A London court has frozen assets of a Russian high net worth individual because he broke a freezing order to save some of his wealth from being paid in damages to a Cypriot bank. The case is a further sign of how the capital remains a key hub for such disputes.

In a London
arbitration case, a court has frozen the assets of a Russian high net worth
individual because he broke a freezing order to save some of his wealth from
being paid in damages to a Cypriot bank. His chosen method was to transfer a
yacht he owned to someone in return for a nominal sum, perhaps as collateral
for a gain elsewhere in the future. The decision is yet another episode in the
story of London's
rise as the offshore legal jurisdiction of choice for HNWs from the former
Soviet bloc.

Deliya Meylanova, an associate at Withers, the law firm,
told Offshore Red (sister publication to this website): “In a recent judgment
concerning proceedings by Russian Commercial Bank (Cyprus) Ltd ('RCB') against
Fedor Khoroshilov and companies controlled by him, Judge Mackie QC found that
Mr Khoroshilov was in contempt of court as he had transferred his yacht for
nominal consideration in breach of a freezing order.”

“RCB obtained freezing order in the context of proceedings
in the Commercial Court
and at the London Court of International Arbitration against Mr Khoroshilov and
companies owned or controlled by him. These companies had borrowed substantial
amounts from VTB Bank and RCB, its Cyprus subsidiary, in 2005-2007.
Two of the loan agreements were subject to English law and jurisdiction, which
led to parallel claims by RCB in the Commercial
Court, a subdivision of the High Court that
settles business disputes, and the London Court of International Arbitration in
2009.

“These and related proceedings are at the stage of
enforcement, including through insolvency procedures in Russia. Media
reports have suggested that Mr Khoroshilov may have obtained loans from VTB and
RCB by exaggerating the value of oil rights held by his companies, and
misappropriated the loan funds for his personal benefit (in particular, by
purchasing a yacht, private jet and real estate). RCB eventually obtained
judgments in the High Court proceedings and an award at the LCIA in the sums of
$136,008,564.76, $291,360,264.11 and $291,360,264.11.

“In 2011 Mr Khoroshilov made counter-allegations of fraud
against VTB and Andrey Puchkov, deputy chairman of VTB, and unsuccessfully
challenged the judgments and award in the Commercial Court on that basis. He also obtained
a stay of execution of enforcement, which has since been lifted. He did not
attend the committal hearing on 6 September and was not represented. He is on
the Interpol wanted list and his whereabouts are unknown,” the lawyer said.

The bad loans were so tortuously structured that it has
taken years for their true value to emerge in the London courts. The total default is now known
to be $1.5 billion. The original picture that sprang from the London proceedings was that of an oligarch
who used his pre-eminent position to defraud the VTB empire of money.

Later revelations, however, suggest the truth is more
complex. Khoroshilov presented evidence that challenged VTB’s argument that the
oil wells in question were highly overvalued. A report submitted to the London
court from a group of Texan oil-well appraisers called DeGolyer & MacNaughton
valued the holdings at $4.2 billion — nearly three times the value of the
loans, according to an academic paper by the Henry Jackson Society.

At the same time in another London
courtroom, three “merchant princes” from the Ukraine – Victor Pinchuk, Gennadiy
Bogolyubov and Igor Kolomoisky – are litigating over an alleged breach of
contract and trust. Pinchuk, whose wealth is estimated at nearly $4 billion, is
suing the others over the ownership of KzhRK, a state iron-ore company that the
Ukraine privatised in 2004 and which he held in trust through an offshore company
after buying it for a mere $17 million. The claim document states: “The trust
in question is governed by English law, being the parties’ express choice of
law within the meaning of the Hague Convention.”

This case is further testimony to the fact that the
popularity of London
as a venue for litigation is undimmed. English civil courts, unlike their
American counterparts, do not employ juries and this is a big attraction for
overseas litigants, as are such devices as freezing injunctions and Anton
Piller orders.

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