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Russian metals moguls clash in London court

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Sept. 27, 2012, 3:52 p.m. | Russia and former Soviet Union — by Reuters

Michael Cherney, who now lives in Israel, charges that metals mogul Oleg Deripaska (on the photo) reneged on a deal to buy him out of their joint aluminium business, RUSAL. Deripaska, a survivor of President Vladimir Putin's crackdown on oligarchs who once wielded great political power, denies having had any such business relationship with Cherney.
© AP

Reuters

LONDON/MOSCOW - Two Russian billionaires join battle in a London court next week over a billion dollar slice of the world's largest aluminium producer, a case that will shine light on the murky carve-up of lucrative smelters in the 'wild east' of post-Soviet Siberia. 

Michael Cherney, who now lives in Israel, charges that metals mogul Oleg Deripaska reneged on a deal to buy him out of their joint aluminium business, RUSAL. Deripaska, a survivor of President Vladimir Putin's crackdown on oligarchs who once wielded great political power, denies having had any such business relationship with Cherney.

Deripaska, who controls RUSAL and moves in high political and social circles in Russia and Britain, says he was the victim of a protection racket Cherney helped orchestrate - an accusation Cherney denies.

"One side or other is plainly telling lies on a grand scale," declared Judge Christopher Clarke in 2008 after allowing Cherney to bring the case in Britain, whose courts have become the venue of choice for warring Russian wealthy who often do not trust to justice at home.

Cherney will begin giving evidence on Tuesday by video link as he would face immediate arrest if he came toLondon under an international warrant linked to a separate money-laundering investigation. Crossexamination is due to last for eight days.

The Russian aluminium industry, like much of Russia's raw materials sector, came under the control of a few powerful oligarchs during the huge selloff of state assets that followed the collapse of communism and of theSoviet Union in 1991. The brutality of the business rivalry over aluminium smelters gave birth to the term 'aluminium wars'.

The case, which will last well into 2013, has overtones of a recent battle between Russian oligarchs Boris Berezovsky and Roman Abramovich, which in August helped ensure the concept of "krysha", or roof, is well understood in the English courts.

A "krysha", in Russian gangster parlance, can be either a figure who genuinely protects, in return for payment, the interests of a business in a sometimes brutal business world or it can refer to a racketeer extorting money by intimidation. The boundary between the two can, of course, be blurred.

LEGAL ODYSSEY

The case, which began in July when both sides published opening statements and lawyers laid out the details of their arguments in front of Judge Andrew Smith, hinges in part on what was agreed in a London hotel 11 year ago.

Cherney and Deripaska agree they met at the Lanesborough Hotel on a March morning in 2001, that they signed one document and that Deripaska handed Cherney $250 million. Everything else, even exactly when they first met each other, is disputed.

Deripaska says he made the payment to terminate a krysha arrangement with Cherney, partly because his business was now powerful enough, and his security forces strong enough, to confront criminal gangs.

Cherney says he had orally agreed a 50/50 partnership with Deripaska in 1993, which lasted until March 2001. He alleges Deripaska then agreed at the Lanesborough meeting to pay him a preliminary $250 million for his aluminium interests held by Deripaska - and also agreed to buy him out of the remainder of his stake within a few years.

Almost 70 witnesses will be called along with experts on handwriting, translation, IT, forensic accounting and the laws of Russia and Liechtenstein.

Deripaska, a former physics student who started investing in aluminium assets in 1991, has entertained top British politicians on his 70 million pound ($114 million) yacht. He is scheduled to take the stand around Nov. 7.

Around four members of his legal team will be in the room with Cherney in Israel when he gives his evidence.

The case will hinge on how credible Cherney, who left Russia for Israel in 1994, and Deripaska will appear as witnesses.

"Whilst the legal issues in these cases are not necessarily hugely complex, they are factually and evidentially very difficult for the judges," noted Philippa Charles, a litigation partner at law firm Mayer Brown.

MOB RULE

RUSAL, the product of a slew of takeovers and mergers mainly in Siberia, where the hydro-electric power needed to fuel hungry smelters comes cheap, has emerged as Russia's only aluminium producer. Cherney alleges a 13.2 percent stake belongs to him.

Deripaska says he was forced into a "krysha" after being threatened by some of the country's most powerful criminal gangs in the mid-1990s.

Stories abound about such "protection" mobs attacking the wives and relatives of those who failed to do their bidding, launching fictitious criminal proceedings, violent takeovers of businesses or simply liquidating rivals and critics.

One gang at the centre of the court case is the feared Ismailovskaya mob, alleged to have been run by Anton Malevsky, a man Deripaska says was used by Cherney to extort money before the Afghan war veteran died in a parachuting accident in 2001.

Cherney, who has never been convicted of a crime, dismisses the claims against him as "scandalous".

Deripaska also faced allegations at proceedings in Israel, the United States and Russia that he was involved in bribery, threats and even murder as he built his fortune. In separate proceedings, Germany's Stuttgart Regional Court has also linked him to Ismailovskaya. He denies the accusations. 

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