Two oligarchs; $6.5bn; and enough lawyers to form an entirely new firm. This is Berezovsky v Abramovich, the largest litigation in the world
In Hermès on Sloane Street on Friday 5 October 2007 Roman Abramovich, the billionaire owner of Chelsea Football Club, is enjoying a quiet afternoon shopping. Two doors down in Dolce & Gabbana, his former business partner is also indulging in a little retail therapy. In better days the two would visit each other’s superyachts and holiday together. But by 2007 the relationship had soured, and Berezovsky was itching to issue a writ suing his former friend for $6.5bn.
Berezovsky seizes his chance, grabbing the writ from the glovebox of his limousine. An undignified scuffle breaks out as he squeezes past bodyguards into the luxury boutique. He thrusts the writ at a bemused Abramovich, reportedly saying: ‘I’ve got a present for you. This is for you, from me.’
The writ falls to the ground as Abramovich is bundled away.
Fast forward five years and that dramatic starthas climaxed in the largest commercial litigation in the world: a $6.5bn mega dispute in London’s Commercial Court that has seen legions of lawyers line up for both oligarchs and do battle in dramatic fashion.
‘These sorts of cases have a higher propensity to run over on costs. It’s far harder to estimate and costs escalate.’ – Matthew Amey, Judge
The court case revealed details of the billionaires’ lifestyles, and the excesses of Russia’s ‘wild East’. For two months late last year, the normally staid Commercial Court had paparazzi loitering outside on stepladders and bulletproof limousines parked outside.
The case was a landmark in many ways. It was the first to be heard in London’s new Commercial Court, the Rolls Building – and the last case for Jonathan Sumption QC of Brick Court Chambers before he became a judge in the Supreme Court. It was also groundbreaking in terms of lawyers’ fees – with a major ‘no win low fee’ conditional fee agreement in place for Berezovsky, and Sumption QC reported to be picking up a mammoth fee of anywhere between £4m and £10m.
It was a bitter, twisted dispute played out in the full glare of the world’s media. The ten-week hearing ended in January 2011 and both sides are now waiting for Mrs Justice Gloster to deliver her verdict. Many predict a resolution won’t be reached until June at the earliest.
Dark beginnings
The case has its origins in the murky world of 1990s’ Russia, where deals were struck on a handshake, political corruption was rife and vast fortunes were there for the taking.
In 1994 Abramovich was a small-scale oil trader with big ambitions. Berezovsky at this stage was a member of Boris Yeltsin’s inner circle and the president’s tennis partner. In 1995 with Berezovsky’s help, Abramovich’s Sibneft won a rigged auction for the privatisation of an oil company and refinery, a step that made him very rich. In court Berezovsky admitted to rigging the auction after questioning by Sumption QC. ‘You did fix it, didn’t you?’ said Sumption QC. In response Berezovsky said: ‘No, it’s true.’
In return Abramovich made regular payments to Berezovsky for the next five years, sometimes up to $5m in cash and picked up the bill for his personal expenses on an exuberant scale. At one point during the trial, the court heard how Marina Goncharova, an employee of Abramovich, dragged a holdall full of bank notes up the steep staircase of a Moscow private members’ club to deliver to Berezovsky as he barked angrily down the phone.
Abramovich’s barrister Sumption QC described the expenses in court as: ‘palaces in France, private yachts and aircraft, jewels for his girlfriend, valuable paintings at Sotheby’s and so on’. But by 2000 the relationship had turned bitter following a clash with Vladimir Putin. Putin, who was president at the time, was reportedly furious with Berezovsky and his media company ORT for its critical coverage of the sinking of the Kursk submarine in August 2000. As a result Berezovsky says he was forced to sell his shares in ORT and in Sibneft before fleeing Russia and later gained political asylum in the UK in 2003.
‘The level of security is strange but you get used that presence quite quickly, I always found them charming.’ – John Kelleher, Addleshaw Goddard
Berezovksy claims that those exuberant payments and suitcases full of cash were profit dividends from his shares in Sibneft and aluminium company Rusal, and that before fleeing the country he was forced to sell his stake in both companies to Abramovich at a knock-down price. He claims that Abramovich threatened and intimidated him into selling his shares for a massive loss of around £2bn.
‘[Mr Berezovsky] fell out with those in power in the Kremlin,’ said Berezovsky’s barrister Laurence Rabinowitz QC of One Essex Court on the first day of the trial. ‘Forced to leave his home and create a new life abroad, leaving Mr Abramovich in a position where he was in effect required to make a choice: to remain loyal to Mr Berezovsky, his friend and mentor and the person to whom he owed his newly acquired great fortune, or instead, as we submit, to betray Mr Berezovsky and to seek to profit from his difficulties.’
Abramovich’s case is that Berezovsky never owned shares in Sibneft or Rusal in the first place. Instead Berezovsky was paid in the 1990s to act as a ‘political godfather’ to the younger man. The Chelsea FC owner paid for yachts and jewels in exchange for political protection or ‘krysha’ (in Russian it literally means ‘roof’) from Berezovsky.
The case hinges on one simple question – did Abramovich force Berezovsky to sell his shares at a low price?
Dramatis personae
Lawyers on both sides have spent the past five years trying to unravel that seemingly simple question.
Back in 2007 when the writ was first served in Hermès, Abramovich turned to his usual advisers Skadden, Arps, Slate, Meagher & Flom.
The Skadden relationship with Abramovich goes back a long way. Skadden European managing partner Bruce Buck told LB in 2003 how he landed the relationship through a former Citibank banker who he met in the early 1990s (see ‘Game on’, LB138, page 49). The banker later joined Russian oil company Sibneft where Abramovich was a major shareholder.
The Abramovich relationship is so ingrained that Buck has been the chairman of Chelsea FC since 2003. While the fees paid may be low (club accounts show it paid Skadden £360,000 in legal fees over 2009/10) the strong relationship has meant that, bar a few minor disputes, Abramovich and his holding company Millhouse Capital have loyally stuck with the white-shoe firm over the past decade.
Skadden head of European disputes Paul Mitchard QC became lead partner on the case in 2007, but after relocating to Hong Kong in 2009, fellow disputes partner Karyl Nairn took over the lead role.
Abramovich is notoriously publicity shy and that extends to his lawyers, with Skadden refusing to provide on-the-record comment for this feature.
Australian Nairn, who graced the cover of LB in 2007 (see ‘Top girls’, LB178, page 56), is described by colleagues as ‘extraordinarily bright’ and having ‘real presence’. She cuts a glamorous figure, tying up her red hair in a beehive. At the trial her striking red hair and large dark sunglasses meant she was often photographed by the paparazzi.
‘John Kelleher, a mild-mannered litigator at Addleshaw Goddard, was at his desk at the firm’s Milton Gate headquarters in London when he got the call from an unnamed barrister’s chambers about doing some work for Berezovsky in late 2008.’
Cadwalader, Wickersham & Taft’s Michelle Duncan initially represented Berezovsky. Duncan now works at Paul Hastings and by the end of 2008 Berezovsky was on the hunt for new lawyers.
John Kelleher, a mild-mannered litigator at Addleshaw Goddard, was at his desk at the firm’s Milton Gate headquarters in London when he got the call from an unnamed barrister’s chambers about doing some work for Berezovsky in late 2008. He approached fellow litigation partner Mark Hastings to check his availability.
‘I remember it clearly, John asked me what I was involved with at the moment – I told him that a big case I’d been working on had just settled and I’d love to be working this. It was just good timing,’ says Hastings.
Within weeks Hastings, Kelleher and Pietro Marino were meeting Berezovsky to pitch for the work.
In October 2010 Marino left Addleshaws to set up litigation boutique Enyo Law with former Addleshaws head of litigation Simon Twigden, leaving Kelleher and Hastings as the lead partners on the case.
Hastings, who is Addleshaws’ youngest-ever equity partner, has now been working on the case full-time for three years straight and clearly enjoys the role. ‘It was a dramatic start, dramatic finish and dramatic in-between,’ he says.
To win the work Addleshaws offered a ‘no win low fee’ conditional fee agreement (CFA), offering a massive monthly billing discount to the Russian billionaire for the privilege of taking on the case. The firm is rumoured to be offering a 50% monthly discount on the case and has been billing around £1.5m a month on the case for the past two years. If Addleshaws wins it is set to receive a major success fee pay out, thought to be in the tens of millions of pounds.
It’s an unusual arrangement as CFAs are rarely used in such large disputes as Matthew Amey, director at litigation risk broker TheJudge, explains: ‘These sorts of cases have a higher propensity to run over on costs. It’s far harder to estimate and costs often escalate. They are more common in small commercial disputes.’ The firm attributed a £6m shortfall in its 2010/11 turnover on the decision to run a number of cases under CFAs. But Hastings denies they are overexposed on the case, claiming the disputes department is on track for a record year of turnover whether they win the Berezovsky case or not.
Addleshaws would not comment on Berezovsky’s specific fee arrangements, but in a statement told LB: ‘We are very thoughtful before entering into any CFA. We consider a range of criteria before agreeing one and continue to monitor the portfolio on an ongoing basis, so that our business would not be adversely affected in the event of any loss.’
From the beginning Skadden’s tactic was to avoid a trial at all costs by arguing that Berezovsky’s claims lacked clarity. There were several strike-out hearings, with one in July 2009 lasting three weeks instead of the normal three days.
‘It lasted that long because of the complexity of the legal and factual issues,’ says Hastings. ‘It’s difficult to imagine a case that throws up so many interesting issues – it takes in the collapse of communism, the rise of the oligarchs and Putin’s rise to power. It’s effectively the story of modern Russia.’
But despite the three-week hearing Skadden failed to get the case struck out and a trial date was set for October 2011.
Circus maximus
On the first day of the trial on 3 October 2011, Court 26 of the Rolls Building was packed. The modern new court – all beech wood desks, white walls and flat screen monitors – couldn’t accommodate the mass of lawyers, bodyguards, and reporters who turned up to watch.
Around 20 people were left standing, including a pregnant journalist, and Mrs Justice Gloster spent the first ten minutes dealing with the seating problems. ‘I’m going to be very sexist here and if there’s a pregnant lady of the press, she can come and sit down here,’ she said.
After a week, two separate rooms with a live stream of the trial were set up for journalists to ease the congestion. One room showed the case in English and the other with a Russian translation for the large group of Russian journalists present.
Throughout the trial there was the constant murmur of the two translators who sat in a glass booth in the court doing a live Russian translation of the proceedings. Abramovich, who does not speak English, listened to the action on headsets throughout.
When LB stopped by the Rolls Building near the end of the case on 17 January 2012, we counted 17 lawyers, including counsel, on Abramovich’s side and 14 in Berezovsky’s team, not including the assorted paralegal bag carriers and trainees in the public seats. Most striking, however, was the level of security used by both oligarchs. At a break in proceedings, burly men in suits with earpieces were milling around the waiting area. One muttered into his cuff link: ‘He’s gone to the toilet.’
For the lawyers involved, it didn’t take long for them to get used to the strange world of the oligarchs. Kelleher says of the bodyguards: ‘The level of security is strange but you get used to that presence quite quickly, and I always found them to be courteous and charming.’
The Addleshaws team had around six associates working on the case in the build up to the trial and instructed Rabinowitz QC as counsel. Insiders describe ‘Laurie’ Rabinowitz as ‘a very decent guy’, ‘an excellent barrister’ and ‘One Essex’s top man’.
Skadden used interpreters and two Russian-speaking associates to speak with Abramovich. The team also relied on of counsel litigator Rory McAlpine and a further five associates on the case.
Skadden instructed Sumption QC, with the case his swansong before he took up his new position at the Supreme Court in January. Rumour has it among barristers’ clerks that Abramovich’s team decided that Sumption QC was their man and that money was no object. They apparently rang up the clerks and let them name his fee, with The Times reporting that the fee was between £4m and £10m.
The relationship between both sets of lawyers and their high-profile clients is strikingly different. Skadden refers to Abramovich simply as ‘RA’. In contrast, the team at Addleshaws call their client ‘Boris’, and clearly have a close relationship with the client, helpful because they will be working with him on another major litigation later in the year (see ‘Russia’s dirty laundry’, page opposite).
War of words
At its heart the case is about the personal and professional relationship between Berezovsky and Abramovich in the 1990s. The difficulty of doing business in Russia at that time meant that there was little documentary evidence to rely on. It posed a major challenge for both sets of lawyers who had to act more like detectives than corporate lawyers, hunting for plane ticket stubs and trawling hotel receipts to prove that individuals were at key meetings.
As the case kicked off in October 2011, Sumption QC set the scene by talking about Russia as the ‘wild East’. ‘It isn’t easy for an English lawyer on either side of the court to assess the behaviour of people who have to live in such a world,’ he told the court. ‘In our own national experience we have to go back to the 15th century to find anything remotely comparable.’
‘To comprehend it,’ he said, ‘read Shakespeare.’
The Shakespearean undertones were underlined during the trial when details emerged of a cyber attack on Berezovsky’s former lawyers Cadwalader. An individual who called himself ‘Igor’ sent two packages to Abramovich’s London home in April 2009. The packages contained a list of confidential documents stolen from Berezovsky and are thought to have been obtained by hacking Cadwalader’s IT network (see ‘The case of the cyber attack’, opposite).
With little reliable documentary evidence, the case was always going to rest on the cross-examination of Berezovsky and Abramovich.
‘In response Rabinowitz QC said that Abramovich ‘was a smooth witness but dishonest’ and had ‘cynically manipulated the evidence’.
For Kelleher it was the most exciting part of the trial. ‘It was compelling to see the two main protagonists who had been so close to each other stand up in court. We’d heard so much about their relationship, to hear their evidence was amazing,’ he says.
Berezovsky was first to take the stand, speaking in heavily accented English and occasionally conferring with a Russian interpreter. He described Russia’s turbulent decade when both he and Abramovich made their fortunes. At times things got personal with Berezovsky saying that he had to be ‘smart’ to be successful.
‘He [Abramovich] was not so,’ said Berezovsky. ‘To get leverage you need to be smart… He looks like not a person of first level… at that time.’
Berezovsky said that his decision to sell his Sibneft stake was influenced by fears that, if he refused, Abramovich would ensure Putin intervened and the shares would be confiscated.
Abramovich adopted a different style on the stand, calm and measured, he said little and spoke in Russian, with the packed courtroom listening to a translation via headphones. Abramovich admitted in court that he went on a witness familiarisation programme provided by consultants Bond Solon who taught him to ‘breathe deeply, look at the judge’.
Russian-speaking barrister Mary Malecka of Garden Court Chambers delivered the training for Bond Solon to Abramovich and several other Skadden witnesses in Moscow and London. ‘Most people aren’t in court very often; it’s a very stressful situation. So it’s about demystifying the process and teaching them that it’s all about listening to the question and making sure to answer the question,’ she says.
He replied to many of the questions with a single word: ‘Da’ (‘yes’), and claimed that he needed political protection to keep hold of Sibneft. He also described how he liked to keep a low profile to save himself political problems.
‘I decided: sit quietly and do business and don’t stick your neck out and tell everybody everything belongs to me etc… that would only cause problems for myself,’ he told the court.
In written statements he also attacked Berezovsky: ‘There was at times something of a megalomaniac about him that could lead to extraordinary or even fantastic suggestions on his part.’
Forum shopping
As the case neared its conclusion, the barristers didn’t pull their punches. In his summing up, Sumption QC said that Berezovsky was a man of ‘vanity and self-obsession’ and had a ‘constant and palpable desire’ to portray himself as the ‘central indispensable figure in every venture that he has touched’.
In response, Rabinowitz QC said that Abramovich ‘was a smooth witness but dishonest’ and had ‘cynically manipulated the evidence’.
The trial ended in January and a judgment is not expected from Mrs Justice Gloster until June at the earliest. It’s difficult to see which way her decision will go but many independent parties believe Abramovich will win out. This is because the court may find it difficult to rule in favour of Berezovsky for such a vast fortune given that there is so little documentary evidence and many of the witnesses are unreliable.
There’s no clear indication whether either party will seek leave to appeal either, but consensus is that should Berezovsky win, Abramovich will appeal but if Berezovsky loses he won’t appeal.
It’s clearly been a landmark case in many ways, not least for the lawyers involved. ‘It’s a unique piece of litigation, it’s been a privilege to be involved,’ says Hastings. ‘There is a lot about this case that you just couldn’t make up.’
It’s also been significant for London as a litigation venue, a sign that the UK is the destination of choice for big commercial cases.
Over the next few years, other rich Russians will be using London to air their dirty linen. Later this year, Berezovsky will go back to court to battle over the fate of the estate of another of his former partners, Arkady ‘Badri’ Patarkatsishvili, formerly Georgia’s richest man (see ‘Russia’s dirty laundry’, page 42).
With the continued popularity of London as a litigation venue, we may yet have more writs issued in designer shops on Sloane Street and more bulletproof limos parked outside the Rolls Building.