy plc shares in favour of the Lender so as to bring the total value of such shares pledged to not less than US $ 105,000,000 and, in such a case, the Lender also undertakes to consent to a replacement of the ST Share Pledges with a mortgage or pledge in its favour over all such Sibir Energy plc shares. In the event of any other circumstances in which ST Oil ceases to be the owner of the STBP Shares the Borrower shall procure that, by way of replacement for the ST Share Pledges, Sibir Energy plc shares having a market value of not less than US $105,000,000 are mortgaged or pledged in favour of the Lender." Following the execution of these documents, a total of $6 million was transferred from the Foundations' account at VP Bank to Willow Tree's account at the same bank and then on by Willow Tree to Hitchens. Further sums of $9 million were transferred by each of the Foundations from their accounts at Wegelin Bank direct to Hitchens. Accordingly, by 4 November 2004, Hitchens had received $42 million of the Kruglov money. Mr Haener said that the monies under the loan were paid to Hitchens' account on Mr Tchigirinski's instructions as that is where he wanted the money. In early 2005, Mr Tchigirinski wanted further funding and Mr Haener arranged for a further $4 million of Kruglov money to be lent to him. A Supplemental Agreement for that amount was drafted by Mr Melling and signed by Mr Tchigirinski on 16 February 2005, and then forwarded to Mr Frick who signed on behalf of Willow Tree. As before, Mr Melling had written to Mr Frick at the time concerning the additional documentation. The Supplemental Agreement effectively revised the amount lent as $46 million. The terms as to repayment and security were otherwise unchanged. Transfers amounting in total to $4 million were made from the Foundations' accounts to Willow Tree at the beginning of March 2005, and then this sum was transferred by Mr Frick from Willow Tree's account to the account of Tatik on 7 March. (This was the account of the 1 st Defendant, not Mr Tchigirinski's personal "Tatik" account.) Mr Haener said that it was at Mr Tchigirinski's request that the advance was on this occasion paid to this company. In his report to Mr Kruglov stating the position as at 31 December 2004, Mr Haener showed the Second Loan (then in the sum of $42 million) under the heading "Loan France". But in the report stating the position as at 31 March 2005, as well as revising the figure up to $46 million the heading was changed to "Loan BP/Mantrac", which was a reference to the security for the loan. Mr Haener said that he did not tell Mr Kruglov that the loan had been made to Mr Tchigirinski and that Mr Kruglov did not ask about it; as I said above, Mr Kruglov was not aware of the identity of the borrower at the time. In the circumstances in which these transactions were conducted, where Mr Kruglov clearly did not want his identity to be disclosed as the source of the funds, I do not find that surprising. By late 2005, Mr Tchigirinski sought to borrow a further $3.75 million. Again, Mr Haener procured that the Kruglov money be used to lend him this additional amount, and a Second Supplemental Agreement dated 5 December 2005 was executed, extending the existing loan accordingly, by Mr Tchigirinski and Mr Frick on behalf of Willow Tree. The arrangements followed what was by now a well-established pattern: the agreement was drafted under the supervision of Mr Melling; and both Mr Melling and Mr Haener wrote letters to Mr Frick to explain the arrangement. The sum was transferred from the Foundations' accounts on 7 December 2005, but this time the money went to Gradison (following Mr Tchigirinski's instructions to Mr Haener). However, around 22 September 2005, the restructuring of Mr Tchigirinski's interests in ST Oil that had been anticipated in Mr Melling's letter of 29 October 2004 and clause 9.2 of the Second Tchigirinski Loan agreement, took place. Sibir acquired from Mr Tchigirinski his shares in Hitchens (and thus his interest in ST Oil) in exchange for a little over 12 million shares in Sibir. But the Hitchens mortgage was not then replaced with security over Mr Tchigirinski's shares in Sibir. Mr Haener said in his witness statement that this was a mistake on his part, caused by the fact that he was busy working on another major oil deal that Mr Tchigirinski was undertaking at the time; however, he also said that subsequently he was unable to use the Sibir shares as security since Mr Tchigirinski intended to pledge them to Merrill Lynch as security for another loan. Further, Sibir's announcement of 22 September 2005 stated that it was finalising the acquisition of Mr Tchigirinski's personal interest in STBP (presumably through his shares in ST Oil), although it appears that this was not in fact completed until December 2006. I note that when writing to Mr Frick on 5 December 2005, Mr Haener still referred to the loan as being secured by the ST Oil shares. Moreover, Mr Melling in his letter to Mr Frick of the same date also referred to the loan still being secured by the pledge of Mr Tchigirinski's shares in ST Oil, including those owned by Hitchens as a "company controlled by Mr Tchigirinsk[i]". It is unclear whether Mr Melling was unaware that the Hitchens sale had taken place (which would be very surprising); or whether he simply overlooked it in producing what appears to be a "cut and paste" paragraph from his letter accompanying the previous amendment - his letter of 5 December also repeated the passage about the anticipation of a possible restructuring of Mr Tchigirinski's interests in ST Oil, which had by then taken place two months before; or whether he consciously considered that the pledges were unaffected by that restructuring. In his report to Mr Kruglov showing a summary of the funds held as at 31 December 2005, Mr Haener showed the increased figure of $49.75 million under the heading "Loan BP/Mantrac", and this continued to be the position for some time thereafter. The introduction of Derbent In late 2005, Mr Kruglov decided with Mr Haener to close the Foundations and establish a new vehicle for investment of the Kruglov money because Liechtenstein foundations were becoming subject to greater disclosure requirements and Mr Kruglov was concerned about confidentiality. The new investment vehicle was Derbent, which was incorporated in Cyprus on 9 November 2005. Mr Haener said that Mr Kruglov selected the name Derbent, or chose Derbent out of a list of possible companies, because he was attached to that name, and Mr Kruglov said in his evidence that it is the name of the city in Dagestan where he was stationed during his military service. In preparation for the transfer of the funds held by the Foundations, Mr Kruglov signed letters in Russian and English dated 16 November 2005, prepared by Mr Haener, addressed to Mr Frick stating that he noted that the Foundations' assets were a loan of $46 million with the rest deposited at VP Bank and Wegelin Bank. He instructed Mr Frick to transfer almost $700,000 to Mr Haener's personal account in respect of his fees and expenses for 2004 and 2005, and the balance to Amurela's account at Wegelin Bank, and then close the Foundations' accounts at VP Bank. By further letters, again in both Russian and English, dated 8 December 2005, Mr Kruglov and the respective beneficiary of each Foundation instructed Mr Frick to close the Foundation and transfer the balance of its account at Wegelin Bank to the account of Derbent at the same bank, of which Mr Haener would provide the details. Mr Frick said that when he received those letters, he enquired of Mr Haener about the ownership of Derbent and was told that it belonged to Mr Kruglov. On 7 March 2006, further letters were signed, one in respect of each Foundation by the beneficiary, addressed to the Foundation's board. These were prepared by Mr Frick and he said that he required these confirmations of what should happen to the Foundations' assets, including the outstanding loans, before they were closed. Save for the name of the foundation, the text is in identical form, and states: "We wish to distribute all assets (bank accounts, loan positions) to ourselves our [4] a corporation/trust to be named by Mr. Urs J. Haener. We take note that there is a loan position in the amount of USD 49.75 Mio. without interest accrued, granted by the foundation and three other parties. The quota of each foundation will be calculated by Mr. Haener and does not affect the foundation's distribution. After transfer of all assets and closing the bank account, Mr. Haener will advise you that the foundation has no more assets and obligations, and therefore the purpose of the foundation is fulfilled." On 20 March 2006, Mr Haener then wrote to Mr Frick confirming the clients' instructions to close the four Foundations and transfer the balance of their accounts at Wegelin Bank to the account of Derbent, that had recently been opened at the same bank. That instruction was duly carried out, and the Foundations were formally wound up on 13 April 2006. On 30 April 2006, Derbent, by its Cypriot directors, granted to Mr Haener a non-delegable power of attorney for one year. That power of attorney was subsequently renewed. Mr Frick said that his understanding at the time was that once the Foundations were closed, Willow Tree would drop out of the picture so far as the loans were concerned. He explained that his understanding was that Derbent would be used as the vehicle for the Kruglov money in place of Willow Tree, and that the outstanding loans, including accruing interest, would be "taken over" either directly by the Kruglov family or by Derbent as their "interposed" company. Further, with the dissolution of the Foundations, the beneficiaries of the Foundations effectively stepped into their place. He therefore took no further interest in the servicing of the Second Tchigirinski Loan (i.e. whether interest was duly paid) or the loan's repayment. However, Mr Haener told him that he wished to continue to keep Willow Tree active. Mr Haener for his part said that no steps were taken by him to wind up Willow Tree because it was the entity that was legally entitled to the repayment from Mr Tchigirinski of the outstanding loan. He said that although the monies had come from the Foundations, now that they were being closed Willow Tree would be under an obligation to account for the proceeds of repayment to Mr Kruglov and his family, as the beneficiaries of the former Foundations. Since Willow Tree was not dissolved, a form confirming beneficial ownership had in due course to be filed with VP Bank. On 23 December 2007, Mr Haener signed the form sent to him by ATU stating that he was the beneficial owner, and ATU made a declaration to VP Bank accordingly. Mr Frick remained a director of Willow Tree until 22 April 2009 when, on Mr Haener's instructions, he was replaced by Dr Bruppacher and on that date the shares in Willow Tree were transferred to a company belonging to Dr Bruppacher's Swiss law firm. The "April 2006 agreement" The Second Tchigirinski Loan, in the total amount of $49.75 million, was due for repayment on 1 May 2006. However, it was clear to Mr Haener that Mr Tchigirinski did not want to repay the loan as he wanted to use his money for other ventures. Mr Haener said that he was worried about the situation since he felt that the loan had become effectively unsecured. The Mantrac shares were not worth very much by this time. And as regards ST Oil, Mr Haener said that he regarded the pledges of the ST Oil shares as no longer effective once Mr Tchigirinski had transferred his interests in ST Oil to Sibir. However, under cross-examination Mr Haener readily agreed that the share pledges had never been surrendered, something that only Mr Frick could have done on behalf of Willow Tree as pledgee. He was uncertain whether the pledges therefore might have remained effective on the basis that Sibir had acquired the shares with knowledge of the pledges. I found Mr Haener's evidence on this rather unclear, but I consider that by the spring of 2006 he felt sufficiently uncertain about the position to be concerned about the degree of protection that existed for Mr Kruglov and his family's interest. Since the two pledges are complex legal documents, governed by Cyprus law, I do not find that surprising. Mr Haener did not, however, ask Mr Melling for advice. At the same time, Mr Haener said, and I accept, that he knew that Mr Tchigirinski's wealth far exceeded the amount of his indebtedness under the Second Tchigirinski Loan, the loan was earning a good rate of interest, and he was confident that the loan would ultimately be repaid. Mr Haener said in his witness statement that he discussed the position with Mr Tchigirinski in April 2006, and that they agreed on the following: first, that the loan would be restructured so that Tatik, when it was in a position to do so, would become the borrower in place of Mr Tchigirinski as from 2 May 2006; secondly, that Derbent would become the borrower in the place of Willow Tree; thirdly, that the loan would be converted from dollars to euros; and fourthly, that the debt would be repayable on, or by, 30 April 2009. In his oral evidence, Mr Haener corrected the date and explained that he had checked his diary and the trip to Paris on which he accompanied Mr Tchigirinski and during which these matters were agreed took place over 29-30 March. Mr Haener produced copies of his relevant diary entries. The Defendants vigorously challenged almost every aspect of Mr Haener's evidence in this regard, and submitted that there was never any such agreement. I consider that Mr Haener would have discussed the Second Tchigirinski Loan with Mr Tchigirinski during their Paris trip, and further that they agreed, using the word in a general sense and not to mean the entry into a binding contract, that the loan would be extended, that Derbent would become the borrower in place of Willow Tree, and that when the Tatik shares were returned to Mr Tchigirinski he would provide either those shares or a mortgage over the Villa as security. I find on the balance of probabilities that they agreed that this would all be set out in a formal agreement with effect from 2 May 2006, once the Tatik shares were returned. I reach that conclusion for a number of reasons: i) The expiry date was fast approaching of what, even by Mr Tchigirinski's standards, was a very substantial loan, and it was clear that Mr Tchigirinski did not wish to repay at this stage. Mr Tchigirinski for his part would therefore have been keen to extend the borrowing. ii) Mr Haener would have had it in mind that Derbent had been set up to serve as the vehicle for the investment of the Kruglov money as regards third parties, so it was logical for him to seek to substitute Derbent for Willow Tree as the entity that would receive back the money. Mr Haener's evidence was that when he raised this with Mr Tchigirinski, the latter responded: "Willow, Billow, Derbent – I don't care". Having regard to the way Mr Haener gave his evidence, I found this answer convincing. I note that the 2 nd and 3 rd Defendants in the end accepted in their closing submissions that Mr Haener informed Mr Tchigirinski at this time that the loan would continue as a loan from a different company, to which the repayments should therefore be made. (The 1 st Defendant also accepted that this was a possibility.) iii) It would have been reasonable and indeed obvious for Mr Haener to have asked Mr Tchigirinski to provide the Tatik shares as security once they were returned, and I consider that Mr Tchigirinski would have agreed to such a request. I have mentioned that I find that Mr Haener was concerned about the effect of the acquisition by Sibir of Mr Tchigirinski's interest in ST Oil on the prior security for the loan. The Tatik shares had been the security under the First Tatik Stock Pledge for the First Tchigirinski Loan and the Second Loan was in a broad sense the continuation of the First Loan: it had replaced it only because of Mr Tchigirinski's need at the time to obtain his Tatik shares in connection with the Leondaris transaction. If not for that, they would have remained as security for the borrowing of the Kruglov money. And as explained above, I find that Mr Haener and Mr Tchigirinski both expected that in the light of the capital the latter was injecting into the Leondaris property developments, the Tatik shares would be returned around the end of 2006. This was a point that Mr Haener repeatedly emphasised in his evidence, and he said that Mr Tchigirinski kept pressing him to get the shares back. iv) The Villa was otherwise a discrete and unencumbered asset of Mr Tchigirinski with which he was unlikely to part: Mr Haener stressed that Mr Tchigirinski was very attached to the Villa. v) I do not regard the lack of any note of this discussion or "agreement" surprising. Mr Haener has no notes of his meetings with Mr Tchigirinski, which were very frequent and informal, and the former was the latter's trusted financial assistant or adviser. They were not, as I have explained, making a binding agreement with any immediate effect. vi) Nor is the lack of communication to Mr Kruglov surprising. Mr Kruglov was virtually never informed of the details of the lending transactions or security arrangements that Mr Haener procured by way of investment of the Kruglov money. Those investments had to date produced very good results, and Mr Haener knew that he enjoyed Mr Kruglov's complete trust. vii) I bear in mind that Mr Haener did not at the time inform Mr Frick about this understanding, nor did he ask Mr Melling to prepare an assignment of the debt from Willow Tree to Derbent. Although the failure to inform Mr Frick is undoubtedly a factor weighing against Mr Haener's account, I accept that he had much to attend to at the time regarding Mr Tchigirinski's many dealings and that in coming to this agreement with Mr Tchigirinski, Mr Haener gave no thought to the formal legal position of Willow Tree. I find that his intention was that everything would be properly documented once the Tatik shares came back. viii) Similarly, it was pointed out that Mr Haener's power of attorney for Derbent was made only several weeks later, on 30 April 2006. However, I consider that this was an agreement reached between the two men as to what was going to happen, with effect from 2 May 2006. They were not considering the formal legal position, but what they would arrange should happen. Mr Haener indeed did obtain a power of attorney by the end of April, and had already been able to arrange the opening of a bank account for Derbent. ix) Significantly, although the fairly regular payments of interest under the loan between 2 February 2005 and 1 February 2006 were made direct to the Foundations, the next interest payment on 27 April 2006 and all payments thereafter were made to Derbent. Further, $2 million was paid on 26 May 2006 by Gradison by way of part repayment of the principal, and further partial repayments were made later in 2006: all those payments were made to Derbent. x) Although Mr Kruglov was not able to produce any quarterly reports from Mr Haener of the investment of the Kruglov money from 2006 (despite re-checking for any relevant documents that he had in his safe in Moscow), the annual report and spreadsheet that he did receive from Mr Haener for 2006 was under the heading of Derbent and showed interest under the loan and repayments of principal (see further para 102 below) as credits to Derbent. However, I do not accept that Mr Haener and Mr Tchigirinski reached any agreement or understanding in March or April 2006 that the borrowing would be transferred to Tatik in place of Mr Tchigirinski personally. There was no logical reason why Mr Haener should do so. When he was pressed about this in cross-examination, he had no good explanation and could only say that as Tatik had a highly valuable asset in the Villa he thought it should be the borrower. I do not regard that as a credible explanation from an experienced banker. On the contrary, since Tatik had no other assets, Mr Haener would have realised that Tatik would not be in a position to make the regular interest payments required under the loan agreement. Although Mr Tchigirinski of course might have chosen to pay the interest from one of his other companies, Mr Haener would have been well aware that this was not a rational basis for a restructuring of the loan. As will appear, I consider that the issue of substituting Tatik as borrower arose later. Further, I do not think that that there was any agreement at this stage about changing the currency of the borrowing from US dollars to euros. It is true that there was some evidence that Mr Kruglov and Mr Haener agreed that it would be more advantageous if the lending was in euros (there was a difference between them as to who initiated that question, but that does not matter), and Mr Kruglov understandably could not recall when that was. In this regard, I find that the quarterly reports submitted to Mr Kruglov are relevant. As I mentioned, no quarterly reports have been found or produced for 2006. The reports for the first and second quarters in 2007 both show the loan enumerated in dollars. Only in the report for the third quarter 2007 is there inserted for the first time a statement that "[t]he amount of loan BP/Mantrac is fixed in Euros at EUR 28,125,000", and even then this statement is expressly applied only from the second quarter and not for the first quarter. Mr Haener attributed this to a mistake by his secretary who drew up the reports. I do not accept that explanation. His secretary's knowledge of any change to euros and when it took effect would have come only from Mr Haener. I can accept that the change might have been overlooked in the second quarterly report, but once the change to euros was expressly referred to in the third quarterly report, I regard it as highly improbable that it would have been so stated by a secretary from the wrong date. Therefore I find that any agreement to change the currency to euros was made some time after 31 March 2007. This conclusion is supported by the fact that the conversion of the loan to €28.125 million is applied to the total loan showing in 2007 as $37.4 million. That figure was reduced from the loan as at 2 May 2006 ($49.75 million) to reflect three partial repayments made in 2006. Mr Haener's 2006 spreadsheet submitted to Mr Kruglov showed those repayments made on 1 September 2006, 23 November 2006 and 22 December 2006. [5] (The first repayment of $2 million on 26 May 2006 to which I have referred above was omitted by oversight, as Mr Haener acknowledged.) I regard it as wholly inconsistent with an agreement reached at the end of March 2006 that the currency of the loan would be changed to euros with effect from 2 May 2006, that the subsequent repayments made in 2006 are shown only in dollar amounts reducing a principal sum in dollars, with the balance converted to euros only in 2007. Mr Haener's only explanation for this was that he had "a thousand things to do" and was incredibly busy. However, it would be fundamental for any experienced banker that once the currency of a loan is changed, the conversion should be applied at that date because of the movement in exchange rates, which could have a significant effect on sums of this size. Accordingly, I conclude that although Mr Haener and Mr Tchigirinski reached an "agreement" during their trip to Paris at the end of March 2006 that the loan would be extended, that Derbent would become the borrower with effect from the start of that extension (i.e. 2 May 2006), and that once the Tatik shares were returned they would be provided as security, no novation of the loan contract took place at that time. I should add for completeness that the various repayments made on behalf of Mr Tchigirinski in 2006 were explained by Mr Haener on the basis that he was pressing Mr Tchigirinski to reduce the amount of the loan, and Mr Kruglov needed the money to make certain property investments. Further, during 2007 Mr Haener arranged for Mr Tchigirinski (through Gradison) to make interest payments to Derbent in the total amount of $2.645 million. The misuse of Derbent By this stage, Mr Haener had become an executive director of Sibir. Mr Tchigirinski, through Gradison and perhaps also through other of his companies, was a substantial shareholder in Sibir and himself a director. In March 2005, Mr Haener was appointed Deputy Chief Executive Officer of Sibir although he said he never worked out of Sibir's offices but continued to be based in the office of Mr Tchigirinski. Mr Haener received significant remuneration from Sibir in 2005 and 2006 by way of salary and bonus. He resigned as a director on 18 September 2007 in order, he said, "to pursue other interests." On 14 June 2006, there was transferred from Sibir to Derbent the sum of $50 million, which was immediately transferred on by Derbent to a company called Menorc Holdings Ltd ("Menorc"). A repayment following the same route in reverse in the amount of $50,768,055.56 was made on 4 September 2006. This money had nothing whatever to do with Mr Kruglov. In effect, Mr Haener permitted Derbent to be used as a conduit for an advance of this very substantial sum from Sibir to Menorc, which he said was another of Mr Tchigirinski's companies. Mr Haener fully admitted this in his evidence and said that he acted under strong pressure from Mr Tchigirinski and Mr Cameron. Similar transfers from Sibir, funnelled through Derbent but to different third party companies, were made in 2007. A total of $20 million was funnelled through to Gradison in May 2007, followed by a further $30 million on 4 June. In late November-December 2007, a further $3.5 million was transferred by Derbent from a wholly owned subsidiary of Sibir, Caraline Trading Ltd ("Caraline"), and the money went out to Gradison. $50 million came back from Gradison and was transferred on to Sibir on 21 December 2007. The transactions can be traced through the credit and debit advice notes for Derbent's account at Wegelin Bank. Those notes sometimes describe the transaction by reference to a loan agreement, but Mr Haener accepted that these references were not necessarily correct. At the end of December 2007, Mr Haener permitted the Derbent account to be used as the conduit for the transfer of $131 million to another Tchigirinski company. On his evidence, this was in connection with a third party loan to Mr Tchigirinski that did not involve Sibir. It is not necessary to set out all the transactions that took place of this nature, since the pattern was very similar. For each one that Mr Haener was asked about, his explanation was the same: he was placed under pressure by Mr Tchigirinski and/or Mr Cameron and did not feel able to stand up to them, although with hindsight he accepted that he should have refused. However, it is clear that Mr Haener then realised the potential to use Derbent as a 'front' to conceal transactions for other third parties. The Wegelin Bank advice notes show that during January-February 2008 he used the Derbent account to receive a series of payments, which were deliberately misrepresented to Wegelin Bank (as recorded in the bank's advice notes) as relating to the supply of the computer spare parts or oil refining equipment. The monies were then forwarded, sometimes in consolidated amounts and after a short delay, to other companies. Mr Haener was clearly uncomfortable in being questioned about these transactions, and understandably so. He said that they were carried out on the instructions of third parties but was unwilling to provide further details. What is clear is that they have nothing to do with the Kruglov family and were a wholly unauthorised use of Derbent which, as Mr Haener always acknowledged, was beneficially owned by Mr Kruglov (or the Kruglov family). There is no suggestion that Mr Kruglov had the slightest knowledge that this was taking place. This was manifestly improper and discreditable conduct by Mr Haener. However, I accept that it did not involve use of the Kruglov money or cause Mr Kruglov to suffer any loss. Whether or not the transactions to which I have referred caused any loss to Sibir is not an issue in these proceedings and I note that the transactions concerning Sibir and Caraline were set out and taken into account in a deed of settlement entered into between Derbent (acting through Mr Haener) and those companies on 25 June 2009. Mr Haener said that he received no remuneration for arranging or assisting these transactions (other than the remuneration he received as a director of Sibir). I make no findings in that regard. The Sibir unauthorised payments and fraud During the autumn of 2008, Mr Tchigirinski came under increasing financial pressure because of the significant decline in the value of his shareholding in Sibir that he had used to provide security for major borrowings. That was compounded by the impact of exchange rate changes, since the loans were in dollars whereas the shares in Sibir, as a company trading on AIM, were valued in sterling. In particular, Mr Tchigirinski faced the threat of very substantial margin calls from Merrill Lynch. Whether simply to assist Mr Tchigirinski or, as he has claimed, to avoid the effect on Sibir's share price if Mr Tchigirinski had sought to sell his very substantial shareholding, Mr Cameron made arrangements with Mr Tchigirinski that Sibir would acquire some of his major Russian property assets and procured that major advances were paid to Gradison on account of such acquisitions. On that basis, Gradison received a total of $154.6 million from Sibir and one of its indirect subsidiaries between 16 September and 21 October 2008. The great majority of this money was used towards the payment of calls on the Merrill Lynch loan facility. Since these transactions involving Mr Tchigirinski, a director of Sibir, had not been approved by the shareholders, the payments were clearly unauthorised. On 29 June 2009, Beatson J gave summary judgment in the Commercial Court against Gradison on the basis that, through Mr Tchigirinski, it knew that these payments were made without authority and in breach of fiduciary duty. However, the payments by Sibir for Mr Tchigirinski's benefit were not confined to these unauthorised payments on account of property acquisitions. A further scheme was devised whereby Gradison obtained additional substantial sums from Sibir through the conduit of Derbent. To disguise those transactions, fictitious invoices were issued by Derbent to Caraline purportedly for the supply of fuel and gas oil for barges. In this manner, $174 million was paid out by Sibir and/or Caraline, between 17 October and 4 December 2008. There were five such invoices dated 17, 21 and (in two cases) 28 October and 4 December 2008; and on receipt of the monies Derbent made six payments out to Gradison. Mr Tchigirinski and Mr Cameron were directly involved in arranging these payments and the invoices were all signed by Mr Haener on behalf of Derbent. Mr Haener said that the invoices were prepared for him by Sibir and that he just signed them, but whatever the extent of Mr Haener's involvement in orchestrating the fraud (which may be at issue in other proceedings brought by Sibir), there is no doubt that this was thoroughly disreputable conduct on his part. He also appears to have been involved in assisting Mr Tchigirinski in procuring the misappropriations on account of property sales referred to above. None of this was new material to emerge in the present proceedings. Sibir, Caraline and another related company commenced proceedings in the Commercial Court on 25 March 2009 after the fraud came to light against Mr Tchigirinski, Mr Cameron, Gradison and Derbent. The summary judgment of Beatson J to which I have referred was given in those proceedings, on a separate part of the claim that did not involve Derbent. But Derbent, through Mr Haener, acknowledged liability in respect of the false invoice payments and consented to a judgment on 30 June 2009 declaring that Derbent held the monies received on trust for the claimants. Indeed, Mr Haener cooperated with the claimants in preparing a schedule listing the payments (and also assisted them over the misappropriations claim). None of the other defendants put in a defence, and on 27 August 2009 the claimants obtained summary judgment against them on this head of claim, for damages to be assessed: see the judgment of Tomlinson J [2009] EWHC 2225 (Comm). The relevance of the Sibir misappropriations and fraud to the present case, apart from the obvious issue of Mr Haener's credibility that I have discussed above, is as the background to the steps taken by Mr Haener as regards the loans of the Kruglov money from around December 2008. The August 2008 "Agreement" Although Mr Tchigirinski had transferred his share certificate in Tatik to Leondaris in September 2004, and therefore was no longer the owner of Tatik, Leondaris was never declared as the owner to the French tax authorities and Mr Tchigirinski agreed with Mr Rashnikov that he would continue to deal with Tatik's tax liabilities in France. Mr Haener explained this on the basis that the lodging of the shares was always envisaged as a temporary measure and Mr Rashnikov did not want Leondaris' name to appear in any French tax return or to be liable for French tax. Indeed, Mr Haener said that Mr Tchigirinski continued to treat the Villa as his own. I accept that this was indeed the position. From about 2005, the French tax affairs of Tatik were handled by the Nice office of PricewaterhouseCoopers ("PWC") and Mr Haener dealt with them on behalf of Mr Tchigirinski. By email on 22 July 2008, PWC sent Mr Haener for approval draft financial statements for what were described as "the French operations" of Tatik for the year ended 31 December 2007. Mr Haener said he did not approve the accounts and that he replied to PWC sending them a copy of a loan agreement between Tatik and Mr Tchigirinski that they had requested, but this correspondence was not in evidence. What is significant, however, is that Mr Haener was engaged in discussions with PWC regarding the French tax position. He said that there were a lot of discussions regarding French tax. Those discussions evidently led him to contact Mr Melling, to whom he sent an email on 6 August 2008. Given the potential significance of that email, I set it out in full: "Dear Paul, As discussed, after the last loan agreement has expired we should probably draft it in a way that this loan was between Tatik Inc. and Derbent Management (initially it was Willow Tree Investments Limited which is now replaced by Derbent Management Limited, a Cyprus company incorporated on 9 November 2005 under registration number HE 167723 with the registered address at Agiou Pavlou 15, LEDRA HOUSE, Agios Andreas, P. C. 1105, Nicosia, Cyprus). The reason for this is that all this money was used for the VILLA MARIA IRINA, 1 Avenue Imperatrice Eugenie, 06190 Roquebrune - Cap Martin, France which is owned 100% by Tatik Inc. (registered address at 203 N. E. Front Street, Suite 101, Milford, Delaware (USA) 19963). The reason why we have to make in the past probably also an assignment agreement or re-draft the old agreement that Tatik Inc. instead of Chalva Tchigirinski is the Borrower is for French tax reasons. For simplicity reason I think we should start a new agreement on 5 December 2006 but there should be a reference that this is the renewal of an existing agreement. This is for the reason if the French tax authorities would ask also for the agreements which did exist before. I think there should be a reference to the agreement which existed before; and the reason for this is that the French authorities might also want to see earlier loan agreements which we then also need to produce. However I do not believe that an agreement between Chalva and Willow Tree will be satisfactory; it should be rather between Tatik Inc. as owner of the villa (Chalva is beneficial owner of Tatik Inc.) and Derbent Management Limited. If they want the old ones we will have to do Tatik Inc. with Willow Tree Investment Limited or some other company. The amount is now fixed in euros; it is EUR 28,125,000. Interest rate is 10% p.a. payable quarterly. Security are the shares over Tatik Inc. (I am obviously aware that we cannot get this security at this stage but let's put it in.) Personal guarantor is Chalva Tchigirinski. The loan should be always for one year and if the parties do not call the loan three months before the loan matures, then it will automatically be renewed for another year. In addition there should be a supplementary undertaking letter which should go also to Derbent Management Limited, and it should be from Chalva Tchigirinski, possibly with his Israeli address which is Opera Tower, Allenbi Street 1, Apartment 809, Tel Aviv Yaffo, 63321, Israel. Fee arrangement letter should also read there that the fee is 4% p.a. as the old letter. Please let me know if you have any further questions. Thank you very much for your help. Best regards, Urs Haener" From its opening words, it seems the email was preceded by a telephone discussion, but Mr Haener could not recall what had been said. He was cross-examined thoroughly about this email. I think it is necessary to bear in mind that an email is often not composed with precision and, as I observed at the outset, Mr Haener's first language is not English. What I regard as significant about this email is the following: i) Mr Haener instructed Mr Melling that a new loan agreement should be prepared which would be as between Tatik and Derbent, the latter being in place of Willow Tree; ii) the replacement of Tatik for Mr Tchigirinski as the borrower was for French tax reasons; iii) the new agreement should include a reference to the previous agreements, but again for French tax reasons that should be in terms that Tatik was the borrower; iv) the amount was said now to be fixed in euros at €28.125 million; v) the shares in Tatik were to be security for the loan, with a personal guarantee from Mr Tchigirinski. On being asked about this after several hours of cross-examination, Mr Haener was at first somewhat confused in trying to explain the opening paragraph of this email. But I consider that in the end he clarified his reference to the "last loan agreement" that had "expired" as being to the last written loan agreement which had expired on 1 May 2006. Moreover, Mr Haener was emphatic that many of the points raised in this email came out of his discussions with PWC. In particular, he confirmed in answer to a question from the Court, that he believed the reason why he requested that Tatik be stated as the borrower in place of Mr Tchigirinski was that PWC had advised that this was beneficial for French tax purposes. He could not recall or explain why the date of 5 December 2006 was specified. By 11 August, the matter had evidently become urgent. Mr Haener was being pressed from France for a copy of the relevant loan agreement, and Mr Melling emailed his colleague in London stating that a draft loan agreement and draft personal guarantee were required by the end of that same day, and summarising the background. In that email he stated: "My last involvement with this loan facility was in December 2005, when the last loan increase was made. Haener has been unclear in his instructions as to what precisely happened to it, although it seems that a portion of the principal was repaid, both borrower and the lender assigned to third parties and variations were made in the security. In any event, what Haener has now asked me urgently to get prepared is a new restated loan agreement, on substantially the same terms as the prior agreement ("chalvaloan"), but for a smaller amount, different currency and - again - modified security." I note that his email concluded: "I am sorry for the chaotic nature of all this and for the quality of the instructions, but this is par for the course for this client." That evening, Mr Melling's associate at Baker & McKenzie sent him draft documents. In his covering email, he pointed out that the agreement had been drafted on the "presumption" [sic] that Willow Tree and Mr Tchigirinski had made effective assignments to Derbent and Tatik. The documents were of course forwarded to Mr Haener and he raised various queries of Mr Melling, including the question whether the loan agreement should refer to the previous loan agreement between Willow Tree and Mr Tchigirinski. To that, Mr Melling responded: "If you look at Recital C to the draft loan agreement sent to you yesterday, you will see a cross reference to prior loan agreements in respect of the Property. I thought it better not to be too specific here since, the last time I was involved with the prior loan, it was denominated in a different currency, was [for] a much larger loan amount ($49.75 million) had different security arrangement and had a different lender and borrower. How we got from the December 2005 position to where we are now is unclear, and presumably not well documented, and so a more detailed cross-reference in the recitals is not really possible." As best Mr Haener could recall, the documents were signed in Moscow on 14 August 2008. Mr Tchigirinski signed both the loan agreement for Tatik and his personal guarantee of that loan, and Mr Haener signed both documents on behalf of Derbent. The same day, Mr Haener sent copies of the two executed documents to PWC and the French tax lawyer who were dealing with the French tax position. His covering email to them stated: "Please find attached the loan agreement between Tatik Inc. and Derbent Management Limited. The original loan dates since the purchase and was originally in US Dollars and then swapped into Euros. Derbent Management Limited is a third party and has nothing to do with Tatik nor with its beneficial owner. Please let me know if this loan agreement is satisfactory for French tax purposes. If not, I have a good relationship with Derbent and amendments can be made. Please let me know if you need any further information." The loan agreement ("the August 2008 "Agreement"") states that it is made "as of 2 nd May 2006". Derbent is stated to be the "Lender" and Tatik the "Borrower". The recitals provide: "(A) The Lender is willing to make available to the Borrower a term loan in the principal amount of twenty eight million and one hundred and twenty five thousand Euros (€28,125,000) (the "Loan" ), for the purpose of financing outgoings incurred in relation to the residential property located at Avenue Winston Churchill, Roquebrune Cap Martin (Alpes Maritimes), France (the "Property" ). (B) As a condition to the drawdown of the Loan, the Borrower is obliged to enter into the Mortgage. (C) For avoidance of doubt, this Agreement replaces the previous loan agreements (and any amendments or supplements thereof) relating to the Property." The loan is stated to be in the amount of €28.125 million and for a term ending on 30 April 2009. The "Mortgage" is specified as a mortgage over the Tatik shares to be granted by Mr Tchigirinski in favour of Derbent within seven days of the effective date of the agreement. Mr Haener said that the wording of Recital (A) to the effect that this was a new loan of money to be advanced was a drafting error, and that it should have been expressed as the "prolongation of an existing loan". I do not have to reach a view on that point, although I note that there is some support for this when the document is considered against the email instruction from Mr Haener to Mr Melling, the internal email from Mr Melling quoted above, and Mr Haener's statement when forwarding the agreement to PWC (para 125 above). But the recital also says that the loan was "for the purpose of financing outgoings incurred in relation to" the Villa. In fact, only part of the money had been borrowed for that purpose and a significant portion was used by Mr Tchigirinski for his general expenses. However, I consider that it was so expressed in the recital deliberately, since attribution of the loan to expenditure on the Villa was significant for French tax purposes: indeed, that was the reason why this document was urgently required at this time. A few weeks later, a further exchange took place between Mr Haener and Mr Melling. On 23 August, Mr Haener emailed Mr Melling saying: "We need probably similar agreements since the outset which do reflect an agreement between Willow Tree and Tatik (when it all started). Will talk Monday. Where will you be?" To which Mr Melling replied giving details of where he could be reached, and adding significantly: "First reaction: I do not see how we can now go back six years and try to replace agreements that were signed, and under which draw downs and repayments were made, with new agreements purportedly having retrospective effect. It will simply not be credible. Nor can you backdate the documents, I am sure, without incurring serious legal risks in France (what do your French lawyers say about this?)" Whether or not Mr Haener and Mr Melling spoke subsequently on the telephone, no further agreements of that kind were prepared. Accordingly, I consider that what occasioned the instruction from Mr Haener to substitute Tatik for Mr Tchigirinski as borrower was the French tax position, as it came to light on the advice of PWC in August 2008. That is why he asked for the loan agreement to be drawn up "as of" 2 May 2006, since that was the date following the expiry of the last written agreement when the borrower was Mr Tchigirinski. Mr Haener would have wished to go back earlier, but Mr Melling told him firmly that it would not work. I have no doubt that when Mr Haener told Mr Tchigirinski (as I find he would have done) that there was a fiscal benefit in having Tatik substituted for Mr Tchigirinski as the borrower, with him instead giving a personal guarantee, Mr Tchigirinski would readily have agreed. However, in August 2008 an agreement purportedly made by Mr Tchigirinski in the name of Tatik could not be effective since at that time Tatik was owned by Leondaris. Mr Haener and Mr Tchigirinski knew this but the French tax authorities did not. I find that they therefore proceeded with the documentation to produce it for French tax purposes. I am not in this action concerned with the French tax position, nor is it necessary or appropriate to seek to determine to what extent PWC was aware of the full facts. Nonetheless, I consider that this document evidenced an agreement between Mr Tchigirinski and Derbent as to what would become the position [6] when Mr Tchigirinski received back the Tatik shares and once again became the owner of Tatik. Therefore it was at this time, and not earlier, that Mr Tchigirinski expressed his agreement to substitute Tatik for himself as the borrower, supplemented by a personal guarantee from him. The Russian Land Loan In mid-2008, Mr Haener arranged other lending of the Kruglov money for the benefit of Mr Tchigirinski. This included making payments to Russian Land (the "Russian Land Loan"). He explained the background to the Russian Land Loan in his witness statement as follows: "The purpose of the Russian Land Loan was to provide more working capital for Mr Tchigirinsky who was, at the time, desperately short of liquid funds. I was under considerable pressure from Mr Tchigirinsky to find more liquidity for him and I thought that the only realistic option was a further loan from Mr Kruglov. The loan monies were therefore provided from the investments which I was managing for Mr Kruglov, which at the time were in Derbent." A total amount of $6,091,000 was paid from Derbent's account at Wegelin Bank to Russian Land. The money was transferred by three payments, evidenced by the Wegelin Bank advice notes: $4 million on 5 June (with an order date of 3 June); $0.8 million on 7 July (with an order date of 4 July); and $1.291 million on 18 July (with an order date of 16 July). Russian Land made payments back to Derbent, again evidenced by the Wegelin Bank advice notes, as follows: - $304,386 on 22 October 2008, expressed on the advice note as being in respect of "Partial loan repayment + interest - Loan agreement dd 16/07/08" - $832,977 also on 22 October and expressed on the advice note as "Loan repayment + interest - Loan agreement dd 04/07/08" - $2.5 million on 2 December 2008, expressed on the advice note as "Partial loan repayment - Loan agreement dd 16/07/08." Mr Haener had supplied a document purporting to be a written loan agreement between Derbent and Russian Land for a loan of $6,091,000 at an interest rate of 14% and repayment by 11 November 2008. It is signed by him on behalf of both Russian Land and on behalf of Derbent, something that he clearly had authority to do. That document states that the agreement is made on 3 June 2008. However, Mr Haener's evidence was that he believed that he probably signed it in July, after the last of the three advances was paid, although he said that he could not exactly remember. He said that the document was prepared by his secretary using a standard form they had in the office. The one page Russian Land Loan document is clearly very different from the detailed loan agreements drafted by Baker & McKenzie. I accept that it was indeed prepared by Mr Haener's secretary on his instructions, but I do not consider that this was done around the time the money was advanced or shortly thereafter, as Mr Haener suggested. I find that the document was only generated around 19 December 2008, when Mr Haener was preparing the schedule to the Derbent-Tatik Loan Agreement drafted by Mr Melling and considered that it was important to have written agreements covering all the loans of the Kruglov money that were still outstanding (whether in whole or in part): see further paras 171-173 below. Nor do I think that there was ever a single agreement entered into by Mr Haener that Russian Land would borrow the sum of $6,091,000. I find that Mr Haener on behalf of Derbent agreed to make the advances to Russian Land on an ad hoc basis (probably in response to particular needs of Mr Tchigirinski), so that in effect each advance represented a separate contract (or an amendment to the previous contract). That is why the contemporaneous bank advice notes, which would have reflected Mr Haener's instructions, were expressed as they were. However, I reject the submissions by the Defendants that the claim insofar as it relates to the Russian Land Loan should therefore be dismissed. These monies were advanced from Derbent to Russian Land, and partial repayments with interest were made. Accordingly, after the last repayment there remained a significant balance owed by Russian Land to Derbent. Mr Haener said in his witness statement that the sum of $2,453,637 was outstanding as at 19 December 2008, which he converted to euros to give a total of €1,923,077. However, that calculation was made on the basis that all the repayments should be attributed to the principal, with no repayment of interest; and it therefore obviously excludes the liability for interest. I am reinforced in these findings because the advances to Russian Land did not constitute the only short-term lending arranged by Mr Haener at this time to assist Mr Tchigirinski. On 7 July 2008, on the basis of an order given on 4 July, Derbent also paid $200,000 to Gradison. On 22 October 2008, Gradison paid Derbent the sum of $208,245, described in the Wegelin Bank advice note as "Loan repayment + interest – Loan agreement dd 04/07/08." Mr Haener said that this was the repayment by Gradison of the loan made by Derbent with interest. I accept that: assuming interest at 14% (i.e. as in the Russian Land Loan document), the figures almost exactly work out. Mr Haener said that there must have been a written loan agreement prepared by his secretary at the time to document this loan, in the same standard one page form as for the Russian Land Loan. However, Mr Haener did not produce such a document when providing the claimants' solicitors with his relevant papers, and I am not satisfied that it ever existed. The advance by Derbent to yet another Tchigirinski company, Cecil Trade Ltd, of $300,000 on 17 July 2008, with a payment back of $311,083 on 22 October 2008 described as coming from Gradison "on behalf of Cecil Trade Ltd", is another example of a loan that was repaid and for which no loan agreement exists. In my judgment, the reality was that from about mid-2008 Mr Tchigirinski was desperate for cash and, knowing that Mr Haener controlled a private investment fund, repeatedly made demands of him for urgent advances, which Mr Haener was prepared to accommodate. I think Mr Haener probably felt reassured on the basis that the loans were at a generous rate of interest (from which Mr Kruglov would therefore benefit), and of course he regarded Mr Tchigirinski as a very wealthy individual. And I consider that, probably because they became increasingly frequent and the situation became stressed, Mr Haener failed to set out the agreement to these advances in written loan contracts. Nonetheless, he took care, so far as he was able, to ensure that the loans were repaid. But the lack of contemporaneous recording of the loans was a major reason why the financial situation as regards the lending from the Kruglov money for the benefit of Mr Tchigirinski became so confused, something that caused Mr Haener considerable difficulty when he subsequently attempted to achieve a comprehensive statement of the position. The return of the Tatik shares As already mentioned, Mr Tchigirinski and Mr Haener had anticipated that the Tatik shares would be transferred back by Leondaris well before the end of 2007. The delay, according to Mr Haener, was due in part to the time taken for Leondaris' accountants to be satisfied that Mr Tchigirinski's injections into the property development projects amounted to $150 million, as agreed, and then because the affairs of Leondaris became complicated through the involvement of additional parties in the Hotel Rossiya development. By 2008, Mr Tchigirinski was repeatedly pressing Mr Haener to procure the return of the shares. In that regard, in September 2008 Mr Haener got in touch with the New York lawyer who was the secretary and a director of Tatik (Mr Davidoff) and asked him to prepare the documents necessary for the transfer by Leondaris of the shares. On 22 September, Mr Davidoff sent Mr Haener the documentation so that Mr Haener could arrange for Leondaris to complete it. On 28 November, the completed assignment forms and original share certificate were sent to Mr Davidoff to effect the transfer, i.e. cancel the registration in the name of Leondaris and issue a new certificate in the name of Mr Tchigirinski. On 2 December, Mr Davidoff sent a new certificate for the Tatik shares issued in Mr Tchigirinski's name to Mr Haener. The events of December 2008 December 2008 was a month when a great deal happened of relevance to this case. At the beginning of the month, as just mentioned, Mr Haener received on behalf of Mr Tchigirinski the Tatik shares. In my view, that had two consequences. First, Mr Haener could now regularise the position which had ostensibly been set out in the August 2008 "Agreement", for the purpose of French tax arrangements. Secondly, Mr Tchigirinski could finally pledge his Tatik shares as security, as I find had been promised orally at the end of March 2006. Mr Haener got in touch with Mr Melling accordingly. They evidently spoke in the first instance by telephone, and on 12 December Mr Melling emailed Mr Haener on the subject of "security". Having consulted his US colleagues (since Tatik is a Delaware corporation), he set out the steps they recommended in order to provide effective and enforceable security over Tatik. This included "a charge over the Tatik shares in favour of Willow Tree" and transfer of the share certificate to Willow Tree (or a US law firm acting on its behalf). Mr Haener was unable to explain why Mr Melling should here have referred to Willow Tree and not to Derbent, save to insist that that was not an instruction that had come from him. On 15 December, Mr Haener copied to Mr Melling the new Tatik share certificate and instructed him in the covering email as follows: "Please find attached the new share certificate for Tatik. Please prepare the new loan agreement. We will make the loan in Derbent. As there are other outstandings which we will now move into this loan, the old agreement will be amended respectively cancelled [sic], and the new agreement will start as of December 16, 2008. We need the security over the certificate. The certificate we can have in Switzerland or also in the UK, for example in your safe, whatever is the easier. The amount will change because of other debt which we will work in: It will be EUR 37.35 m. Interest rate will still remain 10% p.a., and it will go on till the 15 December 2009. There must be a flat fee letter also with Derbent (but not part of the agreement) for a flat fee of 3% either payable at the signing or if this is not possible it will come on top the EUR 37.35. Can you please prepare something along the old Derbent agreement but that the security is perfected?" Mr Haener explained that by the "old agreement" which he had instructed should be cancelled he meant what I have called the August 2008 "Agreement". Further, the figure of €37.35 million was mentioned as at that point it was thought that Mr Tchigirinski might wish to make further borrowings so this would be the maximum amount of the aggregate advances. However, in the end it was decided that there would be no further lending. The proposal of an arrangement fee of 3% was also changed to a flat fee (€1.5 million). In his response, Mr Melling asked about the identity of Derbent, saying that he did not recall that company. However, that was an oversight since he had drafted the August 2008 "Agreement" in the name of Derbent. Mr Melling recognised this in another email shortly afterwards, when he enquired if the loan agreement drafted in the summer was ever signed and the date and name of the lender under the last executed loan agreement. Mr Haener replied that it was Derbent and the date was 2 May 2006. Those emails were all sent on 15 December. On that date Mr Haener also sent a 'holding' e-mail to PWC and Tatik's French tax lawyers. On that basis, Mr Melling proceeded with the drafting of the loan agreement that is at the heart of the present claim. While this was going on, there were significant developments regarding Sibir. By mid-October 2008, some of the unauthorised payments made by Sibir to Mr Tchigirinski on account of anticipated property acquisitions (but not the fraudulent payments to Derbent against false invoices) had come to the attention of Sibir's Nominated Advisor ("Nomad") for AIM. An announcement about at least some of those payments was made by Sibir on 16 October 2008, with a statement that approval would be sought at a shareholders' meeting. It appears that the shareholders of Sibir were further notified by a circular on 2 December that a general meeting would be held on 18 December at which a resolution would be proposed to approve the acquisition of properties from Mr Tchigirinski's companies. That was intended to regularise the payments which Sibir had made, and I think to enable further payments to be made. Mr Haener said that Mr Tchigirinski and Mr Cameron were confident that the resolution would pass. But on the morning of 18 December they received what was in effect a bombshell in the information that the City of Moscow, which was a major shareholder in Sibir, had decided to oppose the resolution. It seems that as a result, the other major shareholder, Mr Kesaev, withdrew his support. Since the resolution therefore would not have passed, it was withdrawn. Mr Tchigirinski was removed (or resigned) as a director of Sibir with immediate effect. [7] It was clear that he was then exposed to a very substantial liability to Sibir. The 19 December 2008 agreements On 16 December 2008, Mr Melling (who was in Spain) sent Mr Haener a draft loan agreement and a draft stock pledge agreement, which he and his colleagues in Baker & McKenzie had prepared. It had been decided that a pledge over the shares in Tatik would be sufficient and a personal guarantee from Mr Tchigirinski was not required in addition. Those appear to have been drafts for comment, and Mr Melling said in his covering email that he had not been able to review them in as much detail as usual "because of the urgency". Further revisions were made by Baker & McKenzie over the following 48 hours. An internal email between the Baker & McKenzie lawyers on 17 December, disclosed by Tatik, states: "Our instruction is to make this agreement 'water-tight' from the perspective of the lender so that if the borrower ever wants to contest the debt, it would have as minimum opportunity to do so as possible." A lawyer at Baker & McKenzie's Moscow office who assisted on the drafting, emailed Mr Melling on 18 December as follows: "In my view, the structure achieves the most of what can be achieved in these circumstances. The ultimate flaw of the situation is that there are undocumented loans from unspecified members of the Derbent group to unspecified members of the Tatik group. This can only be fully remedied if we identify specific lenders, specific borrowers and specific amounts and get all those parties to sign. Whatever the structure we come up with, it would not be water -tight if the above is not fulfilled. On this basis, we can suggest to Urs to sign the loan agreement as currently drafted and to explain that this agreement works but if he wants it to be water-tight he should also additionally procure that all members of the Derbent group also sign another document among themselves (say, assignment of loans to Derbent) and all members of the Tatik group also sign another document among themselves (e.g. novation of debts to Tatik). Given the urgency, he could proceed to sign this loan agreement first and then sign other agreements at a later stage but expressed as taking effect retroactively." Later that day, Mr Melling sent Mr Haener final drafts of the three loan documents (i.e. the loan agreement, the stock pledge agreement and an arrangement fee side letter). His covering email significantly stated: "Please note that we have been unable to totally solve the problem of how to collapse into this loan the prior loans made through Derbent (or other corporate vehicles used by the Fricks) to Chalva or other Chava controlled companies. What is the problem? The problem is that the borrower under any prior loan (if that borrower was not Tatik) should legally transfer all of its rights and obligations under those prior loan arrangements to Tatik so as to enable those outstanding loan amounts to be collapsed into this loan. That has not been done. In normal circumstances I would not be too bothered about this but, with greater attention focused on this agreement, it needs to be drawn to your attention. What is the risk to the lender? The risk is that Tatik at some time in the future tries to claim that it never in fact received the total amount allegedly drawn down under this agreement (i.e. the amounts drawn down by other borrowers controlled by Chalva should be excluded) and thus has no obligation to repay that portion of the principal and the interests thereon. How to best guard against this? First, by detailing in this agreement the other loans that are being collapsed into this one. We have now done this in the attached draft - Tatik/Chalva would find it extremely difficult to make the argument set out above having clearly acknowledged in detail in this agreement that the prior loans are outstanding and are Tatik's obligation to repay. To eliminate all risk however, we should subsequently arrange for the rights and obligations under the other non-Tatik loans to be formally novated and put novation agreements in place." Mr Haener was evidently concerned to cover the position in the event that the Villa should be sold. He had an exchange of emails with Mr Melling about this on 19 December asking for a provision in the agreement that the loan would then be repaid, and Mr Melling appears to have inserted a provision requiring a mortgage over the Villa by way of additional protection for the lender. At the same time, Mr Haener was concerned to ensure that Mr Tchigirinski had proper authority to enter into the agreement on behalf of Tatik. It seems from the contemporary correspondence that he raised this with Mr Davidoff. On 16 December, Mr Davidoff advised him that Mr Tchigirinski had no authority to sign since he was not an officer of Tatik, and that a resolution for the Board of Tatik would therefore be prepared giving Mr Tchigirinski specific authority. Mr Davidoff requested certain details of the transaction for that purpose. Mr Haener replied the next day, stating: "A loan was outstanding to the villa since a long time, and now this loan has to be restructured and will be increased. The loan will be given by Derbent Management Limited which is a company independent of Shalva. The beneficial owner of Derbent is known to me. Currently there exists a loan agreement over EUR 28,250,000 in which some other debt which Shalva has and some interest payments and flat fees will be rolled into. Can you therefore please prepare a certificate of a resolution by the Board of Directors granting such authority to Shalva. The authority should be up to an amount of 37,350,000 Euros as the amount will only be clear later today. The loan amount will be maximum this and minimum 34,000,000 Euros. The loan agreement is prepared by Baker & McKenzie." Later that day, Mr Davidoff sent by courier a certificate of authority given by the Board of Tatik to Mr Tchigirinski. It was not suggested by the Defendants that Mr Tchigirinski was not then authorised to enter into a loan agreement on behalf of Tatik. Mr Haener said, and I accept, that he returned to Moscow from London with Mr Tchigirinski in his private jet following the Sibir shareholders' meeting, and that the three documents emailed by Mr Melling were signed on 19 December by Mr Tchigirinski and (as regards the loan agreement) by Mr Haener on behalf of Derbent. The Derbent-Tatik Loan Agreement It is necessary to set out the terms of the loan agreement ("the Derbent-Tatik Loan Agreement") in some detail. Derbent is defined as the "Lender" and Tatik as the "Borrower". There are four recitals, as follows: "(A) The Lender and other members of the Derbent Group (as defined below) (the "Original Lenders" ) have advanced the Original Loans (as defined below) to the Borrower and other members of the Tatik Group (as defined below) (the "Original Borrowers" ) for the purpose of financing outgoings incurred in relation to the residential property located at Avenue Winston Churchill, Roquebrune Cap Martin (Alpes Maritimes), France (the "Property" ). (B) The Original Lenders (other than the Lender) and the Original Borrowers (other than the Borrower) have agreed to transfer all of their respective rights and obligation in respect of the Original Loans to the Lender (in case of such Original Lenders) or the Borrower (in the case of such Original Borrowers) with the result that as at the date hereof the Original Loans are owing solely by the Borrower to the Lender. (C) The parties are entering into this Agreement to set out the terms and conditions that will apply to the Original Loans, certain of which are currently undocumented. (D) It is intended that this Agreement shall supersede in its entirety any agreement currently in effect between the Borrower and the Lender governing the terms of the Original Loans including, without limitation, the loan agreement dated 2 May 2006 between the Borrower and the Lender (the "Original Loan Agreements" )." Mr Haener said that Recital (D) should have referred to the loan agreement "dated as of 2 May 2006" instead of "dated 2 May 2006" and that this was an error. I accept that: the reference was clearly to the August 2008 "Agreement". The definitions in clause 1.1 include the following: "Derbent Group" means the Lender and all of its affiliated companies or companies under common control; "Facility Documents" means this Agreement and the Security Documents; "Original Loans" means the loans in the total principal amount of €30,857,724.50 (Thirty Million Eight Hundred Fifty Seven Thousand Seven Hundred Twenty Four Euros 50 Cents) which have been disbursed by the Original Lenders to the Original Borrowers before the date of this Agreement, a breakdown of which is provided for informational purposes in Schedule 1 hereto; "Pledgor" means Shalva Chigirinskiy; "Pledge Agreement" means the pledge agreement over the Tatik Shares to be granted by the Pledgor in favour of the Lender, substantially in the form attached hereto as Schedule 3; "Tatik Group" means the Borrower, the Pledgor and any company affiliated with the Borrower or that is controlled by the Pledgor; "Tatik Shares" means 100% of the issued shares in Tatik …., such shares being in the ownership of the Pledgor;" "Term" means a period commencing on the date of this Agreement and ending on 15 December 2009. Mr Haener explained (and I accept) that the date of 15 December 2009 had been specified to provide for a one year term as he had expected the agreement to be signed on 15 December. Clauses 2-3 are as follows: 2. Acknowledgement of indebtedness 2.1 The Borrower acknowledges and agrees that as at the date of this Agreement it is indebted to the Lender in the principal amount of € 32,352,724.50 of which: (a) € 30,857,724.50 represents the total principal amount owing in respect of the Original Loans; and (b) € 1,500,000.00 represents a further advance made by the Lender to the Borrower on the date of this Agreement and applied in full by the Lender on behalf of the Borrower in making payment of the Arrangement Fee. 2.2 In addition, the Borrower acknowledges and agrees that as at the date of this Agreement it is indebted to the Lender in the amount of € 771,364.96 in respect of interest accrued on the Original Loans. 3. Security 3.1 The Pledgor shall agree pursuant to the Pledge Agreement that all amounts owing by the Borrower to the Lender under this Agreement from time to time shall at all times be secured by way of first ranking security interest over the Tatik Shares. 3.2 The Borrower further agrees, by way of additional security for the Loan, to execute a mortgage over the Property in favour of the Lender. Such mortgage, in a form satisfactory to the Lender, shall be executed by the Borrower as soon as possible following the date of execution of this Agreement. Clause 4 provides for interest at the rate of 12% pa, with accrued interest to be paid in a lump sum at the end of the Term. Clause 5 provides that the Loan is to be repaid by one repayment at the end of the Term. Clause 10, insofar as material, is as follows: 10. Undertakings 10.1 The Borrower undertakes that, so long as any sum remains outstanding under this Agreement, it will: (a) provide the Lender forthwith with such financial or other information relating to it, as the Lender may from time to time request; (b) as soon as it becomes aware of same, notify the Lender of any occurrence which could materially and adversely affect its ability to perform its obligations under a Facility Document or that of the Pledgor; ….. (f) ensure that if there is a sale of the Property to which the Lender has consented in accordance with Clause 10.2 (b), the proceeds of such sale will be immediately remitted to the Lender to be applied to discharge the Loan. 10.2 The Borrower undertakes that, so long as any sum remains outstanding under this Agreement, it will not: (a) create or permit to subsist any security or any encumbrance over the Property other than any such security or encumbrance in favour of the Lender; (b) sell or otherwise dispose of the Property without prior written consent of the Lender; … Clause 11, insofar as material, states: 11. Events of Default 11.1 Each of the following is an Event of Default: …….. (b) the Borrower fails to perform any of its other obligations and undertakings under a Facility Document; or ……….. (m) any situation occurs which in the reasonable opinion of the Lender may materially and adversely affect the ability of the Borrower to perform its obligations under any Facility Document. 11.2 If an Event of Default occurs, then: (a) if the Lender so notifies the Borrower, the Loan, all Accrued Interest and all other sums due under this Agreement will become immediately payable by the Borrower; and (b) the Lender shall be entitled to take such other actions as are available to it. Clause 12 provides for default interest at the rate of 15% on sums that are not paid when due. Clause 17 addresses assignment: The Borrower may not assign any of its rights or transfer any of its rights or obligations under this Agreement without the prior written consent of the Lender. The Lender may assign any of its rights or transfer any of its rights or obligations under this Agreement upon notice to the Borrower and the Borrower agrees with the Lender to enter into such documentation as may be required by the Lender in connection therewith. Clause 19 provides that the agreement is governed by English law and that the parties submit to the jurisdiction of the English courts. Clause 22 provides for the arrangement fee of €1.5 million, to be discharged by the advance made pursuant to clause 2.1(b). Schedule 1 sets out a breakdown not only of the principal amount of the "Original Loans" (see the definition in Clause 1.1) but also of the accrued interest figure of €771,346.96 (see clause 2.2). The Schedule is reproduced as Appendix 1 to this judgment. In the breakdown of, supposedly, the principal outstanding, item (1) (i.e. €28,125,000), is the balance due under the Second Tchigirinski Loan, as computed by Mr Haener: see paras 102 and 120-121 above. Item (2) (i.e. €1,923,077) represents the total of the Russian Land Loan: see para 137 above. The reference in item (3) to an advance on 2 December 2008 of €809,647.50 was clearly, as Mr Haener stated, to a written "Loan Agreement" bearing that date. Mr Haener explained (and I accept) that this sum was arrived at by seeking to calculate the aggregate interest owed under the Second Tchigirinski Loan, expressed in euros, to 30 September 2008. [8] He said that he did this because it was clear that Tatik could not pay interest and Mr Tchigirinski did not have funds at the time to cover the interest outstanding. However, it was envisaged that Mr Tchigirinski should be in a position to clear the debt by mid-2009. Therefore, Mr Haener decided to capitalise the interest outstanding and make this the subject of a separate loan. Mr Haener therefore prepared in his office a one-page loan agreement for this amount as between Derbent and Mr Tchigirinski, which they both signed (Mr Haener signing as usual for Derbent). This loan agreement (the "Capitalised Interest Loan") was expressed to be for a period of six months at a rate of 14%. However, it does not state that it is a loan by way of capitalised interest but employs the same standard form as the Russian Land Loan and thus purports to represent an advance of new money. I have already set out my finding that the Russian Land Loan document was not signed in July 2008 (as Mr Haener suggested) but only in late December 2008 in connection with signing of the Derbent-Tatik Loan Agreement. I find that the Capitalised Interest Loan was prepared at the same time, using the same standard form and interest rate. I consider that neither document was supplied by Mr Haener to Mr Melling when Baker & McKenzie were drafting the Derbent-Tatik loan documentation. Mr Melling and those assisting him were clearly under the impression that the other loans that were to be, in effect, consolidated and restated in this new agreement were undocumented. Further, Mr Haener accepted that when Mr Melling sent Mr Haener the draft Derbent-Tatik Loan Agreement, the contents of Schedule 1 were largely blank for Mr Haener to complete. It is clear from the email correspondence that as late as 17 December Mr Haener was still unclear whether there would be any additional money advanced under the agreement (hence the reference to a maximum of €37.35 million), although in the end it was decided that there would be no new money. I consider that Mr Haener made his calculations and completed Schedule 1 sometime between 16 and 19 December, although his secretary may have been working on the figures before then. On 22 December, Mr Haener sent Mr Melling an email (to which I shall return) which attached the Russian Land Loan document, the Capitalised Interest Loan document and what would have been the completed Schedule 1 to the Derbent-Tatik Loan Agreement. Mr Haener accepted on looking at the email that this was probably the first time that he sent Mr Melling the Russian Land and Capitalised Interest Loan documents. I find that was indeed the case: if he had sent them before, there was no reason to send them again. And, equally, if they had been available before, he would have sent them before. Accordingly, I find that the Capitalised Interest Loan document, like the Russian Land Loan document, was signed about the same time as the Derbent- Tatik Loan Agreement. However, as I have already stated, that does not make the agreements by Derbent to advance monies to Russian Land ineffective, or the unpaid balance of the monies advanced to Russian Land irrecoverable. As for the Capitalised Interest Loan, it is unnecessary to consider its legal status or effect, since Mr Haener acknowledged in his witness statement that his calculation overlooked four payments of $309,375 made by Gradison on behalf of Mr Tchigirinski to each of the Foundations on 1 February 2006. As a result, there was in fact no interest outstanding and, as Mr Haener readily accepted, had he correctly computed the interest he would not have drawn up the Capitalised Interest Loan document. In the light of that, the Claimants do not suggest that the sum in item (3) can be recovered. I should only add that Mr Haener said that the calculation, "was all done with the best of intent at the time", and I accept that this was a genuine mistake and that he had not sought to mis-state the figures. The Second Tatik Stock Pledge Pursuant to clause 3.1 of the Derbent-Tatik Loan Agreement, Mr Tchigirinski on the same date executed the stock pledge agreement in favour of Derbent ("the Second Tatik Stock Pledge"). Like the First Tatik Stock Pledge, it is governed by New York law. By clause 2, Mr Tchigirinski pledges to Derbent a "first priority pledge and security interest" in his holding of the entire stock of Tatik. Although under the terms of the Second Tatik Stock Pledge only the obligations of Mr Tchigirinski to Derbent were expressed to be secured, that was clearly a mistake: the reference should have been also to the obligations of Tatik under the Derbent-Tatik Loan Agreement and this mistake was rectified in April 2009. [9] Clause 10 of the Second Tatik Stock Pledge includes the following covenants by Mr Tchigirinski by way of agreement with Derbent: "(c) He shall not … exercise any of [his] rights as owner of the Pledged Collateral [defined to include the shares in Tatik], including without limitation rights to vote in respect of the [Tatik] shares … in a manner that would adversely affect (i) the interests of [Derbent] in the Pledged Collateral, (ii) the rights of [Derbent] under this Pledge Agreement or (iii) the interests and rights of [Derbent] in and under the Loan Agreement; … (e) He shall not (i) create, suffer or permit to subsist any security or any encumbrance over any of [Tatik's] property other than such security or encumbrance in favour of [Derbent]; (ii) sell or dispose of or permit [Tatik] to sell or dispose of any of its property without the written consent of [Derbent]; … and in each case he shall perform such other and further acts necessary to give effect to the provisions of this paragraph (e)." The Defendants submitted that the Derbent-Tatik Loan Agreement was created because of the impending Sibir general meeting and the risk that the Sibir fraud would be uncovered, exposing Mr Tchigirinski to a massive claim. Thus the agreement was designed to place the liability for the loan in a company which held an unencumbered asset. Further, the terms of the agreement show that it cannot mean what it says. The Claimants contended that the agreement and related stock pledge set out what had been agreed upon between Mr Tchigirinski and Mr Haener (on behalf of the Kruglov family) long before, and that they had nothing to do with the Sibir meeting, about which neither Mr Tchigirinski nor Mr Haener had any prior concern. Mr Haener was asked about the references to the urgency of preparing these agreements. He said that it was because this was the run up to Christmas when everyone would be going away, and now that the Tatik shares had at last been retuned to Mr Tchigirinski he was concerned to get everything properly documented and effective security in place. [10] Moreover, on 6 November PWC had sent Mr Haener a query regarding the Derbent-Tatik loan, and on 1 December they sent a chasing email as the matter was evidently getting urgent. On 15 December, Mr Haener sent them what was in effect a 'holding' reply, saying that he will take care of everything after mid-January. I accept Mr Haener's explanation as broadly correct and have no hesitation in rejecting the Defendants' submission that the urgency was because of concern about the forthcoming Sibir shareholders' meeting. If Mr Haener had expected that the resolutions would not be approved, I consider that he would at that stage have arranged for the interposition of Slocom, as he did immediately after the meeting. On the contrary, it is the hastily drafted assignment and novation agreements executed shortly thereafter that were prompted by the outcome of the Sibir general meeting. Nonetheless, it will be necessary to consider more fully the purpose and the legal effect of the Derbent-Tatik Loan Agreement, on which the Court received extensive submissions. The assignments to Slocom The decision of the City of Moscow not to support the resolution to approve purchases of Mr Tchigirinski's property interests was wholly unexpected and a devastating blow to Mr Tchigirinski. Moreover, I find that it caused considerable alarm to Mr Haener. He knew that he had allowed Derbent to be used as a conduit for monies out of Sibir, and thus to be mixed up in a fraud for Mr Tchigirinski's benefit, in total betrayal of the trust placed in him by Mr Kruglov. He must have realised that there was now a serious risk of an investigation into all of Sibir's dealings that may relate to Mr Tchigirinski. I find that in the aftermath of the meeting, he became desperate to shield Mr Kruglov's interests and to prevent Mr Kruglov's name from exposure. On Sunday, 21 December 2008, Mr Haener emailed Mr Melling as follows: "The beneficial owners of Derbent would like to assign their loan to another company owned by the same beneficial owners. Can you please prepare documentation for this asap so it can be done if possible tomorrow. The[y] will give me the company tomorrow. Is there any risk in assigning?" To this, Mr Melling unsurprisingly replied: "Urs: why would they have Derbent execute the agreement on Friday and then want to assign it two days later? Assignment/novation is fine in principle – just seems odd." It is not known what, if any, explanation Mr Haener gave to Mr Melling but in his email the next day (to which I have referred above as regards its attachments), Mr Haener told Mr Melling that the assignee would be Slocom, of which he gave the details. Slocom had been incorporated in Cyprus on 5 March 2004, and Mr Haener said that he had originally intended to use it as an investment vehicle for himself and his wife, but it had never been so used and had remained inactive. On 22 December 2008, Mr Haener and Mr Kruglov executed a transfer of the shares held by Mr Haener to Mr Kruglov. It is not suggested that Mr Kruglov was given any proper explanation of the purpose of that transfer. On the same day, the Cyprus directors of Slocom executed a power of attorney to Mr Haener to act on the company's behalf. Various documentation was then prepared by Baker & McKenzie and sent by Mr Melling on 23 December 2008 to Mr Haener [11] and to his secretary in Moscow: i) an assignment agreement between Derbent and Slocom, purporting to assign all its rights under the Derbent-Tatik Loan Agreement to Slocom pursuant to clause 17 of that agreement ("the Derbent-Slocom Assignment"). Clause 2.2 of the Derbent-Slocom Assignment provides: "2.2 Assumption With effect on and from the Effective Date and in consideration of the assignment contained herein, the Assignee undertakes with the Assignor to assume, perform and observe the Assignor's obligations in respect of the Loan made pursuant to and the security granted under the Finance Documents as if the Assignee had been a party thereto in place of the Assignor." There was also a notice to Tatik of this assignment; ii) an assignment by Derbent assigning to Slocom "all of its right, title and interest" in the Second Tatik Stock Pledge, with a letter to Mr Tchigirinski notifying him of this assignment; iii) a novation agreement between Derbent, Mr Tchigirinski, Slocom and Tatik in respect of the Capitalised Interest Loan agreement: this purported to replace Derbent with Slocom as lender, and Mr Tchigirinski with Tatik as borrower; iv) a novation agreement between Derbent, Russian Land, Slocom and Tatik in respect of the Russian Land Loan agreement: this purported to replace Derbent with Slocom as lender and Russian Land with Tatik as borrower; v) a "Supplemental Agreement" between Derbent and Tatik ("the Derbent-Tatik Supplemental Agreement"), of which the recitals state as follows: "(A) This Agreement is supplemental to a loan agreement dated 19 December 2008 between the parties hereto (the " Loan Agreement "). (B) The Loan Agreement sets out the terms and conditions that will apply to certain loans in respect of which the original borrowers and original lenders have been replaced as borrowers and lenders by the Borrower and the Lender, respectively (the " Loan Novation ") (C) Having formalised the Loan Novation by written novation agreements dated 24 December 2008 between the parties hereto and others, being a date subsequent to the date on which the Loan Agreement was executed, the parties now wish to confirm the effectiveness of the Loan Agreement in amending the terms and conditions of the agreements that applied to the loans that were subject to the Loan Novation." Clause 2 proceeded to provide: "The parties hereto hereby acknowledge and agree that the Loan Agreement shall be effective to amend the Original Loan Agreements on and with effect from 19 December 2008 (being the date of the Loan Agreement) with the result that on and with effect from such date such loans shall be treated as forming part of the Loan and subject in all respects to the provisions of the Loan Agreement in place of the Original Loan Agreements." Mr Haener's secretary took the documents to Mr Tchigirinski in Moscow and although all dated 24 December 2008 they were apparently signed by him the day before. They were kept in Mr Haener's Moscow office and signed by him on his return in mid-January. Mr Haener said that he had discussed the idea of such an assignment with Mr Tchigirinski when they returned to Moscow after the meeting and in their frequent telephone calls over the next few days. I accept that, and that Mr Tchigirinski was well aware of what he was doing. I note that in an email from Mr Haener's secretary to Mr Melling on 23 December, she states: "Urs told me to go to CT with the full agreement and explain to him what he is signing. …" After some prevarication, Mr Haener accepted that the purpose of the introduction of Slocom was to try to shield Mr Kruglov, following the outcome of the Sibir general meeting. As for the legal position as between Slocom and Derbent on the one hand and Willow Tree on the other I do not think that Mr Haener gave this any thought at the time. He was under great pressure and no doubt was also trying to assist Mr Tchigirinski to salvage his wider financial position. Mr Peter Thomas Towers At the time of the meeting of Sibir shareholders, the fact that Sibir had made unauthorised advances to Mr Tchigirinski on account of the acquisition of his property interests (if perhaps not their full extent) was known. However, the fraudulent payments from Sibir's subsidiary to Derbent against the fictitious invoices became known only later, around February 2009. On 18 February, Mr Cameron made a statement, acknowledging this in general terms (although not the way it had been done). On 19 February, Sibir instructed Jones Day, who started an investigation together with Ernst & Young. In early February there occurred one of the more remarkable episodes of this whole story, to which I referred near the outset of this judgment. Mr Haener arranged, with the assistance of a Swiss lawyer in private practice, Dr Bruppacher, for the creation of a series of false documents to give the impression that the beneficial owner of both Derbent and Slocom was a Mr Peter Thomas Towers. Mr Towers was at the time an Englishman resident in Portugal. Mr Haener had never previously heard of him until he was introduced by Dr Bruppacher as someone who was prepared (for a fee) to assist. The documents prepared included: i) an instrument of transfer of the shareholding in Derbent, bearing the date 9 November 2005, to be signed by Mr Kruglov as transferor and Mr Towers as transferee; ii) a letter bearing the date 15 December 2005, from Mr Kruglov to Mr Towers purporting to explain the transfer of the shares in Derbent to him on the basis that this was in final settlement of a business dispute; iii) an agreement dated "as of December 24, 2008" between Mr Kruglov and Mr Towers, agreeing that the effective date of the transfer of shares in Derbent was 9 November 2005, and stating that as regards the Derbent-Tatik Loan Agreement and the Second Tatik Stock Pledge, Mr Towers is entitled to receive all repayments (including interest) under that loan and all proceeds from the Stock Pledge; iv) an instrument of transfer of the shareholding in Slocom, bearing the date 22 December 2008, by Mr Kruglov as transferor and Mr Towers as transferee (this was of course the same date as that on which Mr Kruglov received the shares from Mr Haener); v) an agreement dated "as of December 24, 2008" between Mr Kruglov and Mr Towers confirming the transfer of the shares in Slocom to Mr Towers, referring to the Derbent-Slocom Assignment and assignment to Slocom of the Second Tatik Stock Pledge and agreeing that Mr Towers would take all necessary measures to give effect to those assignments and the assumption by Slocom of the obligatioon to pay the debt to Willow Tree; vi) two letters dated 6 February 2009, addressed to the Cypriot directors of, respectively, Derbent and Slocom, to be signed by Mr Kruglov and Mr Towers confirming the above two transfers of Mr Kruglov's shares in Derbent and Slocom. On about 6 February, on Mr Haener's instructions his secretary went to see Mr Kruglov at his home in Moscow with all these documents and got him to sign them. Mr Kruglov was not in good health at the time, and Mr Haener accepted that no attempt was made to explain to him what the documents meant or why this was proposed. Mr Kruglov does not understand English, and he was simply presented with a sheaf of documents and told that it was important that he should sign them. Apparently, Dr Bruppacher subsequently organised for Mr Towers to sign all the documents. I have already mentioned that on 22 April 2009, Dr Bruppacher was also appointed the sole director of Willow Tree in place of Mr Frick. Mr Haener contacted Mr Frick at the time to arrange this, and ATU then closed its internal Willow Tree file. Mr Haener told the Court that there was also an ostensible transfer of the beneficial ownership of Willow Tree to Mr Towers, but the way this was done was not explored and there was little relevant documentation in the evidence. Dr Bruppacher resigned as director of Willow Tree and Mr Frick was re-appointed on 11 February 2010. Mr Schneebeli's accounts It was also in February 2009 that Mr Haener first instructed Mr Schneebeli, with whom he had no previous acquaintance. Mr Schneebeli said that he was told by Mr Haener that he had been involved in managing the affairs of several companies, including Derbent, Slocom and Willow Tree, on behalf of a client whose identity he did not disclose. Mr Haener told him that many payments had been made and that he had lost track of the overall financial position. Mr Haener asked Mr Schneebeli to prepare accounts for those three companies from the detailed records and papers that he provided. Mr Schneebeli said: "I understood that the purpose of the exercise was to allow Mr Haener to explain to Sibir the financial position of Derbent in particular and certain transactions it had been involved in as part of Mr Tchigirinsky's misappropriation of funds from Sibir. Although Derbent was central to this exercise, it was not possible to look at Derbent in isolation and so accounts were also prepared for Slocom and Willow Tree." I accept that these were the instructions which Mr Schneebeli was given, and indeed his evidence on this was not challenged. Mr Haener realised that he had allowed the financial position to become confused, he had not kept proper records, and he wanted an accountant who was independent and disinterested to prepare proper financial statements. Mr Schneebeli was given copies of all the agreements that had been drafted by Mr Melling, the bank statements and the bank advice notes. As well as the bank statements for Derbent, Slocom and Willow Tree, he was given bank statements for Tatik and a full set of bank statements for Gradison. When he had queries, he relied on the explanation given in response by Mr Haener. Mr Schneebeli did not recall seeing the Russian Land Loan document although he was aware of the lending to Russian Land since it was referred to on the bank advice notes. He clarified with Mr Haener that there were such loans to Russian Land; and he therefore brought them into account. He did not use, and indeed was not given, the so-called "quarterly reports" that Mr Haener had supplied to Mr Kruglov, nor was he shown the sham agreements with Mr Towers. Mr Schneebeli readily accepted that he was not carrying out a detailed audit but performing an accounting and book-keeping exercise, tracing the flow of monies in and out of the companies by reference to the relevant agreements. By early June 2009, Mr Schneebeli had completed the accounts for Derbent for the years 2006 to 2008 and for Slocom for the year 2008. For the purpose of the accounts, he treated what I have called the August 2008 "Agreement" as taking effect as of 2 May 2006, since that is what it said, irrespective of when it may have been signed. Mr Schneebeli said that he understood from the loan agreements and Mr Haener that when the loans to Mr Tchigirinski were assigned from Willow Tree to Derbent, Derbent then was entitled to claim from Tatik, and had a corresponding obligation to repay the loan to Willow Tree, through which the funding for the loan had originally been provided by the Foundations. This was reflected accordingly in the accounts. Mr Schneebeli further explained how he, as an accountant, treated the assignment from Derbent to Slocom, as follows: "When the loan was assigned from Derbent to Slocom on 24 December 2008, Derbent was released from its obligations to repay Willow Tree and Slocom assumed the claim against Tatik as well as the obligation to repay Willow Tree. As a result, both transactions were reflected in the accounts of Derbent and Slocom. The accounts for Slocom in 2008 show "Loan from Willow Tree" as well as a claim towards Tatik and these entries no longer appear in 2008 for Derbent." As well as preparing accounts, Mr Schneebeli prepared various spreadsheets, all of which he produced in evidence. In the second half of 2009, Mr Schneebeli prepared accounts for Willow Tree for the years 2000 to 2008. He said that this was done because it was clear that no proper accounts for Willow Tree had ever been prepared and it was necessary to reconcile the dealings between all the related companies. These Willow Tree accounts were completed towards the end of 2009. On 23 December 2009, Mr Schneebeli together with Mr Haener visited Mr Frick in Liechtenstein and Mr Frick signed those accounts. Mr Frick recalled this visit and explained that he signed them on the basis that he had been the director of Willow Tree during the period covered by the accounts and based on the records of ATU and the information given by Mr Haener and Mr Schneebeli, including as regards the assignment from Derbent to Slocom (of which he had not been aware). In early 2010, Mr Schneebeli prepared accounts for the three companies for the year ended 31 December 2009 and a few months later, on Mr Haener's further instructions, he prepared accounts for the four Foundations. It was as a result of that work that he discovered the repayments of interest to the Foundations which had been overlooked by Mr Haener in December 2008: para 174 above. On that basis, Mr Schneebeli was able to calculate what he understood to be the total amount owed to Slocom as assignee of the Derbent-Tatik Loan Agreement. The Sibir proceedings and settlement with Mr Haener As mentioned above, on 25 March 2009 Sibir and its associated companies commenced proceedings in the Commercial Court against Mr Tchigirinski, Mr Cameron, Gradison and Derbent ("the Sibir proceedings"). At the same time, Sibir's solicitors were in discussion with Mr Haener. It was thought that Mr Haener probably did not have significant personal assets and that his assistance would be of value in seeking recovery from Mr Tchigirinski and others. Among other things, it was known that one of the major assets of Mr Tchigirinski was the Villa, which was owned through Tatik. From Mr Haener, Sibir's advisers learnt that Mr Tchigirinski's shares in Tatik had been charged to secure a multi-million dollar loan but it was believed that there was a substantial amount of free equity in the Villa that Sibir hoped it might be able to apply against its losses. On 7 April 2009, a settlement was reached between Sibir and Mr Haener on terms set out in a deed of settlement ("the Haener Settlement Deed"). Mr Haener was advised in the negotiations by Cleary Gottlieb. The Haener Settlement Deed is a complex document, but in essence it stipulated the cooperation and assistance which Mr Haener would provide to Sibir in consideration for its covenant not to sue him or any of his companies in relation to the misappropriations from Sibir and the Sibir fraud. The Deed contained detailed provisions as to the documentation concerning the arrangements between Derbent, Tatik and Slocom which Mr Haener had to provide, and also gave Sibir the right to require Mr Haener to procure a transfer to it of the right to recover under the Derbent-Tatik Loan Agreement, subject to consequential payment to Slocom. Clauses 3.4-3.5 of the Deed accordingly include the following: "3.4 Mr Haener undertakes that he will: (A) as soon as reasonably practicable, and in any event within 10 business days, after the date of this Deed provide to Sibir or Sibir's Lawyers: (1) all and any Information in his possession or under his control regarding the extent and nature of all and any Encumbrances over each and both of the [Villa] and Tatik (and its assets); (2) true and complete copies of a loan agreement dated 19 December 2008 pursuant to which the Loan between Derbent and Tatik was documented, together with all ancillary documentation relating thereto including all and any documents pursuant to which any Encumbrances securing such Loan were granted; (3) true and complete copies of the Loan Assignment [from Derbent to Slocom], together with all ancillary documentation relating thereto; and (4) all and any information in his possession or under his control relating to the financial position of Tatik including in particular its assets and actual and/or contingent liabilities (including the [Villa]) and its ability to service and perform its obligations under the Loan; (B) as and when reasonably requested by or on behalf of Sibir to do so from time to time, provide to Sibir, its agents and/or representatives (including professional advisers) such reasonable assistance and co-operation as it may require in relation to its investigations into those matters referred to in clause 3.4(A), …; and (C) if requested to do so by or on behalf of Sibir, enter into or procure that Slocom and/or any other relevant party shall enter into such arrangements with Sibir or a person nominated by it whereunder Sibir or that person will acquire with full title guarantee (for the purposes of the Law of Property (Miscellaneous Provisions) Act 1994) the right to the benefit and repayment in full of the Loan and all accrued but unpaid interest thereon together with the rights (including enforcement rights) under all and any security granted by Tatik in connection therewith … 3.5 The consideration (the "Consideration") payable for such acquisition under clause 3.4(C) will be the obligation of Sibir to pay to Slocom an amount equal to the aggregate of: (A) all and any interest received by Sibir in respect of the Loan from Tatik (after deducting any tax or duties due from Sibir in respect of such receipts); and (B) all and any amounts received by Sibir by way of repayment of the Loan, … (3) following any acquisition pursuant to clause 3.4(C), Sibir shall not: (a) assign, transfer or otherwise dispose of any interest in the Loan or any security granted in connection with the Loan; or (b) create or grant any Encumbrance over the Loan or any interest therein; and/or (c) release or in any way compromise any of the security granted in connection with the Loan or take any other action in relation to any of the rights or security granted in connection with the Loan other than an action to prevent or delay the sale or other disposal of Tatik or the [Villa] in a manner which, if such sale or other disposal were to proceed, would harm the interests of Sibir or its Affiliates in each case with the intent and purpose of reducing the amount that would otherwise be payable by Sibir to Slocom pursuant to this clause 3.5 or with the knowledge that any such reduction would result." The Haener Settlement Deed also required Mr Haener to provide promptly replies to various specific requests for information that had already been made of him by Sibir's advisers. On 14 April 2009, Cleary Gottlieb sent Mr Haener's responses on his behalf. Many of those questions concerned aspects of Mr Tchigirinski's affairs unrelated to the present action. However, to the question who is the beneficial owner of Derbent, Mr Haener replied: "The beneficial owner of Derbent … is a third party who is unrelated to me or to Chalva Tchigirinski." On 17 April, through his lawyers Mr Haener provided to Jones Day copies of a number of documents including the Derbent-Tatik Loan Agreement, the Derbent-Tatik Supplemental Agreement, the Derbent-Slocom Assignment, the notice of that assignment given to Tatik, the Second Tatik Stock Pledge, the assignment to Slocom of the Second Tatik Stock Pledge, and the notice to Mr Tchigirinski of that assignment. The April 2009 Agreements On 24 April 2009, Jones Day was contacted by Mr Tchigirinski's solicitors, Lovells, with an urgent request that Sibir give its consent to a number of transactions that Mr Tchigirinski sought to enter into with a Russian bank, VTB. In summary, Mr Tchigirinski was liable as personal guarantor under a facility granted by VTB to Russian Land, and unless he was able to provide additional security over certain properties in Russia, VTB threatened to make him bankrupt. Those assets were subject to a worldwide freezing order which Sibir had obtained against Mr Tchigirinski at the start of the Sibir proceedings. The matter was extremely urgent as VTB apparently required the provision of such security by 28 April. Sibir for its part was keen to avoid a bankruptcy of Mr Tchigirinski since that was likely to impede its attempt to recover from him. But Sibir also saw this request as giving it leverage to obtain its own security over certain of Mr Tchigirinski's assets to support its recovery efforts. Accordingly, Sibir was prepared to agree to Lovells' request in return for a suitable security package. That package comprised security and related benefits in respect of Mr Tchigirinski's valuable home in London, and security and related benefits regarding the Villa. However, because of Slocom's charge over Mr Tchigirinski's shares in Tatik under the Second Tatik Stock Pledge, Slocom's consent was required for Sibir to obtain a subordinated security. In consequence, a series of agreements and documents were executed on 30 April 2009 ("the April 2009 Agreements"), as follows: i) a "Deed of Undertaking and Charge" between Mr Tchigirinski and Sibir, which was the master agreement pursuant to which the other documents were entered into; ii) a "Subordination Deed" made between Slocom, Sibir, Mr Tchigirinski and Tatik, which provided for Slocom's security under the Second Tatik Stock Pledge to rank prior to the security over the Tatik shares being granted by Mr Tchigirinski to Sibir (i.e. (vi) below) and the security over the Villa which Tatik agreed to grant in favour of Sibir. Under the Subordination Deed, Slocom also provided the necessary consents for Sibir to enter into other security and related documents; iii) a deed made between Mr Tchigirinski, Tatik and Sibir which provided a mechanism whereby the Tatik shares or the Villa could be sold ("the CT Villa Deed"); iv) a power of attorney under which Tatik gave Sibir certain rights to sell the Villa ("the Power of Attorney"); v) a "Tatik Commitment Deed", whereby Tatik undertook to Sibir to comply with the terms of the Deed of Undertaking and Charge under which Mr Tchigirinski was required to procure the grant by Tatik in favour of Sibir of security over the Villa, and further that Tatik would if requested by Sibir discharge the obligations owed by Mr Tchigirinski and his companies to Sibir and its subsidiaries; vi) a deed made between Mr Tchigirinski and Sibir, whereby, subject to the Subordination Deed, Mr Tchigirinski charged his shares in Tatik in favour of Sibir as security for the payment and discharge of all his liabilities to Sibir and its associated companies. 208. These documents are inter-connected and some of these agreements are very complex. It is necessary to quote a number of provisions from some of them and, for ease of reference, those extracts are set out in Appendix 2 to this judgment. In each case, the terms are quoted only insofar as material. The Amended Haener Settlement Deed Between 30 April and 15 June 2009, Mr Haener was asked for a lot of information regarding Mr Tchigirinski's various assets, especially as it was proving difficult for Jones Day to get information out of Russia. But he was not asked any further questions about Derbent, Slocom or the Derbent-Tatik Loan Agreement. On 15 June, Jones Day raised with Cleary Gottlieb various questions about those matters. The next day, Ms Roberts of Cleary Gottlieb responded by telephone to Mr Shuttleworth and told him that the owner of Derbent was Mr Peter Thomas Towers; that Mr Towers was not affiliated with Sibir, Mr Tchigirinski or Mr Cameron; and that Mr Towers was not involved in the transfer of funds from Sibir to Mr Tchigirinski through Derbent (i.e. the Sibir fraud). In giving this information, Ms Roberts was passing on what she had been told by Mr Haener. The next day, 17 June 2009, the Haener Settlement Deed was replaced by an amended deed (the "Amended Haener Settlement Deed") that removed the provisions about Sibir's right to acquire the loan due to Slocom. The recitals state: "(A) Pursuant to [the Haener Settlement Deed], Mr Haener agreed to provide certain information and assistance to Sibir and Sibir covenanted not to sue Mr Haener, subject to the terms and conditions contained therein; (B) Mr Haener has provided to Sibir all the information that Sibir has requested and assisted Sibir in its efforts to recover funds and other assets, to the fullest extent required under the terms of the [Haener Settlement] Deed; and (C) In consideration of the above and of the premises and mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the Parties have therefore agreed to enter into this amendment and restatement deed (the "Amendment Deed") to amend and restate the [Haener Settlement] Deed on the terms and conditions set out herein." Clause 3 is substantially amended: clauses 3.4-3.5 have been removed altogether and clauses 3.1-3.2 provide: "3.1 Mr. Haener agrees that from the date hereof until December 31, 2009, he shall promptly provide to Sibir, its agents and representatives (including professional advisers) such assistance as Sibir shall reasonably request in relation to the recovery from third parties of any funds and/or assets: (A) which have been received by or for the benefit of [Mr Tchigirinski] and/or all and any ["Affiliate" (as defined) of Mr Tchigirinski] pursuant to the Relevant Matters; or (B) in respect of which transfers of the same were made by any Group Company to any other third party pursuant to the Relevant Matters. 3.2 Notwithstanding Clause 3.1, Mr. Haener agrees that from the date hereof until December 15, 2009, he shall promptly provide to Sibir, its agents and representatives (including professional advisers) such assistance as Sibir may reasonably request in relation to any sale, transfer or other disposal of the [Villa] and/or Tatik." Mr Shuttleworth accepted that the reference to 15 December 2009 was because that was the date on which the Derbent-Tatik Loan was to be repaid. Mr Shuttleworth said that he was "extremely unhappy" about this document at the time as he did not consider that Mr Haener had complied with all his obligations. Therefore, he was reluctant for Sibir to enter into the Amended Haener Settlement Deed but his clients chose to do so. Mr Shuttleworth also considered that they had not at that point asked Mr Haener all the questions that they should have asked him. This was in part because the focus of Sibir's advisers was concentrated on developments regarding Gradison which had been seen as holding significant assets of Mr Tchigirinski but which became the subject of a dispute as to its ownership following steps taken to enforce a loan made to Gradison by a company controlled by Mr Kesaev. This led to a major effort to reach an overall settlement with Mr Tchigirinski. Sibir's settlement with Derbent As already mentioned, Derbent reached a settlement with Sibir of the Sibir proceedings soon after they were commenced. The settlement followed discussions conducted between Sibir (represented by Jones Day) and Derbent, through Mr Haener (represented by Cleary Gottlieb). The terms of the settlement are set out in a deed dated 25 June 2009 ("the Derbent Settlement Deed"). This led to a consent order made by Teare J in the Sibir proceedings on 30 June 2009. The Derbent Settlement Deed recorded that Derbent had transferred to the order of Sibir, in respect of the claim, some 10.6 million shares in Sibir and about $2.76 million, and provided, in summary, that in return for Derbent assigning to Sibir its rights to the proceeds of any claims to recover misappropriated funds from any "Affiliate" (as defined) of Mr Tchigirinski, Sibir and the other claimants would discontinue the proceedings against Derbent on the basis that the misappropriated funds were held by Derbent on trust for the claimants. Clause 11 of the Derbent Settlement Deed is an entire agreement clause in the following terms: "11. ENTIRE AGREEMENT Save in respect of a specific matter confirmed by Mr. Haener's solicitors to Mr. Craig Shuttleworth of the Claimants' solicitors on 16 June 2009, this Settlement Deed constitutes the entire agreement between the Parties relating to the subject matter of this Settlement Deed and supersedes and extinguishes all prior drafts and all prior agreements, understandings, undertakings, arrangements, representations and warranties (of any nature whatsoever and whether written or oral) in relation to the subject matter of this Settlement Deed." The proviso was a reference to the conversation between Mr Shuttleworth and Ms Roberts: para 209 above. July – December 2009 On 7 July, Jones Day asked Mr Haener for clarification regarding the beneficial ownership of Slocom. Mr Haener replied that the beneficial owner of Slocom was the same as that of Derbent. This led to further investigation and Jones Day was, in particular, concerned to establish whether the interest in Derbent or Slocom was held in some way for the benefit of Mr Tchigirinski. On 17 September, Mr Haener's reply by email to further inquires from Jones Day included the following: "If required, Bruppacher Hug & Partner would be able to provide the following confirmations to Sibir, based on the information available to them, with respect to the beneficial owner of Slocom: the beneficial owner of the shares in the assets of Slocom is [ ], an English citizen, residing in Portugal ("X") X has been a client of our offices for many years and since long before 1990 the funds that form the basis of the assets of Slocom, i.e. the claims under the loan agreement against Tatik Inc., originate from assets that are/were beneficially owned by X Mr. Chalva Tchigirinskiy [sic] does not have and nor do any persons or entities directly or indirectly associated to him have any beneficial interest in the assets of X or shares or the assets of Slocom All proceeds from the repayment of the debt of Tatik Inc. are for the sole benefit of X and not in any way for the benefit of CT." "X" had been identified by Mr Haener as being Mr Towers: para 209 above. The statements that the beneficial owner was Mr Towers and that the funds originated from assets of Mr Towers were of course untrue. However, the statements that Mr Tchigirinski had no direct or indirect interest in the assets of Slocom or its owner, and that repayment of the debt of Tatik was not for the benefit of Mr Tchigirinski, were correct. Mr Haener said that around October-November he began to hear that the CEO of Sibir, Mr Igor Tsibelman, had expressed concerns that the Derbent-Tatik Loan Agreement was a sham in that Derbent was in some way connected with Mr Tchigirinski or that no money had been lent. On 16 November 2009, Jones Day wrote to Derbent referring to section 423 and alleging that the assignments to Slocom were entered into for little or no consideration and for an improper purpose. Jones Day wrote a letter in similar terms to Slocom. On 7 December, Cleary Gottlieb on behalf of Slocom sent a letter by fax. to Tatik in the United States, referring to clause 10.1(a) and (b) of the Derbent-Tatik Loan Agreement and to the reported financial difficulties of Mr Tchigirinski, the sole shareholder of Tatik. On that basis, Slocom demanded, by close of business the next day, the current financial statements of Tatik and written confirmation that Tatik intended to repay the loan in full by 15 December and the source of the funds with which it intended to do so. Mr Davidoff replied to the effect that he knew nothing about any of these matters, which were being handled for Tatik by Mr Haener and Mr Tchigirinski. On 8 December, Cleary Gottlieb sent a further letter by fax [12] giving notice of default under clause 11(1)(b) for failure to supply the requested financial information and also in reliance on clause 11(1)(m), i.e. that a situation had arisen which in the reasonable opinion of Slocom may materially and adversely affect the ability of Tatik to perform its obligations under the agreement. The letter further gave notice that on that basis all accrued interest and other sums were immediately payable under the Loan Agreement and demanded payment. Cleary Gottlieb also wrote to Mr Tchigirinski, enclosing its letter to Tatik and informing him that on that basis Slocom was invoking its rights under the Second Tatik Stock Pledge. On the same date, Cleary Gottlieb wrote to Sibir. Slocom informed Sibir of the notice of default given to Tatik and that it had demanded immediate repayment of the debt, and also invoked its rights under the Second Tatik Stock Pledge. On that basis, Slocom asserted that pursuant to the Subordination Deed of April 2009 and the terms of the related Power of Attorney, that Power of Attorney granted to Sibir had terminated. The repayment date of 15 December 2009 under the Derbent-Tatik Loan Agreement was approaching and it was now clear that Slocom was likely to encounter difficulties in recovering payment. Mr Haener, together with Dr Bruppacher, therefore paid a number of visits to Mr Frick in Liechtenstein to arrange the preparation and execution of a number of further documents. In one of those visits, Mr Haener told Mr Frick that it was necessary to document the assignment from Willow Tree to Derbent of the Second Tchigirinski Loan. Mr Frick said that he therefore prepared an agreement dated "as of 1 May 2006" that sets out an assignment from Willow Tree to Derbent of that loan contract dated 28 October 2004 "including various supplements". Mr Frick said that he understood from Mr Haener that there were certain problems with Mr Tchigirinski which was why this document was required. He therefore was ready to prepare this document "basically just to do formally what should have been done anyway." He said: "So, for me it was a genuine transaction and we just did it – finalised it formally….. I wanted to lend a hand that you simply have to do what we should already have done already in that time." Although Mr Frick had originally thought that Willow Tree had completely dropped out of the picture when Derbent was set up, as I understood his evidence, he considered from the discussion with Mr Haener in December 2009 that on Derbent taking over the loan to Mr Tchigirinski, the formal position was that Derbent on receipt of repayment would have to pay the money back to Willow Tree, which remained under an obligation to ensure that the money went back to the family; in Mr Frick's words, "in order [that] Willow Tree can basically make sure that the rights of [the Kruglov] family basically are respected the full way." Mr Frick dated the document "as of" 1 May 2006 because that was the date on which it was intended to have effect although it was executed much later. The document includes a provision that upon repayment by Mr Tchigirinski, Derbent would pay Willow Tree the principal of the loan "plus all up to this date accrued and non-paid interest, plus future interest at an interest rate of 9%". Mr Frick said that he signed this on behalf of Willow Tree having been authorised to do so by Dr Bruppacher, who by then had replaced him as Willow Tree's director. That was not challenged, nor was Mr Frick (or Mr Haener) asked why in drafting this document he specified an interest rate of 9% (as compared to 10% that applied under the Second Tchigirinski Loan). The other documents then signed were a purported agreement as between Derbent and Willow Tree on the partial repayments of the loan in 2006; and an agreement between Derbent, Slocom and Willow Tree dated "as of December 24, 2008" whereby Slocom assumed Derbent's obligation to repay Willow Tree. Mr Frick signed all these documents on behalf of Willow Tree, on the basis explained above. The Sibir-Tchigirinski settlement and sale of the Villa On 12 January 2010, Mr Tchigirinski removed the two New York attorneys as directors of Tatik and appointed himself as sole director in their place. On 13 January 2010, Sibir concluded a settlement of its proceedings against Mr Tchigirinski. As part of that settlement, Tatik agreed to sell the Villa to Maritime for €70 million. The settlement and sale were the subject of a series of inter-connected agreements, as follows: i) a "Deed of Acknowledgment of Liability" between Sibir, Tatik and Mr Tchigirinski: see para 41.ii) above; ii) a Settlement Agreement between Sibir, Caraline and Mr Tchigirinski ("the Tchigirinski Settlement Agreement"); iii) a deed made between Mr Tchigirinski, Tatik and Maritime relating to the sale of the Villa from Tatik to Maritime ("the Villa Sale Deed"); iv) a promissory note from Tatik to Sibir for the sum of $71,781,233 (or €49,504,299) (the "Promissory Note"); v) a deed of indemnity between Mr Tchigirinski, Sibir and Tatik relating to the sale of the Villa ("the Villa Indemnity Deed"); vi) a deed between Mr Tchigirinski, Tatik, Sibir and Maritime relating to the CT Villa Deed entered into on 30 April 2009: para 207.iii) above ("the New CT Villa Deed"); vii) an intercompany loan agreement between Sibir and Maritime ("the Sibir-Maritime Loan"); viii) a deed of assignment whereby Sibr assigned its rights under the Promissory Note to a subsidiary ("SibVil"); ix) a further deed of assignment whereby SibVil assigned to Maritime its rights under the Promissory Note (which it had received pursuant to (viii) from Sibir); x) a "Promissory Sale Agreement" for the Villa executed between Tatik and Maritime under French law, giving Maritime the option to buy the Villa for €70 million exercisable by 30 June 2010. Some of these are complex agreements and it is necessary to quote various provisions. For ease of reference, those extracts are set out in Appendix 3 to this judgment. The material elements for present purposes can be summarised as follows: i) By the Deed of Acknowledgment of Liability: a) Mr Tchigirinski agreed that he owed Sibir and its subsidiaries $424,260,194, less any amount recovered by Sibir in connection with the Sibir proceedings and certain other amounts set out in the Deed ("the Accepted Liability"); b) Mr Tchigirinski and Tatik agreed to satisfy $71,781,233 of the Accepted Liability by the issue by Tatik of the Promissory Note; c) Sibir covenanted not to demand payment of the Accepted Liability from Mr Tchigirinski upon completion of the acquisition by Maritime of the Villa pursuant to the Villa Sale Deed; and d) Sibir agreed with Tatik to cap at $298,218,767 the amount of the Accepted Liability for which Tatik was liable under the Tatik Commitment Deed of 30 April 2009 (para 207.v) above). ii) By the Tchigirinski Settlement Agreement, Sibir and Caraline agreed to consent to a Tomlin order in the Sibir proceedings and not to bring further proceedings against Mr Tchigirinski; and further that upon Mr Tchigirinski discharging his liabilities under the Deed of Acknowledgment of Liability they would apply to discharge the freezing orders they had obtained against him. iii) By the Villa Sale Deed, Tatik promised to (and Mr Tchigirinski agreed to procure that Tatik would) sell the Villa to Maritime for €70 million, to be satisfied as follows: a) as to €49,504,299, by offset against the liability of Tatik to pay that amount under the Promissory Note to Maritime (as assignee of the Promissory Note); b) as to €19,795,701, by a payment in cash (in part to the French notary and in part to Lovells as Tatik's solicitors) in respect of anticipated tax liabilities of Tatik under French and US law as a result of the sale of the Villa; c) as to €700,000 by way of offset against the obligation assumed by Tatik to pay a fee of that amount to Maritime in return for Maritime acting as its "tax representative" in claiming refunds of tax from the French authorities. Accordingly, no cash consideration would be received by Tatik (or anyone else) on the completion of the sale of the Villa, save only for the sums paid by Maritime for the discharge of Tatik's tax liabilities. Further, it is notable that: i) under the New CT Villa Deed, Mr Tchigirinski and Tatik covenanted to Sibir and Maritime not to raise any objection that the price of €70 million was not a "Fire Sale Valuation" for the purpose of the CT Villa Deed: clause 2.2; and ii) the parties clearly envisaged that Slocom and/or Derbent might take steps to try to prevent sale of the Villa: see clause 2.6 of the Deed of Acknowledgment of Liability and clause 9.2 of the Villa Sale Deed. The start of the present proceedings and the interim injunction On 18 January 2010, Slocom, represented by Hughmans, solicitors, applied without notice for an injunction against Sibir and Tatik to restrain the sale of the Villa. Mr Haener had instructed Hughmans on behalf of Slocom, after receiving information that the Villa was being sold. The evidence in support of the application came from Mr Blackman, an American lawyer at Cleary Gottlieb, and Mr Haener. In his affidavit, Mr Blackman made clear that the statements which had been made to Jones Day regarding Mr Peter Thomas Towers were untrue and that the ultimate beneficial owner of the monies advanced was Mr Kruglov and his family. An injunction was granted by Newey J on 18 January and continued on 21 January to be heard as an application by order. The claim form was issued on 19 January and amended on 27 January to add Maritime as the third defendant. Thereafter, further evidence for Slocom was filed by a solicitor from Hughmans, along with a witness statement from Mr Frick and a further witness statement from Mr Haener. Two solicitors from Lovells, then acting for Tatik, filed evidence on its behalf, expressly on the basis of information given to them by Mr Tchigirinski. Mr Shuttleworth and another partner in Jones Day filed evidence on behalf of Sibir and Maritime seeking the discharge of the injunction relying, among other grounds, on alleged lack of full and frank disclosure. Mr Kruglov was wholly unaware of any of these developments, including the commencement of proceedings, save that in the autumn of 2009, when he was undergoing medical treatment in the United States, he received a telephone call from Mrs Haener who told him, on behalf of her husband, that a court case was taking place in London between Mr Tchigirinski and Sibir. Mrs Haener asked him to exert pressure on Sibir through his connections as otherwise his name might be disclosed as the beneficial owner of Derbent. He replied that he was having medical treatment in America and could not assist. When he asked how he was connected with the litigation and whether his investments were at risk, Mrs Haener avoided answering but told him that the case did not concern his investments and that it might not be necessary to disclose his name. None of Mr Kruglov's evidence to this effect was challenged. Mr Kruglov said that he was annoyed about this as he had always insisted that the confidentiality of his investments should be protected. This conversation made him concerned and when he returned to Moscow he therefore asked a friend who speaks good English (a Mr Motylev) to look into the matter on his behalf. In early 2010, together with Mr Motylev, he visited Mr Haener in Zurich to discuss the matter. He says that this was when he first came to understand the involvement of Sibir with the Kruglov money and learnt about the various April 2009 Agreements, and the fact that Slocom had the benefit of a loan agreement with Tatik, which loan had been advanced from the Kruglov money and had not been repaid. Mr Kruglov was clearly horrified by what he discovered. By letter dated 21 March 2010 that was drafted by a Swiss attorney, he terminated all Mr Haener's powers of attorney and his position as representative of all the Kruglov family companies, trusts and interests. Mr Kruglov stated: "I took this step because I wanted to take control of my affairs away from him given what had happened." Again, this evidence was not challenged. As a result, Hughmans received no further instructions from Mr Haener and they formally came off the record on 28 April 2010. When the injunction proceedings came back before this Court on 5 May, Slocom did not appear and was not represented. I imagine that Mr Kruglov was not yet sufficiently apprised of all that had happened to instruct new solicitors. But in any event, Vos J, who heard the matter on 5 May, discharged the injunction on the ground of what he held to be extremely serious non-disclosure and misrepresentation concerning the defences which would be raised by Sibir, in particular on the basis of the debt which Derbent owed to Sibir (because of the Sibir fraud) and the contentions regarding section 423, as set out in Jones Day's letters of 16 November 2009. As the judge observed, he did not really have to determine whether to grant a new injunction as no one appeared before the court to apply for it, but he held that if that application had been pursued he would have refused to do so since the "balance of injustice" favoured the defendants. The re-imposition of an injunction would frustrate the global settlement between Sibir and others with Mr Tchigirinski whereas damages would be an adequate remedy for Slocom. Following discharge of the injunction, the sale of the Villa to Maritime was completed on 13 May 2010. THE ACTION In this action, Slocom and Derbent claim, in summary: i) against Tatik, €37,523,233 with further interest at the contractual default rate of 15%; ii) against Tatik and Sibir, damages for breach of contract, and against Sibir and Maritime damages for inducing breach of contract by Mr Tchigirinski and/or Tatik; iii) an order that Maritime do re-transfer the Villa to Tatik pursuant to section 423, or for such other relief as is appropriate pursuant to sections 423 and 425; iv) a declaration that Maritime's ownership of the Villa is subject to an equitable mortgage, and an order for sale of the Villa with such consequential relief as is appropriate to enforce the mortgage. The primary claim is brought by Slocom. Derbent's claim is made in the alternative in the event that the assignments from Derbent to Slocom are set aside. Tatik, Sibir and Maritime have raised a range of defences to these claims, but their primary defences are that: i) the Derbent-Tatik Loan Agreement was a sham, and together with the related Second Tatik Stock Pledge is therefore unenforceable; and ii) the Derbent-Tatik Loan Agreement and further or alternatively the Derbent-Slocom Assignment are impeachable under section 423 and should be set aside. In addition, the three Defendants have all raised various counterclaims. DISCUSSION Before considering the specific issues that arise for decision, it is convenient to set out two relevant areas of law on which there was no real dispute between the parties: (a) when an agreement is a sham, and (b) section 423. (a) Sham The classic statement of what constitutes a sham is that of Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802, which has been approved and applied on many occasions since: "…acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities… that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating." In Stone (Inspector of Taxes) v Hitch [2001] EWCA Civ 63 , [2001] STC 214 , Arden LJ (with whose judgment Kay LJ and Sir Martin Nourse agreed), having referred to the formulation in Snook , said that the following additional points emerge from the authorities: "[65] First, in the case of a document, the court is not restricted to examining the four corners of the document. It may examine external evidence. This will include the parties' explanations and circumstantial evidence, such as evidence of the subsequent conduct of the parties. [66] Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties. [67] Third, the fact that the act or document is uncommercial, or even artificial, does not mean that it is a sham. A distinction is to be drawn between the situation where parties make an agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship. [68] Fourth, the fact that parties subsequently depart from an agreement does not necessarily mean that they never intended the agreement to be effective and binding. The proper conclusion to draw may be that they agreed to vary their agreement and that they have become bound by the agreement as varied …. [69] Fifth, the intention must be a common intention (see Snook )." Some further important observations were made by Neuberger J (as he then was) in National Westminster Bank Plc v Jones [2001] 1 BCLC 98 . He noted (at [59]) that "there is a strong and natural presumption against holding a provision or a document a sham" and stated at [68]: "Both principle and authority indicate that the court is slow to find that an agreement is a sham, and that, before the court can reach such a conclusion, it must be satisfied that the purported agreement is no more than a piece of paper which the parties have signed with no intention of it having any effect, save that of deceiving a third party and/or the court into believing that the purported agreement is genuine." That is subject to the qualification, as held in Stone v Hitch at [85], that it is possible for part of a document to be a sham although the balance of the instrument is not shown to be sham. However: "the case where a document is properly held to be only in part a sham will be the exception rather than the rule, and will occur only where the document reflects a transaction divisible into separate parts." Hence, it is the common intention of the parties to the agreement that is important and not the motive with which a transaction or agreement is entered into. See also Miles v Bull [1969] 1 QB 258, where Megarry J said, at 264: "a transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it". Further, it is for the party who alleges that a document or transaction is a sham to prove it. (b) Section 423 Section 423 provides, insofar as material: " Transactions defrauding creditors (1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if - (a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to provide no consideration; or … (c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself. (2) Where a person has entered into such a transaction, the court may, if satisfied under the next sub-section, make such order as it thinks fit for - (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction. (3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose - (a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or (b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make." Accordingly, for the section to apply, two elements have to be satisfied: i) that a transaction was entered into for no consideration or at an undervalue; and ii) that the purpose of the debtor in doing so was to defeat creditors' claims or in some other way prejudice their interests. In relation to the second element, the court is concerned with the purpose and not the result. Although this need not be the sole purpose, it must be established that it was a "real substantial purpose" of the transferor to put his assets beyond the reach of (or otherwise prejudice) his creditors: IRC v Hashmi [2002] EWCA Civ 981 , [2002] BCLC 489. In that case, Laws LJ stated, at [33]: "What in my judgment is required is that the claimant show that the donor, vendor or settlor was substantially motivated by one or other of the aims set out in sub-sections 423(3)(a) and (b) in entering into the transaction in question. There may be cases in which, even absent the statutory purpose, the transaction would or might have been entered into anyway. That would not necessarily negate the section's application; but the fact-finding judge on an application made to him under section 423 must be alert to see that he is satisfied that the statutory purpose has in truth substantially motivated the donor if he is to find that the section bites." It is to be noted that the test under section 423 in that regard is much stricter than the test under sections 238 and 239 for the setting aside of a transaction at an undervalue or a preference, which can be invoked only if a company has gone into administration or liquidation and then only on the application of the administrator or liquidator. Those provisions have no application here. (1) Is the Derbent-Tatik Loan Agreement a sham? The Defendants' case is that the Derbent-Tatik Loan Agreement is a sham intended to create the appearance that Tatik had been indebted to Derbent since May 2006 and that this was the consolidation and restatement of pre-existing debts which Derbent and Tatik (through Mr Haener and Mr Tchigirinski) knew to be a fiction. As regards the main debt, they knew that the true debtor was Mr Tchigirinski personally, whereas the Russian Land Loan and Capitalised Interest Loan also gave rise to no indebtedness of Tatik. The closing submissions for Sibir and Maritime contend that Mr Tchigirinski and Mr Haener "knew that Tatik did not owe any money at all under the specified "Original Loans". Their actual intention was to re-state a non-existent debt so as to deceive Mr Tchigirinski's creditors and, in particular, Sibir." Nor can the Derbent-Tatik Loan Agreement be interpreted as seeking to create a new debt. That was not Mr Haener's intention (acting on behalf of Derbent) since he knew that discovery of the Sibir fraud would lead to a challenge to any "gift" in the form of a gratuitous debt which Mr Tchigirinski purported to have Tatik assume at this time. Counsel for the Claimants objected that it was not put to Mr Haener that the intention of the Derbent-Tatik Loan Agreement was to deceive or defraud Sibir and Mr Tchigirinski's other creditors. I reject that complaint. It was clear, and Mr Haener appreciated, that this was part of Sibir's case, and he indeed rejected that contention in his witness statement. However, in applying the test for a sham, before considering the issue of purpose or objective, it is necessary to consider two questions: i) What legal rights and obligations does the agreement appear to create? ii) What actual legal rights and obligations (if any) did the parties intend to create? Here, the critical definition in the Derbent-Tatik Loan Agreement is that of the "Original Loans" in clause 1.1. For convenience, I set it out again: " "Original Loans" means the loans in the total principal amount of €30,857,724.50 (Thirty Million Eight Hundred Fifty Seven Thousand Seven Hundred Twenty Four Euros 50 Cents) which have been disbursed by the Original Lenders to the Original Borrowers before the date of this Agreement, a breakdown of which is provided for informational purposes in Schedule 1 hereto" This makes clear that the "Original Lenders", who are defined to include Derbent and all companies under common control (which would therefore encompass Willow Tree which had the same beneficial ownership and also operated on the direction of Mr Haener) had advanced loans to the "Original Borrowers", who are defined to include Tatik, Mr Tchigirinski and any company controlled by Mr Tchigirinski, in the total amount stipulated. Recital (B) states that the "Original Lenders" other than Derbent and the Original Borrowers other than Tatik: "… have agreed to transfer all of their respective rights and obligation in respect of the Original Loans to [Derbent] (in case of such Original Lenders) or [Tatik] (in the case of such Original Borrowers) with the result that as at the date hereof the Original Loans are owing solely by [Tatik] to [Derbent]." Clause 2.1 of the substantive provisions then provides that Tatik "acknowledges and agrees" that as at the date of the Agreement it is indebted to Derbent in the principal amount stipulated as owing in respect of the Original Loans, plus a further €1.5 million as a further advance made under the Agreement itself. Clause 2.2 further provides that Tatik acknowledges and agrees that it is indebted to Derbent for a further stipulated sum in respect of interest accrued on the Original Loans. Clause 3.1 provides for the creation by Mr Tchigirinski of what I have called the Second Tatik Stock Pledge as security for the amount owed to Derbent under this agreement. Accordingly, by the Derbent-Tatik Loan Agreement, Tatik appeared to acknowledge and agree with Derbent that it was henceforth liable to Derbent, on the terms set out in the agreement, for payment of the principal and outstanding interest in respect of the monies which had been advanced by the "Original Lenders" to the "Original Borrowers" (and the relevant amounts are set out), this agreement being in place of those "Original Loans." In my view, that is indeed the right in Derbent and the liability in Tatik which Mr Haener (for Derbent) and Mr Tchigirinski (for Tatik) intended to achieve. As regards the Second Mr Tchigirinski Loan, the transfer to Derbent had been agreed upon in March 2006. And on my further findings, the August 2008 "Agreement" represented the intention of Mr Haener and Mr Tchigirinski to transfer the debt to Tatik although they both realised that that document could not effectively do so and that this could only be achieved once Mr Tchigirinski received back his shares in Tatik. As regards the Russian Land Loan, although on my findings that was not a single loan agreement but a series of advances, those advances fall within the definition of the "Original Loans" since Russian Land was a company under Mr Tchigirinski's control. Here too, I have found that it was the intention of Mr Haener (for Derbent) to have those advances consolidated into one overall agreement, creating a debt from a single debtor that would benefit from the security of the Second Tatik Stock Pledge; and there is no basis for finding other than that Mr Tchigirinski (for Tatik) agreed to this. The stipulated sums are overstated, because they incorporate the Capitalised Interest Loan (and interest thereon) which it is now accepted by the Claimants was calculated in error and accordingly is not recoverable. However, the parties intended at the time to include those sums, because they were not then aware of the error. Therefore this over-statement, which I have held was not made in bad faith, cannot convert the agreement into a sham. That leaves Recital (D), on which the Defendants placed great emphasis and which I therefore repeat: "It is intended that this Agreement shall supersede in its entirety any agreement currently in effect between [Tatik] and [Derbent] governing the terms of the Original Loans including, without limitation, the loan agreement dated 2 May 2006 between [Tatik] and [Derbent] (the "Original Loan Agreements" )." As I have noted, that should say "dated as of 2 May 2006" and is clearly a reference to the August 2008 "Agreement". This recital therefore created the impression that the parties regarded that agreement as effective whereas they knew that it was not. However, in my judgment, this reference in a recital to a previous purported contract cannot, on established principles, render the Derbent-Tatik Loan Agreement a sham, when, as I have found, the agreement sets out a statement of rights and obligations henceforth between the two parties that expresses the rights and obligations which those parties both intended to assume. I note that in Ross River Limited v Waveley Commercial Limited [2012] EWHC 81 (Ch) , one of the issues concerned an agreement which on its proper construction was held to provide that the first defendant, referred to as "WCL", was liable to pay two sums of £325,000 and £235,000 to Ross River. To rebut this, WCL contended that the agreement was a sham, and that the true agreement reached was that Ross River was to be paid those sums by other parties. In support of that argument, it was submitted that the £325,000 and £235,000 were mis-described in the agreement as, respectively, an injection of capital and a prior profit allocation when they were in reality a loan and a payment by way of interest, and that these mis-descriptions were for the purpose of misleading the tax authorities. Morgan J held that even if this were the position, it did not mean that the agreement was of no effect and a sham. He said, at [815]: "I consider that if there had been misdescription and disguise, the court ought to correct those matters and give effect to the agreement on the basis of its true nature and effect. None of that would entitle the court to disregard the liability of WCL to pay sums of money to Ross River and to hold that WCL was under no liability to pay Ross River." In my judgment, a similar approach applies here. I note also that the expression "Original Loan Agreements", as misleadingly defined in Recital (D), is in fact not deployed elsewhere in the agreement. [13] The same comment can be made as regards the statement in Recital (A) that the advances were for the purpose of financing outgoings in relation to the Villa, when in fact they were manifestly to finance a wide range of Mr Tchigirinski's commercial activities. As for the breakdown of the figures in Schedule 1 by reference to three dates of advance (being 2 May 2006 and the dates stated on the Russian Land Loan Agreement and the Capitalised Interest Loan Agreement), the fact that those dates were not correct and that the way the monies were progressively advanced was more complex, cannot begin to render this agreement a sham. I therefore reach the conclusion that the Derbent-Tatik Loan Agreement was not a sham before considering the purpose of Mr Haener (Derbent) and Mr Tchigirinski (Tatik) in entering into it. As I have noted, the objective of the parties is not determinative. Nonetheless, it may be relevant insofar as it sheds light on what their real intention was as regards the document which they signed. It is in that context that the Defendants relied on what they alleged was the motive of Mr Haener and, presumably, Mr Tchigirinski. In that regard, I reject the Defendants' submissions that the purpose of the Derbent-Tatik Loan Agreement was to mislead Sibir, or to shield the liability owed to Mr Kruglov from Mr Tchigirinski's creditors. I have found that the intention to introduce Derbent as the vehicle through which the Kruglov money was lent to third parties had been formed in March 2006, and I have further found that Mr Tchigirinski agreed to this in the discussions with Mr Haener during their trip to Paris. In the Derbent-Tatik Loan Agreement, Mr Haener, acting on behalf of Derbent, was giving effect to that intention, which Mr Tchigirinski, acting on behalf of Tatik, accepted. As regards the introduction of Tatik, while I have rejected Mr Haener's evidence that this was also agreed in their Paris discussions in 2006, I have found that it became Mr Tchigirinski's intention on the basis of advice as to the French tax position by August 2008, although he could not then give effect to it until the return of his shareholding in Tatik. Mr Haener was content to go along with that – indeed he acted for Mr Tchigirinski in getting the tax advice – on the basis that security for such indebtedness would be given by a pledge of the Tatik shares, something that, as I have found, Mr Tchigirinski had also agreed in March 2006 he would provide once the shares were returned. And once the agreement came to be prepared, Mr Haener wished, on behalf of Derbent, that the outstanding balance of the ad hoc, unsecured lending in the previous months to Russian Land should be wrapped up in a comprehensive agreement and become subject to the same security, something to which Mr Tchigirinski agreed by entering into the Agreement on behalf of Tatik. Accordingly, the purpose of the Derbent-Tatik Loan Agreement was not to mislead Sibir or Mr Tchigirinski's other creditors but for Tatik to assume all the liabilities, for which security would be given by a pledge of its shares, and thereby also regularise what had been set out in the August 2008 "Agreement" which both Mr Haener and Mr Tchigirinski knew had no effect since Mr Tchigirinski could not act for Tatik at that time. This conclusion flows from my factual findings above, and I note in particular the following: i) The drafting of the loan and stock pledge agreement commenced in the second week of December 2008 and was almost entirely completed by 18 December. ii) Although Mr Haener in his evidence was at times evasive and some of his testimony was unsatisfactory, for reasons I have explained at the outset it would not be right, in my judgment, simply to reject his evidence entirely. I found convincing his clear and consistent assertions that the failure of the resolutions at the Sibir shareholders' meeting was not anticipated but, on the contrary, wholly unexpected: the decision by those representing the City of Moscow not to support them was received that morning and came as a complete shock. iii) I have explained above why I consider it clear that the August 2008 "Agreement" was prepared for the purpose of the French tax position. Indeed, in the end I think the Defendants did not contest this. The Derbent-Tatik Loan Agreement therefore was drafted to be consistent with the earlier document. Recital (A) reproduced some of the language of Recital (A) in the August 2008 "Agreement" as regards the purpose of the loans. And Recital (D) and Schedule 1 incorporate reference to the August 2008 "Agreement" (i.e., the agreement dated [as of] 2 May 2006). That had nothing to do with Sibir or the creditors of Mr Tchigirinski. iv) As Mr Chambers submitted, if Mr Haener, with the support of Mr Tchigirinski, had intended to make an agreement that would deceive Sibir because of concern about discovery of the Sibir fraud, they would not have stated the lending to come from Derbent, which was heavily involved in that fraud, only then to have to produce a fresh group of agreements a few days later, in great urgency before Christmas, assigning the loan and pledge to Slocom. On the contrary, they would have ensured that the statement of the loan to Tatik being prepared in mid-December would at that time be from Slocom. I reach this conclusion without reliance upon the absence of evidence from Mr Tchigirinski. However, I consider that the lack of testimony from him to the contrary effect only reinforces my findings regarding the explanation of and purpose of the parties in entering into the Derbent-Tatik Loan Agreement and the related Second Tatik Stock Pledge. (2) Is the Derbent-Tatik Loan Agreement and/or the Second Tatik Stock Pledge voidable under section 423? I have set out above my findings as to the purpose of the Derbent-Tatik Loan Agreement and my reasoning. It was not the purpose of the Agreement, or its substantial purpose, to prejudice Mr Tchigirinski's creditors. It follows that the Agreement is not impeachable under section 423. Similarly, the Second Tatik Stock Pledge cannot be challenged under section 423. Its purpose was to fulfil the promise made by Mr Tchigirinski in March 2006, providing security for the extended period of the principal loan, and now also the subsequent lending to Russian Land. It was not designed to put the value of the Tatik Shares, to the extent of the debt set out in the Derbent-Tatik Loan Agreement, beyond the reach of Sibir. (3) What is the effect of the Derbent-Tatik Loan Agreement? By the terms of the Agreement, Tatik expressly "acknowledges and agrees" that as at the date of the Agreement (i.e. 19 December 2008) it is indebted to Derbent in the principal amount of €32,352,724.50, comprising the total principal amount of €30,857,724,50 stated to be owing under the "Original Loans" and a new liability of €1.5 million in respect of the "Arrangement Fee" arising under clause 22. I have considered the interpretation of the Agreement when discussing whether it is a sham. As there set out, I find that it provides for Tatik to be liable to Derbent in the amount set out and on the terms stated. Moreover, save for the Capitalised Interest Loan of €809,647.50, the calculation of which was based on a mistake and it is now accepted was not owing, I consider that there is no doubt that the remainder of the stated principal amount had indeed been disbursed to Mr Tchigirinski and his companies (including Russian Land). The stated sum (less €809,647.50) represented the outstanding balance of those advances. I was referred to the doctrine of estoppel by contract, as authoritatively set out by the Court of Appeal in Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221 . In his judgment, Aikens LJ (with whom Rix and Rimer LJJ agreed) said at [143]: "I will try and analyse the matter from principle. If A and B enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like. Unless Lowe v Lombank is authority to the contrary, there is no legal principle that states that parties cannot agree to assume that a certain state of affairs is the case at the time the contract is concluded or has been so in the past, even if that is not the case, so that the contract is made upon the basis that the present or past facts are as stated and agreed by the parties. It is, after all, common in marine insurance contracts for an assured to "warrant" that a certain state of affairs has existed in the past and is still existing at the time the insurance contract is concluded or will continue, eg. that the nationality of a ship was and is British; or that a ship was and is "in Class" with her Classification Society. The shipowner may know that those things are not the case; the insurer may have his suspicions that they are not the case. The parties agree that for the purposes of the insurance contract, the facts as "warranted" by the assured are as he has stated them to be. A "conclusive evidence" clause in a sale contract, viz. that a report on eg. the amount or condition of a commodity sold under a contract between A and B shall be "conclusive evidence" of the matters stated in the report is to the same effect. The parties are agreeing that the statements in the report shall be the case for the purposes of the contract of sale and the parties cannot go behind that agreement." After carefully analysing Diplock J's judgment in Lowe v Lombank, to which he referred, Aikens LJ held that it did not establish a contrary proposition. Aikens LJ proceeded to consider later authorities, and in particular approved and followed observations of the Court of Appeal in Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] 2 Lloyd's Rep 511 , where Moore-Bick LJ said at [56]: "There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not. For example, it may be desirable to settle a disagreement as to an existing state of affairs in order to establish a clear basis for the contract itself and its subsequent performance. Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed. The contract itself gives rise to an estoppel…" Aikens LJ further held that no question of detrimental reliance or "unconscionability" over and above the contractual agreement is necessary to bring such a contractual estoppel into effect. He said, at [178]: "I have, effectively, rejected Mr Brindle's argument that there is no juristic concept of "contractual estoppel" which is distinct from the doctrine of "estoppel by convention". To my mind, once it is accepted that there is a separate doctrine of "contractual estoppel" then there is no room for a requirement that the party which wishes to rely on that estoppel must demonstrate that it would be unconscionable for the other party to resile from the conventional state of affairs that the parties have assumed. The reason why that is a requirement in the case of "estoppel by convention" is precisely because there is no contract between the parties. Therefore some other mechanism has to come into play to make the non-contractual "convention" enforceable. Mr Brindle relied on the statement of Peter Gibson J in Hamel-Smith v Pycroft and Jetsave that the ability to rely on an estoppel by convention is governed by "considerations of justice and equity". Therefore, before an estoppel by convention can be enforced it is necessary to demonstrate that it would be unjust or unconscionable for one of the parties (against whom it is sought to enforce the convention) to resile from it. That statement was part of a long passage of Peter Gibson J's judgment that was approved by the Court of Appeal in The "Vistafjord ." But, in my view, it is irrelevant to the doctrine of "contractual estoppel" for the reasons that I have given." Although Springwell concerned the entitlement of a defendant to rely on a clause in a contract which provided that he had made no representation or warranty as to the advisability of purchasing investment notes, in respect of which purchase the claimant sought damages, the analysis and exposition of contractual estoppel was clearly stated as a matter of principle in general terms. In my judgment, given what I have held to be the proper interpretation of the Derbent-Tatik Loan Agreement, there is no need to have resort to a contractual estoppel in the present case. But if it is necessary to do so, that doctrine means that the statements in the Derbent-Tatik Loan Agreement that there was a prior agreement dated [as of] 2 May 2006 between Derbent and Tatik, in other words that the August 2008 "Agreement" was an effective agreement, constituted the agreed basis on which the parties contracted on 19 December 2008. The Defendants submitted that the doctrine does not operate to preclude a party which has acknowledged a debt from contending that the money has not in fact been paid or is not in fact due. In that regard they referred to a series of authorities. In Greer v Kettle [1938] AC 156, Viscount Maugham (with whose speech Lords Atkin, Macmillan and Roche agreed) referred (at 171) to the qualification imposed by equity on the doctrine of estoppel by deed: "The position in equity is and was always different in this respect, that where there are proper grounds for rectifying a deed, e.g., because it is based upon a common mistake of fact, then to the extent of the rectification there can plainly be no estoppel based on the original form of the instrument. It is at least equally clear that in equity a party to a deed could not set up an estoppel in reliance on a deed in relation to which there is an equitable right to rescission or in reliance on an untrue statement of an untrue recital induced by his own representation, whether innocent or otherwise, to the other party. Authority is scarcely needed for so clear a consequence of a rectification order or an admitted or proved right to such an order. The well known rule of the Chancery Courts in regard to a receipt clause in a deed not effecting an estoppel if the money has not in fact been paid is a good illustration of the equity view…" Much more recently, in Close Asset Finance Ltd v Derek Allan Taylor [2006] EWCA Civ 788, the issue was whether a mortgagor was allowed to contest a mortgage debt, even though the deed expressly acknowledged the making and receipt of a loan of £54,000. The court held that he was entitled to contest the debt and rejected the contention advanced by counsel for the mortgagee that there was an estoppel by deed which was effective unless the deed could be rectified or set aside as a fraud. Lloyd LJ, giving the leading judgment, stated at [31]: "Mr Orr [counsel for the mortgagee] contended that this evidence, which is aimed at showing that the sum of £54,000 is not due, may not even be considered. In effect, he submitted, the deed is conclusive because it is a covenant to pay £54,000, regardless of whether or not there was a loan of that amount or indeed any existing indebtedness to [the mortgagee] of that amount. That proposition seems to me to be inconsistent with Mainland v Upjohn and with Greer v Kettle and unsustainable as a general proposition." The exception to the principle of estoppel by deed, and therefore also contractual estoppel, set out by this line of authority, is well-established. However, in my judgment it has no application in the present case. The primary issue is not whether the principal amount stated in the Derbent-Tatik Loan Agreement had indeed been advanced, or whether it had, in whole or in part, been repaid. The position would be otherwise if, for example, the Claimants had not been willing to accept that the sum of €809,647.50, erroneously stated to be due by reference to the Capitalised Interest Loan, was not due since it represented interest which had in fact been paid. Mr Tchigirinski did not appreciate that error, and the statement in the contract that this amount had been advanced would not preclude Tatik from disputing it. But that is very different from the circumstance where Tatik (through Mr Tchigirinski) concluded a contract stating that it had been indebted pursuant to the August 2008 "Agreement", although Mr Tchigirinski knew that that "agreement" was not legally effective and that the debt had therefore remained his personal liability, and agreed that it was henceforth under that liability to Derbent. The exception to estoppel by deed, as Greer v Kettle (and indeed, Mainland v Upjohn ) make clear, is an equitable exception. There is nothing inequitable in Tatik being bound by its statement of indebtedness in those circumstances. Therefore, if it is necessary to do so, I hold that Tatik is estopped in the light of the Derbent-Tatik Loan Agreement from denying that it is the entity that is liable to Derbent pursuant to that contract. Accordingly, it is unnecessary to consider further what would have happened if Willow Tree had sought to recover from Mr Tchigirinski on the basis of the Second Tchigirinski Loan. Such a claim is of course entirely theoretical: in practice, there was absolutely no prospect that Willow Tree would have brought a claim once Derbent had taken over all the dealing with third parties involving the Kruglov money. Were it necessary to address that situation, I think that an estoppel by convention would bar Willow Tree from advancing such a claim. In Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84 at 122, Lord Denning MR set out the principle of estoppel by convention as follows: "When the parties to a transaction proceed on the basis of an underlying assumption – either of fact or of law – whether due to misrepresentation or mistake makes no difference – on which they have conducted dealings between them – neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands" See also The Indian Endurance [1998] AC 878 , per Lord Steyn at 913E-G. Mr Tchigirinski and Derbent had conducted themselves since about May 2006 on the basis that his debt was owed to Derbent, not Willow Tree, as set out above. Mr Frick as director of Willow Tree also assumed that once Derbent was established, it became the body responsible for the outward lending of the Kruglov money to third parties; as he explained, the written Willow Tree–Derbent Assignment in December 2009 was therefore formalising what he had understood to be the position. And Derbent and Willow Tree were both beneficially owned by the Kruglov family, and acted on the instructions of Mr Haener. In those circumstances, I consider that Willow Tree would have been estopped by convention from asserting that Mr Tchigirinski remained under an obligation to it, and not Derbent, in respect of the debt. (4) Was the Derbent-Tatik Loan Agreement procured by a fraudulent misrepresentation to Tatik? By an amendment made in the course of trial, Tatik counterclaims for rescission of the Derbent-Tatik Loan Agreement on the basis that it was procured by fraudulent misrepresentation, or alternatively damages (in the amount equivalent to any liability which Tatik may be under in these proceedings). The misrepresentations alleged concern the recitals to the Agreement and Schedule 1, and in particular the statements regarding the existence of the "Original Loans" and that there was a prior loan from Derbent to Tatik dated 2 May 2006, apparently by reference to the August 2008 "Agreement". However, this claim could only be maintained if it was shown that Mr Tchigirinski, in signing the agreement for Tatik, was unaware of the true position and that Tatik (through Mr Tchigirinski) entered into the agreement in reliance on the alleged false representations. Without any evidence from Mr Tchigirinski, that is an impossible contention. In my judgment, on the evidence it would be wholly wrong to make assumptions in Tatik's favour regarding Mr Tchigirinski's knowledge or state of mind. (5) Are the assignments to Slocom voidable under section 423? Here, I find that the purpose of the first limb of the statutory test is fulfilled. The hastily arranged assignments following the outcome of the Sibir general meeting were, in my judgment, clearly designed to place the benefit of the debt and related security over Tatik beyond the reach of Sibir in the claims it may make against Derbent. Indeed, Mr Haener came close to admitting this. He accepted that he became worried and that his motivation was to "dissociate" Mr Kruglov from Derbent, procuring the assignment "to protect Mr Kruglov's position and interests." The critical question is therefore the second limb: were the assignments for no consideration or at an undervalue? No consideration is expressed in the documentation of 24 December 2008, and in my view no attention was given to this aspect at the time. However, the reality is that Derbent, since it became the lender to Mr Tchigirinski in place of Willow Tree, was under a liability to pay over the proceeds of the loan (repayments of principal and interest) either to Willow Tree or, if not, to the Kruglov family directly. The loan was never an asset of which Derbent could retain the benefit for itself. Mr Haener explained that this corresponding liability of Derbent to repay the loan to the entity which had provided it with the money was critical, since otherwise Derbent would be liable to a significant profit tax in Cyprus on the interest under the loan. Mr Haener's statements regarding Derbent's tax position in Cyprus were not challenged, and I have no doubt that this would have been a very material consideration in his mind when Derbent was introduced as the lending vehicle for the Kruglov money. Moreover, that this was the intention and understanding of Mr Haener is supported by the accounts of Derbent prepared by Mr Schneebeli between February and early June 2009. The balance sheets as at 31 December 2006 and 2007 show as a liability a loan from Willow Tree. There is also a current account liability to Mr Kruglov, whereas the share capital of Derbent remained throughout at CYP 1000; in other words Mr Kruglov had not capitalised Derbent for the purpose of its making loans. When Slocom took an assignment of the rights under the Derbent-Tatik Loan Agreement, and thus stepped into the place of Derbent as regards the debt, Slocom came under an obligation to pay over the proceeds. Unsurprisingly, nowhere in the Derbent-Slocom Assignment is there an obligation to pay over the proceeds to Derbent: that is the last thing the parties to the assignment intended since it would have defeated its whole purpose. On the contrary, Slocom had to pay over the proceeds to Willow Tree (or the Kruglov family). It follows that Derbent was accordingly relieved of that obligation. The loan was no longer an asset of Derbent nor was there any continuing and corresponding liability. That again is reflected in the accounts of both Derbent and Slocom for 2008 prepared by Mr Schneebeli. I have quoted at para 196 above how Mr Schneebeli as an accountant explained the treatment of the assignment in terms of the obligation assumed by Slocom. That this was the correct accounting treatment of the transaction was not challenged. All those accounts were prepared well before Jones Day intimated a potential challenge to the assignment under section 423. Further, although the agreements for the transfer of Mr Kruglov's shareholdings in Derbent and Slocom to Mr Towers were shams, the documents are nonetheless evidence of Mr Haener's understanding of the loan position as at February 2009. Recital (C) to the purported agreement for the transfer of Derbent states that Derbent held the rights to the debt under the Derbent-Tatik Loan Agreement on the one hand, and had an obligation for the repayment of an existing debt to Willow Tree on the other hand. And Recital (D) to the purported transfer of Slocom refers to the Derbent-Slocom Assignment and states that Slocom also then assumed the obligation to repay Willow Tree. Those documents were also drawn up long before the threat of a section 423 challenge. I therefore find that there was indeed consideration for the Derbent-Slocom Assignment, being the assumption of liability for the full amount of the debt being assigned. It follows that there is no question of the assignment of the Derbent-Tatik Loan Agreement being at an undervalue. The assignment of the Second Tatik Stock Pledge was obviously directly related to the assignment of Tatik's liability. The challenge under section 423 to those two assignments therefore fails. Accordingly, there is no need to rely on the agreements signed by Mr Frick and Mr Haener in December 2009. Those were, as the Defendants submitted, prepared in the light of Jones Day's letters of November 2009 stating that the Derbent-Slocom Assignment could be set aside under section 423. However, were it necessary to do so, I would hold that the Willow Tree-Derbent Assignment served to give any necessary consent of Willow Tree to the transfer to Derbent of the Second Tchigirinski Loan, with the obligation on Derbent to pay over the principal amount and interest when received to Willow Tree. And similarly the agreement then signed as between Derbent, Slocom and Willow Tree "as of 24 December 2008" whereby Slocom assumed the liability to repay Willow Tree and Willow Tree discharged Derbent, confirmed what, objectively viewed, had always been the understanding of the parties. Mr Frick said in his evidence that these were prepared to formalise the position as it had been understood, and I agree. They are entirely consistent with the accounts prepared before any section 423 threat. It follows that Derbent had been entitled to claim, and by reason of the assignment Slocom is entitled to claim in debt under the Derbent-Tatik Loan Agreement. It is therefore unnecessary to consider the Claimants' alternative arguments of estoppel arising by reason of the Supplemental Agreement of 24 December 2008 or the April 2009 Agreements. (6) Is Slocom precluded from relying on the April 2009 Agreements by reason of misrepresentation? Since I have found that the Derbent-Tatik Loan Agreement and its assignment to Slocom are valid and effective, Slocom's primary claim against Tatik lies in debt under the agreement. It cannot recover any more by way of a damages claim for the alleged breach of any of the April 2009 Agreements. However, as the Claimants and Tatik addressed such further claims, I shall consider them. Further, the Claimants' claims as against Sibir lie only in damages, based in part on alleged breaches of the April 2009 Agreements. As noted above, the relevant extracts from the most significant April 2009 Agreements are in Appendix 2 . However, Sibir and Maritime contend by their Rejoinder that Slocom is not entitled to rely on, in particular, the Subordination Deed, on the basis that Sibir was induced to enter into it by deliberately false representations. This argument received a somewhat different emphasis in Sibir's closing submissions where it was relied on more by way of rebuttal of the Claimants' assertion of an estoppel based on the April 2009 Agreements. In any event, it rested on clause 5(A) of the Subordination Deed, whereby Slocom represented that "the copies of" the Derbent-Tatik Loan Agreement and the Second Tatik Stock Pledge provided to Sibir were "correct, complete and in full force and effect." I do not accept Slocom's argument that this means no more than that the documents provided were accurate copies. On any objective view, it is to be understood as a representation that the two agreements were valid and enforceable. That is the basis of the misrepresentation alleged by Sibir and Maritime: their case is that the Derbent-Tatik Loan Agreement was void and unenforceable since there was no loan from Derbent to Tatik. However, for the reasons set out above, I have rejected that argument. It follows that the fraudulent misrepresentation relied on is not made out. (7) Are Tatik and/or Sibir in breach of obligations to the Claimants under the April 2009 Agreements? The prime thrust of the Subordination Deed, to which Slocom was a party, was to provide that the Second Tatik Stock Pledge as assigned to Slocom (there encompassed in the definition of the "Senior Security") ranked first in right and in priority to what is there called the "Subordinated Security", defined to cover the pledge of the Tatik shares given to Sibir by Mr Tchigirinski pursuant to the April 2009 Agreements and any other security over the Villa in favour of Sibir. Slocom's main claims under the April 2009 Agreements are as follows: i) breaches by both Tatik and Sibir of clauses 2.6 and 2.7 of the Subordination Deed in that the manner of execution by Sibir of its enforcement rights under the Power of Attorney and the CT Villa Deed did not respect the prior right of Slocom under the Second Tatik Stock Pledge, as stipulated in clause 2.1; [14] ii) breaches by both Tatik and Sibir of clauses 2.9 and 2.10(A) of the CT Villa Deed and paragraph (D) of the Introduction to the Power of Attorney in that the proceeds of sale of the Villa were not applied first to repayment of the debt to Slocom but instead (through the Promissory Note mechanism) to reduce the amount which Tatik and/or Mr Tchigirinski were liable to pay Sibir; iii) breach by both Tatik and Sibir of clause 4(A)(3) of the Subordination Deed in that the trust obligation there set out was not followed since Sibir did not hold the amount [reasonably estimated as] due to Slocom under the Derbent-Tatik Loan Agreement on trust for Slocom or, the trust having failed since it was not constituted, pay over that amount to Slocom; iv) breach by Sibir of clause 5(B)(1) of the Subordination Deed in that its actions in structuring the sale of the Villa in the way which it did would be reasonably expected to impair the prior ranking of Slocom's security under the Second Tatik Stock Pledge. As regards clauses 2.6 – 2.7, Tatik contends that they constitute a mere acknowledgment and statement of the priority as between the various agreements, which therefore do not in themselves impose any obligations. The material words of clause 2.6 are as follows: "It is hereby acknowledged and agreed by the Parties that: ... (B) any enforcement rights pursuant to the Subordinated Debt Documents shall only be exercised by Sibir in accordance with this Deed:" The opening words of clause 2.6 manifestly make the requirement in sub-clause (B) a matter of contractual agreement. However, I accept Mr Birt's further submission that if Sibir acts contrary to this provision, that does not constitute a breach of contract by Tatik. Despite the reference to "the Parties" in the opening words of clause 2.6, that is a formulation employed throughout the Subordination Deed. In my view, as a matter of interpretation, it does not serve to import into the requirement that Sibir must act in a particular way an obligation on the other parties to procure that Sibir complies. The same analysis applies to clause 4(A)(3): the obligations thereunder rest on Sibir not Tatik. As regards clauses 2.9 – 2.10 of the CT Villa Deed, clause 2.9 is a general obligation as to the application of the proceeds of sale of the Villa and I did not understand Tatik to contend that it was not bound by it. Clause 2.10, however, is addressed to the conduct of Sibir in particular circumstances. Here again, on the proper interpretation of the provision, I consider that it did not impose an obligation on Tatik. Slocom was not a party to the CT Villa Deed, but clause 9.8(B) of that deed provides: "9.8 In relation to the Contracts (Rights of Third Parties) Act 1999: … (B) where any term of this Deed is expressed to be made in favour of or is capable of applying for the benefit of Slocom, Slocom shall be entitled to enforce as if it were a party to this Deed; …" Both clauses 2.9 and 2.10 expressly provide that if the Villa is sold, the proceeds are to be applied as set out in paragraph (D) of the Introduction to the Power of Attorney, and thus (after discharging the costs and expenses of the sale) in repaying the debt to Slocom under the Derbent-Tatik Loan Agreement before discharging any amounts owed by Mr Tchigirinski or Tatik to Sibir. In my view, those are indisputably provisions capable of applying for the benefit of Slocom, and thus Slocom is entitled to enforce them pursuant to clause 9.8(B). In the light of this, it is unnecessary to consider whether paragraph (D) of the Introduction to the Power of Attorney imposes a free-standing contractual obligation which Slocom could enforce. But were Sibir and Tatik in breach of any of the provisions relied on? This turns on their proper construction as then applied to the actual way in which the Villa was sold. These are commercial contracts between business entities. The correct approach to interpretation is not in doubt. It was set out by the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 . There Lord Clarke JSC (with whose judgment Lords Phillips, Mance, Kerr and Wilson JJSC agreed) said at [21]: "The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other." And Lord Clarke referred (at [25]) with approval to the observations of Lord Steyn in Society of Lloyd's v Robinson [1999] 1 WLR 756 at 763: "Loyalty to the text of a commercial contract, instrument, or document read in its contextual setting is the paramount principle of interpretation. But in the process of interpreting the meaning of the language of a commercial document the court ought generally to favour a commercially sensible construction. The reason for this approach is that a commercial construction is likely to give effect to the intention of the parties. Words ought therefore to be interpreted in the way in which a reasonable commercial person would construe them. And the reasonable commercial person can safely be assumed to be unimpressed with technical interpretations and undue emphasis on niceties of language." Sibir and Maritime accept that, if the Derbent-Tatik Loan Agreement and the Derbent-Slocom Assignment are valid and effective, then pursuant to clause 10.2(b) of the Derbent-Tatik Loan Agreement, Tatik could only sell the Villa with the written consent of Slocom. They rely on clause 2.7 of the Subordination Deed, whereby Slocom consented to the entry by Mr Tchigirinski and Tatik into the CT Villa Deed. Their case is that the sale of the Villa by Tatik and its acquisition by Sibir (through Maritime) was conducted pursuant to clause 2.10(A) of the CT Villa Deed and not pursuant to the Power of Attorney. On that basis, it is submitted that there was no breach of any of the provisions in the April 2009 Agreements relied on by Slocom. I reject the final step in that argument. In my judgment, clause 2.10(A) of the CT Villa Deed falls to be interpreted in the context of the April 2009 Agreements as a whole. Those agreements were all entered into on the express basis that the Derbent-Tatik Loan Agreement and the Derbent-Slocom Assignment were valid and effective: see clause 13 of the Deed of Undertaking and Charge. The agreements were, in my view, clearly intended to provide a mechanism whereby Sibir could sell the Tatik shares and/or the Villa and apply the balance of the proceeds of sale to the liability owed by Mr Tchigirinski to Sibir after discharge of the debt owed to Slocom. That is why throughout the various agreements there are provisions which are manifestly included to protect Slocom's interests and ensure that no benefit given to Sibir would take precedence over the debt owed to, and security held by, Slocom. The recitals to the CT Villa Deed refer to the Power of Attorney as granting Sibir "the power to sell the Tatik Share and the [Villa]", and state that the Deed is designed to set out terms regarding "the manner in which" the Tatik Shares and the Villa are to be sold. The Deed expressly provides that it is subject to the Subordination Deed and that it "shall not in any way affect or prejudice the rights of Slocom" under either that Deed or the Second Tatik Stock Pledge: clause 1.4. Clauses 2.9 – 2.10(A) are as follows: "2.9 The proceeds of sale of a Sale Asset will be applied as set out in paragraph (D) of the Introduction to the Power of Attorney. 2.10 If any amounts are owed by CT and/or Tatik to Sibir or any member of the Sibir Group on 1 January 2010 and no Offer has been accepted by Sibir prior to that date, subject always to the terms of the [Subordination] Deed, Sibir shall be entitled to: (A) acquire either Sale Asset for the sum equal to the Fire Sale Valuation and to apply the proceeds of sale in the manner set out in paragraph (D) of the Introduction to the Power of Attorney; …" Paragraph (D) of the Introduction to the Power of Attorney provides: "CT and Tatik have agreed with Sibir that the Tatik Shares or the Villa Maria Irina are to be sold and the proceeds of sale are to be used: (1) First to discharge the costs and expenses of the sale (such as agents fees and legal expenses); (2) Second to repay the Slocom Debt; and (3) Third towards discharge of any amounts owing by CT or Tatik to Sibir and/or any Group Company" It is of course the case that no offer for the Villa had been accepted by 1 January 2010 and Sibir therefore was entitled by clause 2.10(A) to acquire the Villa at a Fire Sale Valuation. I accept that this is what Sibir did. But the wording of sub-clause (A) cannot be read literally to mean that on such a sale Sibir merely had an option, but not an obligation, to apply the proceeds of sale in the manner set out in paragraph (D) of the Introduction to the Power of Attorney. That is commercially nonsensical and would defeat one of the main purposes of these agreements. Indeed, since clause 2.9 applies to any sale made by Sibir pursuant to the preceding provisions of clause 2, and as it clearly does oblige Sibir to apply the proceeds in accordance with paragraph (D), it would be extraordinary if a radically different result ensued if the sale was to Sibir itself at a Fire Sale Valuation under clause 2.10. The bizarre consequence of the Defendants' construction is highlighted by the fact that until 31 December 2009, Sibir was not entitled to offer to sell the Villa for less than €240 million. It was only if no offer had been received at or above that price by 31 December 2009, that Sibir was then entitled to invite offers at a lower price: clauses 2.3-2.4. If the Defendants' construction were correct, it would mean that from 1 January 2010, if Sibir accepted an offer from a third party for sale of the Villa, it was bound to apply the proceeds of sale to discharge the debt to Slocom in priority to discharging the debts of Mr Tchigirinski and Tatik to Sibir; but if it chose to acquire the Villa itself, it was not. Accordingly, I consider that the obligation to comply with paragraph (D) of the Power of Attorney applies on the acquisition by Sibir of the Villa pursuant to clause 2.10(A). In my view, that flows from clause 2.10(A) itself, as properly interpreted; but if I am wrong on that, then I would hold that clause 2.9 is to be construed as covering a sale under clause 2.10(A). Furthermore, this obligation applies irrespective of whether a sale under clause 2.10(A) is to be regarded as actually made pursuant to the Power of Attorney. There is nothing in either the wording of the clause or the commercial context that would support such a restricted interpretation. The Defendants also contended that there were no "proceeds of sale" to which paragraph (D) could apply since Tatik received no cash sum. I consider that a hopeless argument. Nowhere do the agreements refer to "cash proceeds". It makes no commercial sense to construe the provision in this narrow sense, which would emasculate its effectiveness. As Mr Chambers and Mr John pointed out in their written closing for the Claimants, in the situation covered by clause 2.10(A) where Sibir would be acquiring the Villa itself, it was highly unlikely that there would be any cash proceeds of sale: "the purchase price that Sibir would pay would, in practice, always have been set off against the liabilities owed to Sibir by Tatik or [Mr Tchigirinski]." Further, I note that when the Defendants subsequently purported to act pursuant to clause 2.10(A) and provide for Sibir to acquire the Villa, the carefully crafted agreements entered into in January 2010 referred to deductions being made from "the proceeds of sale": see clauses 3.5-3.6 of the Villa Sale Deed. The Defendants advanced somewhat similar arguments regarding the trust provisions in clause 4(A) of the Subordination Deed. However, the question of construction there is different. The opening words engage the provision in respect of the receipt or recovery by Sibir of "a payment, distribution or other amount from or as a result of" the sale or transfer of the Villa "pursuant to and in accordance with any Subordinated Debt Document." The Power of Attorney is a "Subordinated Debt Document" but the CT Villa Deed is not: see clauses 2.6(A) and 2.7. Accordingly, unless the sale was pursuant to the Power of Attorney, I consider that on its ordinary wording clause 4(A) is not engaged. I have little doubt that this was not intentional and I think that it was probably an oversight which is understandable in the drafting of such complex and elaborate documents. I accept the Claimants' submissions that the proviso to clause 4(A), inserted "[f]or the avoidance of doubt", was to make clear that the trust and payment provisions would not apply to recoveries made by Sibir unrelated to the Tatik shares or the Villa but from Mr Tchigirinski's other assets. The Deed of Undertaking and Charge, pursuant to which the Subordination Deed was entered into, also imposed obligations on Mr Tchigirinski regarding such other assets, in particular the shares in a Cyprus trust which held the benefit of his London home, Hugh House in Belgravia. [15] Nonetheless, on established principles, I see no basis to imply a term to correct the clear meaning of clause 4(A), as the Claimants urged: see AG for Belize v Belize Telecom [2009] 1 WLR 1988 , and the principles summarised by Aikens LJ in Crema v Cenkos Securities plc [2011] 1 WLR 2066 at [38]-[39]. If this were to be corrected, it can only be by rectification, as to which no claim has been made. Was the sale made pursuant to the Power of Attorney? By the Power of Attorney, Tatik appointed Sibir as its attorney to act in its name and on its behalf in connection with all that might be involved in connection with the sale of the Villa "to any third party": clause 3.1. Any steps taken by Sibir pursuant to clauses 2.1 to 2.4 of the CT Villa Deed would accordingly have been taken under the Power of Attorney. However, once those proved abortive and arrangements for the sale of the Villa to Sibir's subsidiary proceeded under clause 2.10(A), Sibir was not acting on behalf of Tatik and was not acting in reliance on the Power of Attorney. Accordingly, although the obligation to apply the proceeds of sale in accordance with introductory paragraph (D) of the Power of Attorney nonetheless applied pursuant to clause 2.10(A) of the CT Villa Deed, as I have held above, the sale itself was not made pursuant to the Power of Attorney. This makes it unnecessary to consider the Claimants' further argument that, pursuant to clause 3.8 of the Power of Attorney, the power granted to Sibir to sell the Villa under clause 3.1 lapsed on 8 December 2009 when Slocom served notice of default under the Derbent-Tatik Loan Agreement. Accordingly, I find that there was no breach of clause 4(A)(3) of the Subordination Deed. For the same reason, I find that there is no breach of clause 2.6(B) of the Subordination Deed. Sibir did not sell the Villa in exercise of a right under a Subordinated Debt Document (as defined). As regards clause 5(B)(1) of the Subordination Deed, the Second Tatik Stock Pledge gave Derbent, thus Slocom as assignee, security over the shares in Tatik. It did not provide security over the Villa itself. Accordingly, the sale of the Villa by Tatik did not, in my view, impair the "ranking and/or subordination" of that security. It did, of course, fundamentally impair the value of the security, but that is not what the clause provides. Accordingly, I consider that there was no breach by Sibir of this provision. However, I have held that the sale of the Villa did not comply with either clause 2.10(A) or clause 2.9 (if applicable) of the CT Villa Deed. This means that not only was there a breach of those provisions but that Slocom's consent in clause 2.7 of the Subordination Deed to the entry into the CT Villa Deed cannot constitute its consent to such sale. Since that is the only basis of consent relied on, it follows that the sale was made without Slocom's consent. In consequence, Tatik was thereby in breach of clause 10.2(b) of the Derbent-Tatik Loan Agreement. If I were wrong on that, and Slocom is to be regarded as having given consent, then Tatik would be in breach of clause 10.1(f) since the proceeds of sale were not remitted to Slocom to be applied in discharge of Tatik's liability under the agreement. (8) Did Sibir and/or Maritime induce a breach of contract by Mr Tchigirinski and/or Tatik? Clause 10(c) and (e) of the Second Tatik Stock Pledge provide, insofar as material, that Mr Tchigirinski agrees with Derbent that: "(c) He shall not, whether before or after an Event of Default, exercise any of its [sic] rights as owner of the Pledged Collateral, including without limitation rights to vote in respect of the Pledged Shares or otherwise to give consents or waivers in respect of the Pledged Collateral, in a manner that would adversely affect (i) the interests of [Derbent] in the Pledged Collateral, (ii) the rights of [Derbent] under this Pledge Agreement or (iii) the interests and rights of [Derbent] in and under the [Derbent-Tatik] Loan Agreement; and (e) He shall not …; (ii) sell or dispose of or permit [Tatik] to sell or dispose of any of its property without the written consent of [Derbent]…." Although the Pledge is governed by New York law, no party suggested that this affected the interpretation to be given to its wording. Mr Tchigirinski exercised his right as sole shareholder in Tatik to dismiss the directors on 12 January 2010 and then appoint himself the sole director and procure that Tatik sold the Villa to Maritime in a manner that avoided any monies coming to Tatik. In my view, that conduct was clearly in breach of: i) his obligation under clause 10(c)(i), since the Tatik shares thereby became virtually valueless; ii) his obligation under clause 10(c)(iii), since this self-evidently and fundamentally impaired Tatik's ability to satisfy its liability under the Derbent-Tatik Loan Agreement; and iii) his obligation under clause 10(e)(ii): see above for my finding that clause 2.7 of the Subordination Deed did not constitute such consent. In the light of this, it is unnecessary to consider the Claimants' further allegations that Mr Tchigirinski was also in breach of the April 2009 Agreements, which largely mirror the allegations made against Tatik. The tort of inducing a breach of contract, as a tort of accessory liability, has essentially four ingredients: (i) there must be breach by a third party of its existing contract; (ii) the defendant must have induced that breach; (iii) the defendant must have knowledge of the contract; and (iv) he must intend there to be such a breach. As I have just stated, the sale of the Villa constituted a breach by Mr Tchigirinski of his contractual obligations and it is not in dispute that Sibir, and through it Maritime as its wholly owned subsidiary, had knowledge of the Second Tatik Stock Pledge and, indeed, the Derbent-Tatik Loan Agreement, so elements (i) and (iii) are satisfied. As regards inducement, it is probable that inconsistent dealing with the primary contracting party with knowledge that this would put the party in breach of his contract is sufficient to constitute inducement: see Clerk & Lindsell on Torts (20 th edn, 2010), para 24-42. But here, specific provisions were included in the 2010 Villa Sale Agreements to indemnify Mr Tchigirinski against any breach of the Tatik Stock Pledge caused by the entry into the Villa Sale Deed or the sale of the Villa: see recital (G) and clause 3.2(B) of the Villa Indemnity Deed. In my view, such a provision manifestly satisfies the criterion for inducement. I note that pursuant to clause 3.5, Sibir also agreed to indemnify Mr Tchigirinski against the cost of defending any resulting claim by Slocom. Although this indemnity was given only by Sibir, an indemnity from Maritime would have been of little value and I do not consider that Maritime, as the beneficiary of the Villa Sale Deed, can be dissociated from this inducement. Indeed, no such submission was advanced on behalf of Maritime. As for intention, the position is summarised in Clerk & Lindsell as follows, at para 24-19: "Where knowledge of the existence of a contract is proved on the part of a defendant who induces one party to break it, his intention to cause it to be broken is readily inferred. Belief that the contracts are not enforceable or, a fortiori, indifference whether breach will be caused by the inducement does not excuse the defendant." In OBG Ltd v Allan [2007] UKHL 21 , [2008] 1 AC 1 , Lord Hoffmann stated at [42]-[43]: "...what counts as an intention to procure a breach of contract. It is necessary for this purpose to distinguish between ends, means and consequences. If someone knowingly causes a breach of contract, it does not normally matter that it is the means by which he intends to achieve some further end or even that he would rather have been able to achieve that end without causing a breach... Again, people seldom knowingly cause loss by unlawful means out of simple disinterested malice. It is usually to achieve the further end of securing an economic advantage to themselves... On the other hand, if the breach of contract is neither an end in itself nor a means to an end, but merely a foreseeable consequence, then in my opinion it cannot for this purpose be said to have been intended" Here, the arrangements made with Mr Tchigirinski whereby he procured the sale of the Villa by Tatik to Maritime in the manner in which that was structured, and without obtaining the prior consent of Slocom (which obviously would not have been given), was precisely the means to an end, i.e. to secure the full benefit of the value of the Villa to Sibir and its subsidiary, without having to account for Tatik's liability under the Derbent-Tatik Loan Agreement. There was no evidence from Sibir that it proceeded with the sale in the belief that this would not put Mr Tchigirinski in breach of his obligations to Slocom. Accordingly, I find that the ingredients of the tort are made out. By parity of reasoning, I consider that Sibir and Maritime induced the breaches by Tatik which I have found established. Indeed, I note that Counsel for Sibir and Maritime did not particularly resist a finding that they were liable in tort if, contrary to all their main arguments, the Derbent-Tatik Loan Agreement and Derbent-Slocom Assignment were valid and effective and could not be set aside and, further, that Slocom was not held to have consented to the sale. (9) Can the sale of the Villa be impeached under section 423? In addition or as an alternative to their claims in debt and damages, the Claimants contend that the sale of the Villa falls within section 423 on the basis that it was sold at "a gross undervalue." On that basis, they seek an order that Maritime do re-transfer the Villa to Tatik or other relief as appropriate pursuant to section 425. However, in the first place, the Claimants recognise that this contention is open to them only if the sale was not made pursuant to clause 2.10(A) of the Subordination Deed, to which they had consented, but outside the scope of the 2009 Agreements. As I have held that it was pursuant to that provision, this claim falls away. Further and in event, I am not satisfied that the sale was at a significant undervalue. Although the Subordination Deed sets out, at clause 2.4(E), an agreement that the Villa was worth not less than €280 million, I do not consider that this can binding for the purpose of section 423, which gives an intrusive statutory power on the basis of actual value. Moreover, it is notable that in the CT Villa Deed, which was of course a related contract, the initial asking price for the Villa which the parties agreed to seek was €240 million: clause 2.2; and they acknowledged the possibility that no offer might be received at or above that level and that the price to be achieved would, unsurprisingly, depend on "market conditions at the relevant time": clauses 2.3-2.4. Under clause 2.4 of the CT Villa Deed, Sibir was under an obligation to: "use reasonable endeavours in good faith to market the [Villa] to obtain the best possible price in the light of the market conditions at the relevant time." It was only in the light of that experience, and if no offer was accepted by 31 December 2009, that Sibir was entitled to have the Villa acquired at a Fire Sale Valuation, which amount was to be determined by an independent valuer. Among the plethora of allegations of breach of contract advanced against Sibir, Counsel for the Claimants have not contended that Sibir was in breach of clause 2.4. [16] Further, the sale price followed an independent valuation from John Taylor, a firm of surveyors based in Cannes who are said to be experienced in valuing properties in the South of France. The Claimants have not called any evidence to challenge their valuation "for a quick sale" given on 8 January 2010 in the sum of €70 million. I note that their report comments as regards the condition of the Villa that although it was completely renovated in 2005, "the renovation does not meet the standard criteria for prestigious properties as the decoration is too personalized" [sic]. In those circumstances, the claim under section 423 fails. (10) Is Maritime's ownership of the Villa subject to an equitable mortgage? By clause 3.2 of the Derbent-Tatik Loan Agreement, Tatik agreed to execute a mortgage over the Villa in favour of Derbent by way of additional security for the amount outstanding under the Agreement. No such mortgage was ever executed. Mr Haener said that this was because Mr Tchigirinski had executed the Stock Pledge over the shares, and he was told that the cost of preparing a mortgage over the Villa itself was significant and so he did not press for this at the time. But whatever the explanation, it was not suggested that this obligation was waived (and see the "No Waiver" provision in clause 15). As a clear obligation contained in a written agreement under seal, I consider that this therefore gave rise to an equitable mortgage under established principles. Although this conclusion was formally not admitted by the Defendants, no argument against it was advanced. Maritime manifestly purchased the Villa with notice of the Derbent-Tatik Loan Agreement. Its parent company, Sibir, had a copy of the Agreement, Jones Day was advising the Sibir group as a whole, and Mr Tsibelman, who authorised Maritime to purchase the Villa, was a director of Sibir. Accordingly, as a matter of English law, Maritime acquired the Villa subject to the equitable mortgage. See Jared v Clements [1903] 1 Ch 428 . On that basis, the Claimants contended that the Court should grant a declaration as to the existence of the equitable mortgage and for an order for sale of the Villa and "such consequential relief as is appropriate upon enforcement of the equitable mortgage." In their Defences, the Defendants pleaded a jurisdictional objection to this based on Article 22 of the EU Judgments Regulation, Council Regulation (EC) 44/2001, but that was expressly abandoned at trial. However, although I see no reason why an equitable mortgage should not be binding on Maritime, scant submission was made as to what, if any, remedy follows from this when the property concerned is abroad (and Maritime is of course also a foreign company). The usual remedies for the mortgagee in the case of an equitable mortgage are now derived from section 101 of the Law of Property Act 1925, but it was not suggested that those statutory remedies apply in the case of foreign land. If this is pursued, it may also be necessary to consider the position under French law, as the lex situs : see Dicey, Morris & Collins , The Conflict of Laws (15 th edn, 2012), para 23-046. I will therefore invite further argument as to whether any additional remedy should be granted in this regard. I should add for completeness that in their written closing, the Claimants' Counsel also submitted that an equitable mortgage arose out of the terms of the Subordination Deed. However, this allegation was not pleaded and accordingly it would be inappropriate to entertain it. (11) Is Sibir entitled to set aside the Derbent Settlement Agreement? Under the Derbent Settlement Agreement of 25 June 2009, Sibir and its subsidiaries that are claimants in the Sibir proceedings agreed to settle that action as against Derbent. Clause 3 of the agreement provides for the submission to a Tomlin Order in those proceedings, and clause 4 sets out a covenant not to bring further claims or start other proceedings against Derbent related to the subject matter of the Sibir proceedings. Clause 3.4 makes clear that this obligation on the part of Sibir and the other claimants was subject to "compliance by Derbent with any warranty, undertaking or obligation given by Derbent or entered into by Derbent under or pursuant to this Settlement Deed"; and Clause 4.5 similarly provides: "The covenants set out in this Clause 4 shall cease and terminate absolutely and automatically if Derbent breaches or is in breach at any time of any warranty, undertaking or obligation given by Derbent or entered into by Derbent under or pursuant to this Settlement Deed. " By clause 5.1(c) of The Derbent Settlement Agreement, Derbent warranted that the statement of its assets and liabilities set out in exhibit B to the agreement was accurate and complete. That balance sheet as at 31 May 2009 showed Derbent as having no assets. Sibir raised a Part 20 claim against Derbent contending that it was in breach of warranty since the assets fail to include the loan under the Derbent-Tatik Loan Agreement. However, since I have found that the Derbent-Slocom Assignment of 24 December 2008 was valid, this statement was correct. I note that the balance sheet of Slocom as at 31 December 2008 prepared by Mr Schneebeli by June 2009 duly shows the loan as an asset of Slocom. Secondly, Sibir relied on the provision in clause 11 of the Derbent Settlement Agreement which specifically exempts from the "entire agreement" clause the "specific matter" confirmed by Cleary Gottlieb to Mr Shuttleworth on 16 June 2009: see para 209 above. However, I reject as misconceived Sibir's argument that this saving provision served to convert the oral statement of Ms Roberts into a contractual warranty. On the contrary, clause 5.2 of the agreement provides: "Derbent acknowledges that the terms of this Settlement Deed have been agreed on the basis of and in reliance on the aforesaid warranty and representation given in this Clause 5." The "specific matter" referred to in clause 11 is notably not included as one of the matters set out in clause 5.1 as the warranties given by Derbent. Had the parties wished to render that statement a warranty for the purpose of the Derbent Settlement Agreement, it would doubtless have been listed under clause 5.1. Accordingly, the misrepresentation given over the telephone on 16 June 2009 regarding Mr Towers does not constitute a breach of warranty. It was not suggested that this statement could constitute the breach of any other undertaking under the Derbent Settlement Agreement. It follows that the provision of clause 4.5 (or clause 3.4, which was not specifically relied on) is not engaged. Accordingly, there is no basis to set aside the settlement or to permit Sibir to reinstate the Sibir proceedings as against Derbent. CONCLUSION For the reasons set out above, I find that: i) the Derbent-Tatik Loan Agreement and the Second Tatik Stock Pledge are valid and effective agreements; ii) the Derbent-Slocom Assignment does not fall within section 423; iii) Tatik is liable to Slocom in debt as assignee under the Derbent-Tatik Loan Agreement; iv) Tatik is liable to Slocom for damages for breach of clause 10 of the Derbent-Tatik Loan Agreement; v) Sibir is liable to Slocom for damages for breach of the Subordination Deed and of the CT Villa Deed, and for inducing breach by Mr Tchigirinski of the Second Tatik Stock Pledge and by Tatik of the Derbent-Tatik Loan Agreement; vi) Maritime is liable to Slocom for damages for inducing breach by Mr Tchigirinski of the Second Tatik Stock Pledge and by Tatik of the Derbent-Tatik Loan Agreement; vii) the sale of the Villa by Tatik to Maritime does not fall within section 423; viii) there shall be a declaration that the Villa is held by Maritime subject to an equitable mortgage in favour of Slocom; and ix) Sibir's claim to set aside its settlement with Derbent and reinstate its proceedings against Derbent is dismissed. I shall hear Counsel as to the appropriate orders to be made consequent upon this judgment. APPENDIX 1 Schedule 1 to the Derbent-Tatik Loan Agreement Breakdown of the Original Loans and accrued interest No Date of advance Outstanding amount (in Euro) Accrued but unpaid interest as of the date of this Agreement 2 May 2006 28,125,000.00 617,187.50 3 June 2008 1,923,077.00 148,824.79 2 December 2008 809,647.50 5,352.67 Total: 30,857,724.50 771,364.96 771,364.96 Total Outstanding Loan Amount plus Accrued but Unpaid Interest 31,629,089.46 31,629,089.46 31,629,089.46 Arrangement Fee 1,500,000.00 1,500,000.00 1,500,000.00 TOTAL: 33,129,089.46 33,129,089.46 33,129,089.46 APPENDIX 2 EXTRACTS FROM THE APRIL 2009 AGREEMENTS (I) THE DEED OF UNDERTAKING AND CHARGE This is made between Sibir and Mr Tchigirinski ("CT") as a deed governed by English law. "INTRODUCTION A. CT and/or the CT Entities (as defined below) owe the Sibir Debt (as defined below) to Sibir and/or other member(s) of the Sibir Group. B. By way of security for the amounts owned in respect of the Sibir Debt, CT has agreed to: …. b. grant a charge of the Tatik Shares (as defined below) and to procure that, in turn, Tatik grants a charge over the French Villa (as defined below). … D. the Parties have agreed to enter into this Deed to give effect to the matters mentioned above. 1. INTERPRETATION .1 In this Deed, the following words and expression shall have the following meanings unless the context otherwise requires: …. "CT Entities" means all and any companies directly or indirectly beneficially owned by CT… "Derbent Loan Agreement" means the [Derbent-Tatik Loan Agreement] in relation to certain loans comprising in aggregate €33,129,089.46 which it was acknowledged and agreed between the parties to that agreement were owed by Tatik to Derbent …, as subsequently amended by supplemental agreement dated 24 December 2008; "Derbent Loans" means that aggregate amount of €33,129,089.46 acknowledged agreed under the Derbent Loan Agreement to be owing by Tatik to Derbent …; "Derbent/Slocom Assignment Documents" means all and any of the following: (a) the loan assignment dated 24 December 2008 entered into between (1) Derbent … and (2) Slocom … in relation to the assignment of the benefit of the Derbent Loans under the Derbent Loan Agreement; (b) the notice of assignment dated 24 December 2008 from Derbent … and Slocom … to Tatik giving notice of assignment of the Derbent Loans; (c) the assignment agreement dated 24 December 2008 entered into between (1) Derbent … and (2) Slocom … in relation to the assignment of the benefit of the Tatik Stock Pledge; and (d) the notice of assignment dated 24 December 2008 from Derbent … to CT giving notice of assignment of the Tatik Stock Pledge …. "French Villa Security" means such Encumbrance over the French Villa to be granted by Tatik in favour of Sibir and each other member of the Sibir Group as, and in such form as, may be required from time to time by Sibir (such Encumbrance to rank behind any present or future Encumbrance over or in respect of the French Villa granted or to be granted by Tatik in favour of Slocom in each case in respect of the [Derbent-Tatik Loan Agreement as assigned to Slocom]); "Further Security" means the further Encumbrance or Encumbrances in respect of the Secured Obligations required to be entered into pursuant to clause 3; … "Intercreditor Arrangements" means in relation to any Further Security, such subordination arrangements between, amongst others, CT (and/or relevant CT Entity), any Priority Chargee and Sibir … as may be acceptable to Sibir: … "Priority Chargee" means: … (B) in the case of any existing Encumbrance over the Tatik Shares, Slocom; "Sibir Debt" means all and any amounts due from CT and/or CT Entities to Sibir and/or other member(s) of the Sibir Group; … "Tatik Shares" means the entire issued share capital of Tatik. "Tatik Shares Security" means the security over the Tatik Shares in the forms set out in Part A (as regards an English law charge) and Part B (as regards a US law charge) of Schedule 2 (or such other form as may be required or approved by Sibir); … 3. PROVISION OF FURTHER SECURITY .1 CT hereby irrevocably and unconditionally commits and undertakes to Sibir that: (A) immediately after entry into by him of this Deed he shall: (1) duly execute, date and deliver the Tatik Shares Security and the related Intercreditor Arrangement; … 11. GENERAL … 11.8 In relation to the Contracts (Rights of Third Parties) Act 1999: (A) where any term of this Deed is expressed to be made in favour of or is capable of applying for the benefit of … (ii) pursuant to clause 13.1, Derbent or Slocom, … Derbent or Slocom (as applicable) shall be entitled to enforce as if it were a party to this Deed: (B) save as described in clause 11.8 (A) the Parties do not intend that any term of this Deed is enforceable under that Act by a person who is not a Party; … … 13. CONFIRMATION OF ASSIGNMENT OF LOANS AND RELATED BENEFITS 13.1 CT acknowledges and agrees that: (A) all of the Original Loans owed by the Original Lenders to the Original Borrowers (in each case as such terms are defined in the Derbent Loan Agreement and referred to below in this clause as the "Derbent Loans" ) were fully and effectively consolidated by virtue of the Derbent Loan Agreement; (B) the benefit of all and any legal and beneficial interests in the Derbent Loans and all interest and other amounts payable in respect thereof have, together with the benefit of all related security entered into in connection therewith, been fully and effectively assigned by Derbent to Slocom … pursuant to the Derbent/Slocom Assignment Documents and now comprise obligations due in favour of Slocom … and not Derbent …; and (C) it was his intention that the Obligations referred to in the Tatik Pledge Agreement included Tatik's obligations under and in connection with the Derbent Loans and the Derbent Loan Agreement. .2 Subject to clause 11.8, the provisions of clause 13.1(C) may be relied upon by Derbent and Slocom notwithstanding that they are not Parties to this Deed." (II) THE SUBORDINATION DEED This Deed is made between Slocom, Sibir, Mr Tchigirinski ("CT") and Tatik, executed as a deed under English law. "1.1 Definitions "CT Deed" means the [CT Villa Deed]. "Discharge Date" means the earlier of: (A) the date on which Slocom is satisfied the Senior Debt has been unconditionally and irrevocably paid and discharged in full; and (B) the date on which the Senior Security is discharged and released in full by Slocom. "French Villa" means the [Villa] "French Villa Security" means the Senior French Villa Security and the Subordinated French Villa Security. "Letter of Undertaking" means the letter dated on or around the date of this Deed given by Tatik in favour of Sibir in which Tatik agrees to grant the Subordinated French Villa Security. "Party" means a party to this Deed. "Power of Attorney" means the [Power of Attorney] "Relevant Asset" means, at any time, any asset of CT and/or Tatik which is, at that time: (A) the subject of any Security pursuant to any Subordinated Security; and/or (B) capable of being sold, transferred or otherwise disposed of by Sibir pursuant to and in accordance with the Power of Attorney. "Relevant Security" means the Senior Security and the Subordinated Security. "Security" means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect. "Senior Debt" means: (A) €33,129,089.46 or such lesser amount of principal outstanding under or in respect of the Senior Facility Agreement as at the date of this Deed; and (B) all accrued but unpaid interest thereon in accordance with the terms of the Senior Facility Agreement. "Senior Facility Agreement" means the [Derbent-Tatik Loan Agreement] as assigned by Derbent … to Slocom pursuant to an assignment agreement dated 24 December 2008. "Senior French Villa Security" means the first ranking Security to be granted after the date of this Deed by Tatik in favour of Slocom over Tatik's interests in the French Villa as Security for the Senior Debt. "Senior Security" means the Security created or purported to be created pursuant to the Senior Security Agreement and/or the Senior French Villa Security. "Senior Security Agreement" means the [Tatik Stock Pledge] subsequently assigned to Slocom pursuant to an assignment dated 24 December 2008. "Shares" means all of the shares in the share capital of Tatik … held by, to the order or on behalf of CT at any time, comprising without par value common stock. "Sibir Group" means Sibir and each and all of its subsidiaries and subsidiary undertakings from time to time, …; "Subordinated Creditor" means Sibir (for itself and each member of the Sibir Group) and any person that has become a Subordinated Creditor in accordance with clause 9.2(B). "Subordinated Debt" means all of the obligations and liabilities of CT or any other person to Sibir or any other person and in respect of which any Subordinated Security Agreement creates or purports to create Security. "Subordinated French Villa Security" means the Security to be granted after the date of this Deed by Tatik in favour of Sibir over Tatik's interests in the French Villa as Security for the Subordinated Debt (such Security to rank behind the Senior French Villa Security). "Subordinated Security" means the Security created or purported to be created pursuant to any Subordinated Security Agreement and/or the Subordinated French Villa Security. "Subordinated Security Agreement" means: (A) the English law share pledge over the Shares dated on or about the date of this Deed granted by CT in favour of Sibir as Security for the Subordinated Debt; or (B) the New York law share pledge over the Shares dated on or about the date of this Deed granted by CT in favour of Sibir as Security for the Subordinated Debt. …. 2.1 Ranking The Relevant Security will rank in right and priority in the following order: (A) first , the Senior Security; and (B) second , the Subordinated Security. … 2.3 Consents: Relevant Security (A) Notwithstanding the terms of the Senior Security (but subject always to the terms and conditions of this Deed), Slocom hereby acknowledges and consents to the entry by CT and Tatik into: (1) the Subordinated Security; and (2) any further or additional documents, agreement or other arrangements as may be requested or required by Sibir pursuant to and in accordance with the terms of any Subordinated Security (together the 'Further Assurance Requirements') provided always that no Further Assurance Requirement is or would be reasonably expected (directly or indirectly), to result in the ranking of the Relevant Security and/or subordination of the Subordinated Security being prejudiced or impaired in any respect. 2.4 Consents: French Villa It is agreed between the Parties that: …. (E) the amount secured by each of the Subordinated French Villa Security will be limited to the value of the French Villa (which Shall not be less than €280,000,000 and which shall be deemed to be €280,000,000 if no agreement on the value of the French Villa can be reached) … 2.5 Consents: Power of Attorney … (C) Sibir, CT and Tatik hereby acknowledge and agree that the Power of Attorney shall terminate immediately upon any action being taken by Slocom to enforce all or any part of the Senior Security and/or to enforce, claim and/or recover all or any part of the Senior Debt. 2.6 Confirmation It is hereby acknowledged and agreed by the Parties that: (A) the Subordinated Security, Further Assurance Requirement and the Power of Attorney (together the "Subordinated Debt Documents") are subject to the terms of this Deed; (B) any enforcement rights pursuant to the Subordinated Debt Documents shall only be exercised by Sibir in accordance with this Deed; (C) if there is any inconsistency between the terms of the Subordinated Debt Documents and this Deed, the terms of this Deed shall prevail in all respects; and (D) the provisions of this Deed shall not in any way impair or prejudice the rights of Slocom under the Senior Security Agreement or the ranking and/or subordination of the Senior Security. 2.7 CT Deed and Letter of Undertaking (A) Subject always to the terms and conditions of this Deed (including without limitation clause 2.7(B) below), Slocom hereby acknowledges and consents to the entry by CT and Tatik into the CT Deed and the Letter of Undertaking. (B) It is hereby acknowledged and agreed by the Parties that: (1) the CT Deed and the Letter of Undertaking are subject to the terms of this Deed; and (2) if there is any inconsistency between the terms of the CT Deed and/or the Letter of Undertaking and the terms of this Deed, the terms of this Deed shall prevail in all respects. …. 4. TURNOVER (A) If, at any time before the Discharge Date, Sibir or any person on behalf of Sibir receives or recovers a payment, distribution or other amount from or as a result of (i) the sale, transfer or disposal of any Relevant Asset by or on behalf of Sibir pursuant to and in accordance with any Subordinated Debt Document or (ii) the exercise or enforcement of all or any part of the Subordinated Security against any Relevant Asset by or on behalf of Sibir (in each case, a "Recovered Amount" ), the Parties hereby agree that: (1) Sibir will notify Slocom of such receipt or recovery (the "Sibir Notification"); (2) promptly and in any event within five Business Days following the giving of the Sibir Notification, Slocom will notify Sibir in writing (the "Slocom Notification") of the amount of the Senior Debt that is owing to Slocom on that date together with a reasonable estimation of amounts that will become due and payable to Slocom pursuant to and in accordance with the terms of the Senior Facility Agreement on the scheduled Discharge Date (and the estimated amount due on the scheduled Discharge Date shall be referred to as the "Slocom Repayment Amount"); (3) Sibir will: (a) firstly: deduct from the Recovered Amount (and Sibir may retain for its own account) an amount equal to all reasonable taxes, fees costs and other expenses paid, payable or incurred by or on behalf of Sibir in connection with the disposal of any Relevant Asset pursuant to and in accordance with any Subordinated Debt Document (the "Deducted Costs"); (b) secondly: hold an amount equal to the lesser of (such amount shall be the "Trust Amount" ): (i) the balance of the Recovered Amount after the Deducted Costs have been deducted from the Recovered Amount pursuant to paragraph (a) above; and (ii) the Slocom Repayment Amount (or, if no Slocom Notification has been received by Sibir at the time and in the manner set out in paragraph (2) above, an amount equal to Sibir's reasonable assessment of the Slocom Repayment Amount provided that such amount shall not be less than the principal amount outstanding at that time under the Senior Facility Agreement together with a reasonable estimate of accrued and unpaid interest payable under the Senior Facility Agreement), on trust for Slocom for application by Slocom in or towards payment of all the Senior Debt and (c) thirdly: promptly and, in any event, within five Business Days of the determination of the Trust Amount in accordance with paragraph (b) above, pay an amount equal to the Trust Amount to Slocom (or such other person as Slocom might direct). If the trust referred to in paragraph (3)(b) above fails for any reason, Sibir will pay Slocom an amount equal to the Trust Amount that would otherwise have been subject to the trust referred to in paragraph (3)(b) above; and (4) following payment of the Trust Amount to Slocom in accordance with this clause 4(A), Sibir may apply all or any part of the Recovered Amount which is in excess of the Trust Amount (if any) in or towards repayment or settlement of all or any part of the Subordinated Debt. For the avoidance of doubt, any amount received or recovered by or on behalf of Sibir in repayment, prepayment or otherwise in respect of or on account of the Subordinated Debt (or any part thereof) other than as a result of: (i) the sale, transfer or disposal of any Relevant Asset by or on behalf of Sibir pursuant to and in accordance with any Subordinated Debt Document, and/or (ii) the exercise or enforcement of all or any part of the Subordinated Security against any Relevant Asset by or on behalf of Sibir, shall not be subject to the provisions of this clause 4(A) and Sibir may receive, recover and retain the same without any restriction whatsoever. …. 5. REPRESENTATIONS AND UNDERTAKINGS (A) Slocom represents to Sibir that the copies of the Senior Security Agreement and the Senior Facility Agreement provided to Sibir by or on behalf of Slocom prior to the date of this Deed are correct, complete and in full force and effect as at the date of this Deed. (B) Until the Discharge Date has occurred, Sibir undertakes in favour of Slocom that it will not and will procure that no member of the Sibir Group shall (except with the prior written consent of Slocom): (1) take or omit to take any action which would be reasonably expected, directly or indirectly, to result in the ranking and/or subordination of the Senior Security being prejudiced or impaired in any respect; … 6. PROTECTION OF SUBORDINATION 6.1 Continuing Subordination The subordination provisions in this Deed constitute a continuing subordination until the Discharge Date. 6.2 Waiver of Defences The provisions in this Deed will not be affected by any act, omission, matter or thing which but for this Clause 6 ( Protection of subordination ) would reduce, release or otherwise prejudice the subordination and priorities in this Deed or the obligations of Sibir, Tatik and/or CT under this Deed including, without limitation: … (F) any unenforceability, illegality or invalidity of any obligation of any person under any document or security; …" (III) THE CT VILLA DEED This was executed as a deed under English law between Mr Tchigirinski ("CT"), Tatik and Sibir. "INTRODUCTION (A) CT and Tatik have by a Power of Attorney of the same date as this Deed (the " Power of Attorney ") granted Sibir the power to sell the Tatik Shares and the Villa Maria Irina (as those expressions are defined in the Power of Attorney). (B) The parties have agreed the terms set out in this Deed with regard to the manner in which the Tatik Shares and the Villa Maria Irina are to be sold. AGREEMENT 1. INTERPRETATION .1 In this Deed, the words and expression which are defined in the Power of Attorney referred to in paragraph (A) of the Introduction to this Deed shall have the same meanings when used in this Deed unless the context otherwise requires; .2 In this Deed the expressions "Fire Sale Valuation" shall mean in relation to a Sale Asset such amount as an Independent Valuer experienced in the valuation of assets such as the Sale Asset reports to Sibir is the fair value of the Sale Asset in an arm's length transaction where the seller has to find a buyer for the relevant asset within one month of it being offered for sale. … .4 This Deed is subject to the terms of the [Subordination] Deed. If there is any inconsistency between the terms of this Deed and the [Subordination] Deed, the terms of the [Subordination] Deed shall prevail in all respects. It is hereby acknowledged and agreed by the Parties that the provisions of this Deed shall not in any way affect or prejudice the rights of Slocom under the Slocom Share Pledge and/or the [Subordination] Deed. .5 Notwithstanding clause 2.1 of the Power of Attorney and the other terms of the Power of Attorney, as between the Parties the terms of clause 2 and the terms of this Deed shall take precedence and bind the Parties. 2. SALE OF THE TATIK SHARES OR VILLA MARIA IRINA .1 Sibir will offer the Villa Maria Irina for sale at such time as it thinks fit either directly and/or via a sale of the Tatik Shares (as Sibir shall in its entire unfettered discretion decide) and in this Deed the asset to be sold is referred to as the "Sale Asset." .2 The price at which the Sale Asset will initially be offered for sale is €240,000,000 (Two Hundred and Forty Million Euros) (the "Initial Asking Price"). .3 If no offer is received for the Sale Asset at or above the Initial Asking Price by 31 December 2009 Sibir shall be entitled to invite offers for the Sale Asset at such lower price as it thinks fit. .4 ... Sibir shall use reasonable endeavours in good faith to market the Sale Asset to obtain the best possible price in the light of market conditions at the relevant time. … .9 The proceeds of sale of a Sale Asset will be applied as set out in paragraph (D) of the Introduction to the Power of Attorney. .10 If any amounts are owed by CT and/or Tatik to Sibir or any member of the Sibir Group on 1 January 2010 and no Offer has been accepted by Sibir prior to that date, subject always to the terms of the [Subordination] Deed, Sibir shall be entitled to: (A) acquire either Sale Asset for the sum equal to the Fire Sale Valuation and to apply the proceeds of sale in the manner set out in paragraph (D) of the Introduction to the Power of Attorney; or (B) enforce all or any security which it has over the the Tatik Shares and/or the Villa Maria Irina; … … 9. GENERAL … 9.8 In relation to the Contracts (Rights of Third Parties) Act 1999: … (B) where any term of this Deed is expressed to be made in favour of or is capable of applying for the benefit of Slocom, Slocom shall be entitled to enforce as if it were a party to this Deed; …" (IV) THE POWER OF ATTORNEY This is executed as a deed under English law between Mr Tchigirinski ("CT"), Tatik and Sibir. By clause 1.1, the "Slocom Debt" is defined as €33,129,089.46 "or such lesser amount of principal outstanding under or in respect of" the Derbent-Tatik Loan Agreement as assigned to Slocom under the Derbent-Slocom Assignment and all accrued but unpaid interest thereon. "INTRODUCTION (A) CT is the legal holder and beneficial owner of the entire issued share capital of Tatik … (the " Tatik Shares "). .. . (B) By [the Tatik Stock Pledge] subsequently assigned to … (" Slocom ") pursuant to an assignment dated 24 December 2008 (the " Slocom Share Pledge ") the Tatik Shares are charged to Slocom by way of security in respect of the Slocom Debt (as defined below). (C) Tatik owns the … (" Villa Maria Irina ") free from any Encumbrances. (D) CT and Tatik have agreed with Sibir that the Tatik Shares or the Villa Maria Irina are to be sold and the proceeds of sale are to be used: (1) First to discharge the costs and expenses of the sale (such as agents fees and legal expenses); (2) Second to repay the Slocom Debt; and (3) Third towards discharge of any amounts owing by CT or Tatik to Sibir and/or any Group Company and in order to facilitate that sale CT and Tatik have agreed to enter into this Deed. 1. INTERPRETATION .1 In this Deed, the following words and expressions shall have the following meanings unless the context otherwise requires: … "Tatik Power of Attorney" means the Power of Attorney granted by Tatik in favour of Sibir under clause 3 (and principally clause 3.1); … .3 This Deed is subject to the terms of the [Subordination] Deed. If there is any inconsistency between the terms of this Deed and the [Subordination] Deed, the terms of the [Subordination] Deed shall prevail in all respects. It is hereby acknowledged and agreed by the Parties that the provisions of this Deed shall not in any way affect or prejudice the rights of Slocom under the Slocom Share Pledge and/or the [Subordination] Deed. … 3. TATIK APPOINTMENT OF SIBIR AS ATTORNEY .1 Tatik hereby appoints Sibir to be Tatik's true and lawful attorney and in Tatik's name and on Tatik's behalf and as Tatik's act and deed, to negotiate, approve, agree to, execute, deliver and do any acts, documents and things as may seem to Sibir to be necessary or desirable in connection with sale and transfer of Villa Maria Irina to any third party and at any price obtainable by Sibir on an arm's length basis including (without limitation) by means of giving instructions on Tatik's behalf to any reputable selling agent who in the opinion of Sibir has the requisite experience to obtain offers for Villa Maria Irina, to effect the sale of Villa Maria Irina in such manner as Sibir may in its sole and unfettered discretion decide. … .8 The Tatik Power of Attorney granted hereunder shall terminate immediately upon any action being taken by Slocom to enforce all or any part of the security created or purported to be created by the Slocom Share Pledge and/or to enforce, claim and/or recover all or any part of the Slocom Debt. … 9. WARRANTIES .1 CT and Tatik represent and warrant to Sibir (for themselves and for the benefit of each other Group Company) and undertake for the duration of this Deed that: (A) the statements in the Introduction to this Deed are true and accurate in all respects; … 10. GENERAL … 10.8 In relation to the Contracts (Rights of Third Parties) Act 1999; … (B) Where any term of this Deed is expressed to be made in favour of or is capable of applying for the benefit of Slocom, Slocom shall be entitled to enforce as if it were a party to this Deed; …" APPENDIX 3 EXTRACTS FROM THE JANUARY 2010 AGREEMENTS (I) THE DEED OF ACKNOWLEDGMENT OF LIABILITY This was executed between Mr Tchigirinski ("CT"), Tatik and Sibir as a deed governed by English law. " WHEREAS (A) Sibir, Caraline and Magma issued a claim in the High Court of Justice of the United Kingdom [sic] on 25 March 2009 (Claim No. 2009/395) against, among others, CT (the " Sibir Proceedings "). (B) It is alleged in the Sibir Proceedings that CT is liable to account to Sibir for sums in excess of US$400 million. (C) CT is the legal and beneficial owner of the entire share capital of Tatik. (D) By the Tatik Commitment Deed dated 30 April 2009, Tatik covenanted to Sibir to discharge all obligations owing to Sibir or any member of the Sibir Group by CT or, inter alios, Tatik (the " Tatik Commitment Deed "). (E) CT has agreed that he owes Sibir and its Subsidiaries the sum of US$424,260,194 less any monies recovered by Sibir in connection with the Sibir Proceedings at the date of the demand and certain other amounts as specifically set out in this Deed (the " Accepted Liability "). (F) Because of the Tatik Commitment Deed, Tatik is liable to Sibir in respect of the Accepted Liability. (G) CT and Tatik have agreed to satisfy $71,781,233 (€49,504,299) of the Accepted Liability by the issuance by Tatik to Sibir of a Promissory Note for that amount (" Promissory Note "). CT has also agreed to indemnify Sibir against any failure by Tatik to perform its obligations under the Promissory Note. (H) Sibir has also agreed to cap the amount of the Accepted Liability for which Tatik is liable under the Tatik Commitment Deed to $298,218,767. (I) The Parties acknowledge and accept that in entering into this document, no election is made or release of waiver given by Sibir, Caraline or Magma as to the claims or remedies in relation to the subject matter of the Sibir Proceedings, and that their rights hereunder are strictly without prejudice to any claims and remedies including any proprietary claims or remedies which they may have against any third party. OPERATIVE PROVISIONS … 2. CT'S LIABILITY Without prejudice to Sibir's contentions as to CT's liability under the Sibir Proceedings, and without any admissions having been made by CT, it is hereby acknowledged and agreed by the Parties that: (A) as at the date of this Deed, CT owes Sibir and its Subsidiaries an amount equal to the Accepted Liability; and (B) the terms upon which the Accepted Liability is to be repaid by CT to Sibir and its Subsidiaries are set out in this Deed. 2.2 Forthwith on the execution of this Deed: (A) Tatik shall execute the Promissory Note and deliver it to Sibir in satisfaction of an amount of the Accepted Liability equal to the Promissory Note Amount; (B) CT shall execute the CT Deed of Indemnity and deliver it to Sibir; (C) CT and Tatik shall procure the release of the August Rent by Burger Sotheby's to Sibir. 2.3 If any [shortfall between the amount deducted by Maritime from the proceeds of sale on account of tax liabilities and the actual tax liabilities of Tatik ("Shortfall")] arises the amount thereof with effect there from will be added to and form part of the Accepted Liability. 2.4 Subject to clause 2.5 below, upon the completion of the acquisition by [Maritime] of the [Villa] pursuant to the Sale Deed (and to the Promissory Sale Agreement and the Final Sale Agreement referred to therein) Sibir shall covenant not to demand repayment of the Accepted Liability from CT. 2.5 The covenant set out in clause [2.4] shall cease and terminate absolutely and automatically if the acquisition by [Maritime] of the [Villa] is avoided, unwound, or otherwise ceases to be effective for any reason. 2.6 CT, Tatik and Sibir agree that they will each use their best endeavours to defend any legal challenges in relation to the acquisition of the [Villa] by [Maritime]. 3. TATIK'S LIABILITY Sibir hereby agrees with Tatik that with effect from the delivery of the Promissory Note to Sibir the maximum liability in respect of the Accepted Liability under the Tatik Commitment Deed is the aggregate of: (A) 298,218,767 Dollars; (B) the amount of any Shortfall; and (C) interest thereon at [1% above LIBOR] from (and including) the date of this Deed…" (II) THE VILLA SALE DEED This was executed between Mr Tchigirinski ("CT"), Tatik and Maritime as a deed governed by English law. " INTRODUCTION (A) Tatik is the legal and beneficial owner of the [Villa]… ("Villa Maria Irina"). (B) CT is the legal and beneficial owner of the entire share capital of Tatik. (C) On 13 January 2010 Tatik issued a Promissory Note (the " Promissory Note ") for $71,781,233 (€49,504,299) in favour of Sibir Energy plc (" Sibir "). (D) By a Deed of Assignment dated 13 January 2010, Sibir has assigned the Promissory Note to SibVil Holdings SARL, a company incorporated under the laws of Luxembourg with registered number B150253 (" SibVil ") which is a wholly owned subsidiary of Sibir. (E) By a Deed of Assignment dated 13 January 2010, SibVil has assigned the Promissory Note to [Maritime], which is a wholly owned subsidiary of SibVil. (F) Accordingly, at the date of this Deed Tatik is indebted in respect of the Promissory Note to [Maritime]. (G) The Parties have agreed that the sale of Villa Maria Irina by Tatik to [Maritime] will be implemented in the manner set out in this Deed by means of a notarised sale agreement under French law… … 2. SALE OF VILLA MARIA IRINA … 2.2 If the Final Sale Agreement is entered into, the obligation of Tatik to make payment under the Promissory Note will be offset against the obligation of [Maritime] to pay an equal amount of the purchase price for Villa Maria Irina to Tatik under the Final Sale Agreement. 2.3 [Maritime] will not demand payment under the Promissory Note until it is no longer entitled to acquire Villa Maria Irina pursuant to the Final Sale Agreement. … 2.5 The price of €70,000,000 (seventy million euro) payable by [Maritime] to Tatik under the Final Sale Agreement will be satisfied as follows: (A) Promissory Note As to €49,504,299 (forty nine million, five hundred and four thousand, two hundred and ninety nine euros) by offset against the obligation of Tatik to pay that amount under the Promissory Note. (B) Payment in Cash As to €19,795,701 (nineteen million seven hundred and ninety five thousand seven hundred and one euros) in cash on the day of signature of the Final Sale Agreement as follows: (1) as to €18,638,095 (eighteen million, six hundred and thirty eight thousand and ninety five euro) to such account of the Notary as he may notify to [Maritime] in respect of the tax anticipated to be payable by Tatik under French law as a result of the sale of Villa Maria Irina by Tatik to [Maritime]; (2) as to €1,157,606 (one million one hundred and fifty seven thousand six hundred and six euro) to the following account of Lovells LLP (acting for the [sic] Tatik) in respect of the tax anticipated to be payable by the Tatik under the laws of the United States of America as a result of the sale of the Villa Maria Irina by Tatik to [Maritime]: … (C) Payment by way of offset against obligation to pay a fee As to €700,000 (seven hundred thousand euro) by the offset of the liability of [Maritime] to pay that amount to Tatik in respect of the purchase price payable under the Final Sale Agreement against the liability (which Tatik hereby undertakes to [Maritime]) of Tatik to pay a fee of that amount to [Maritime] in return for [Maritime] acting as the tax representative of Tatik under clause 3.2. 3. TAX … 3.2 [Maritime] is hereby instructed by Tatik in accordance with the mandate to be signed substantially in the form set out in Schedule 1 to claim from the appropriate French tax authorities all available refunds of tax paid by Tatik in connection with the sale of Villa Maria Irina, and to pay such refunds (and any interest received thereon) into a specially identified escrow account in the name of Tatik (the " Mandate "). … 3.3 [Maritime] is hereby authorised to disburse monies from the escrow account referred to in clause 3.2 to pay costs and fees in relation to the Mandate, and to Sibir by way of reduction of any amount owing by CT and/or Tatik to any number of the Sibir Group pursuant to the Deed of Acknowledgement [of Liability] until no such amounts are outstanding after which any such monies shall be paid to Tatik for its own use and benefit to such account as CT or Tatik may notify to Sibir from time to time. … 9. WARRANTIES 9.1 CT and Tatik represent and warrant to [Maritime] (for itself and for the benefit of each other member of the Sibir Group) and undertake for the duration of this Deed that: (A) they have and will have the necessary power to enable them to enter into and perform their respective obligations under this Deed; … (C) all necessary authorisations to enable them to enter into this Deed have been obtained and are, and will remain, in full force and effect. 9.2 For avoidance of doubt, CT and Tatik will not be in breach of clause 9.1 in the event that Slocom or any person connected to or associated with Slocom (including its assigns and/or Derbent …) take any steps which prevent or prohibit CT and Tatik from fulfilling their obligations hereunder, unless Slocom or any person connected to or associated with Slocom and/or its assigns and/or with Derbent… is at the time of the taking of such step an associate or connected person of CT or an Affiliate of CT." (III) THE VILLA INDEMNITY DEED This was executed between Mr Tchigirinski ("CT"), Sibir and Tatik as a deed governed by English law. "INTRODUCTION … (F) By a Deed of even date and made between (1) CT, (2) Tatik and (3) [Maritime] (the " Sale Deed ") Tatik agreed terms for the sale of the Villa Maria Irina to [Maritime]. (G) Sibir has agreed to indemnify CT in respect of certain liabilities which they [sic] may incur to Slocom … as a result of the sale of Villa Maria Irina to [Maritime] pursuant to the Sale Deed. … 3. INDEMNITY … 3.2 Sibir shall indemnify CT against any costs, loss or liability incurred by CT to Slocom (including but not limited to any assigns and/or Derbent) arising as a result of: … (B) any breach of the [Second Tatik] Stock Pledge … caused by the entering into of the Sale Deed by CT or Tatik or the sale of the Villa Maria Irina to [Maritime] under the Promissory Sale Agreement and the Final Sale Agreement; (C) any reasonable fees and expenses of Slocom (including but not limited to any assigns and/or Derbent) which CT is obliged to pay under clause 16 of the [Second Tatik] Stock Pledge … 3.3 The maximum liability of Sibir to CT under clause 3.2 shall be limited to the aggregate of the following amounts: (A) the principal amount of €32,357,724.50 purported to be loaned to Tatik under the [Derbent-Tatik] Loan Agreement ["the Loan Agreement"]; (B) accrued interest of €771,364.96 referred to in clause 2.3 of the Loan Agreement; (C) interest on €32,357,724.50 under clause 4 of the Loan Agreement from 19 December 2008 to 15 December 2009 (inclusive); (D) interest under clause 4 of the Loan Agreement that accrues from 16 December 2009; (E) default interest paid or payable under clause 12 of the Loan Agreement; and (F) any reasonable fees and expenses of Slocom which CT is obliged to pay under clause 16 of the [Second Tatik] Stock Pledge… 3.4 If CT becomes aware of any claim by Slocom against CT in respect of the matters referred to in clause 3.2 ("a Claim ") CT shall: (A) within 10 Business Days of becoming aware of it, give written notice of such Claim to Sibir containing such details of the Claim as CT has available to him; (B) take such action as Sibir may reasonably request in writing to avoid, resist, dispute, appeal, compromise or defend such Claim and appeal against any judgment given in respect of such Claim; (C) on the written request of Sibir, delegate the sole conduct of legal proceedings of any nature arising from or connected with such Claim to Sibir, and if so requested: (1) not make any admission of liability, agreement or compromise to or with any person, body or authority in relation to that Claim without the prior written consent of Sibir; and (2) give to Sibir such assistance as Sibir may reasonably require in connection with the Claim; and (3) appoint such lawyers and other professional advisers as Sibir may notify to CT in writing to act on behalf of CT in respect of such legal proceedings. 3.5 Subject to CT fulfilling his obligations under clause 3.4 Sibir shall indemnify CT against any reasonable costs and expenses incurred by, or arising from, CT defending any Claim." Note 1 Whether Gradison continued to be beneficially owned and controlled by Mr Tchigirinski after around mid-2009 was apparently a matter of dispute in other proceedings, but it clearly was “his” company during the period which is most relevant for the present case. [Back] Note 2 The original Deed refers to clause 2.3 but it was accepted by Counsel for the Defendants that this must be a typographical error for 2.4. [Back] Note 3 Since Mr Edmund Frick ceased to have any further involvement, future references in this judgment will be simply to “Mr Frick”. [Back] Note 4 Presumably, a typographical error for “or”. [Back] Note 5 The dates in the spreadsheet do not precisely correspond with the dates when the money was received according to the Wegelin Bank advice notes, but that is not significant. [Back] Note 6 Save for the statement that the loan was a new advance. [Back] Note 7 Formally, it seems that Mr Tchigirinski was due for re-election to the Board and withdrew his candidacy. [Back] Note 8 The “Accrued but unpaid interest” stated in respect of item (1) was calculated from 1 October 2008 to the date of the agreement, i.e. 19 December 2008. [Back] Note 9 In clause 13.1(C) and 13.2 of the Deed of Undertaking and Charge. Tatik agreed to be bound by this provision in the Tatik Commitment Deed: see para 209 below. [Back] Note 10 Mr Haener did not place any reliance on the old pledges of ST Oil shares: see para 95 above. [Back] Note 11 It appears that Mr Haener was by then in Switzerland, presumably for the Christmas holiday. [Back] Note 12 Sent to the US fax. number specified for any notice to Tatik in clause 18 of the Derbent-Tatik Loan Agreement. [Back] Note 13 The operative clauses are expressed by reference to the “Original Loans” which are not defined in terms of the “Original Loan Agreements”. [Back] Note 14 At trial, the Claimants appeared to allege a distinct breach of clause 2.1. However, this was not pleaded and, in any event, I consider that this is related to the alleged breaches of clauses 2.6-2.7 and that nothing is added by seeking to analyse it as a separate breach. [Back] Note 15 Hugh House was sold in July 2009 for the equivalent of just under $28 million. [Back] Note 16 Although such an allegation was arguably encompassed by the Amended Particulars of Claim, it was not pursued at trial. [Back] BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII