FESCO and NCSP surfaced in London

Former shareholders of FESCO and the Novorossiysk Commercial Sea Port (NCSP), Ziyavudin and Magomed Magomedov, who have been in custody since 2018, filed a lawsuit in an English court against the former managers of FESCO, its current and former shareholders, as well as Transneft and Rosatom. They accuse the defendants of a “global conspiracy” to alienate their property in favor of government agencies and for themselves. The plaintiffs estimate the fair value of the stake in NCSP at $5 billion, in FESCO at $6 billion, excluding shares that could be received through options and other losses. Lawyers see the weak point of the claim as the decision to resort to the English court – no justification is provided, and a number of defendants, including state-owned companies, may simply ignore the process.

The founder of the Summa group and former owner of FESCO Ziyavudin Magomedov, his brother Magomed Magomedov (both arrested in March 2018, convicted in 2020 for 19 and 18 years in a maximum security colony), his SGS holding and offshore structures belonging to him, which collectively owned 49.9997% of FESCO shares, as well as the offshore Port Petrovsk controlled by the brothers, which previously owned 50 together with Transneft structures, 1% of the Novorossiysk commercial sea port filed a lawsuit in the High Court of Justice in London against a number of defendants, accusing them of conspiring to deprive the brothers of their shares in FESCO and NCSP.

Among the defendants are almost all former minority shareholders of FESCO: the TPG fund, which owned 34.91% in the structures controlling 50% of the company, Mark Garber and the offshore Domidias owned by him, which owned 23.76%, current shareholders Mikhail Rabinovich and Andrey Severilov, as well as officials persons, primarily former chairman of the board of directors Leyla Mammedzadeh. Also defendants are Rosatom, Transneft and one of the world’s largest port operators DP World (UAE).

The essence of the claim is in two “conspiracies”. According to the plaintiffs, they “involve all defendants and other persons acting on behalf of or in the interests of the Russian state.” The document refers to a campaign against Ziyavudin and Magomed Magomedov, “conducted by the state and on its behalf for political reasons.” The conspiracies mean the alienation of control over a stake in NCSP, owned through Omirico by the Port Petrovsk company, “in which at least Leila Mammedzade and Transneft are involved,” and control over FESCO, owned by the SGS cluster, “in which at least all defendants are involved, except “Transneft”.

In January 2011, the offshore Omirico, which belonged in equal shares to Transneft through Fenti and the Magomedov brothers through Port Petrovsk, acquired Novoport, which owned 50.1% in NCSP. After the arrest of Messrs. Magomedov, the document says, Port Petrovsk director Zaur Karmokov was “forced through intimidation and misrepresentation” to authorize the sale of his stake in Omirico to Fenti for $750 million, which is “significantly less than the real value.” Moreover, according to the text, the funds were transferred to an already seized bank account and then confiscated, so Port Petrovsk received nothing.

Moreover, by February 14, 2018, the parties had already agreed to sell Omirico’s share to Transneft structures for $1.314 billion – which, however, is also below the market value, the document emphasizes. The deal was planned to be closed on March 14, but Transneft insisted on personal guarantees from Messrs. Magomedov for the return of funds if the deal was not completed due to the fault of Port Petrovsk (the brothers refused). After their arrest, Leila Mammedzadeh, the lawsuit says, told Ziyavudin Magomedov that the head of Transneft, Nikolai Tokarev, promised that if the share was sold for $750 million, he would turn to the president and ensure the release of the businessmen.

The plaintiffs call the “FESCO conspiracy” a “corporate raid” to prevent Ziyavudin Magomedov and the SGS companies from exercising their shareholder rights. According to the plaintiffs, from the end of 2019 to August 2020, minority shareholders (TPG fund and Mark Garber) and top managers of FESCO, its future owners, Messrs. Rabinovich and Severilov, as well as Rosatom and DP World, entered into a conspiracy.

The plaintiffs, in particular, allege that the company’s former management deliberately ignored a plan for restructuring internal debt of more than $1 billion, prepared by KPMG, in order to artificially put FESCO in a difficult financial position.

The Halimeda offshore, controlled by FESCO, filed a lawsuit in September 2020 in order to return the loans (see “Kommersant” dated September 15, 2020), and then obtained interim measures in the Cyprus court against the shareholder companies Smartilicious and Enviartia, which owned the entire share of SGS, after which the side of the Magomedov brothers lost the opportunity to participate in the selection of the board of directors, and the rights remained only with the structures of Mark Garber and the offshores Novator and Nautilius , who owned 9.13% of FESCO and passed to Mr. Rabinovich. As a result, the “hostile” SGS board of directors of FESCO was re-elected.

The plaintiffs also accuse the defendants of misleading and exerting pressure, refusing to fulfill agreements and orders of the shareholder. In particular, the lawsuit says, Leila Mammedzadeh did not obey Mr. Magomedov’s instructions to exercise the option of the SGS structures to buy out the Domidias share, which was eventually acquired by the structures of Andrei Severilov and Mikhail Rabinovich, and the TPG Felix structure, which then passed to Mikhail Rabinovich, refused to exercise the option to right of first refusal to purchase its share by SGS structures for $35 million.

The defendants are accused of accepting bribes by management, threatening a hostile takeover of FESCO if SGS refuses to sell its share of the Rosatom and DP World joint venture based on a valuation for the entire company of $150 million, putting pressure on the “white knight” Alexander Evdokimov, said to be close to the governor of Primorye Oleg Kozhemyako, so that he refused to invest in SGS, and the subsequent confiscation of FESCO shares in favor of the state (see “Kommersant” dated January 11).

The plaintiffs accuse the parties of “conspiring to use illegal means to cause damage and in violation of Russian law.” They also demand compensation for damages from the sale of the Port Petrovsk share, which they value at $5 billion or, at the very least, $1.3 billion, initially agreed upon with Transneft. The fair price for the alienated share of SGS in FESCO is $6 billion, the shares of Domidias and Felix, which could go under options to Mr. Magomedov, are $2.8 billion and $2.1 billion. Partner of the NSP law firm Aram Grigoryan clarifies that the lawsuit also states the need for a Norwich Pharmacal Order: “This is an order from the English court to the defendants and third parties to disclose information and documents which the plaintiff does not have and which the plaintiff believes the defendants will wish to conceal from the court.”

FESCO, the structures of its current shareholders and Transneft declined to comment. Rosatom told Kommersant that they consider the demands unfounded.

“The claim does not motivate or justify from a legal point of view why the plaintiffs appealed to the courts of England and Wales,” notes Dmitry Kletochkin, partner at Rustam Kurmaev and Partners. “The defendants are registered in the Russian Federation, the USA (Delaware), the British Virgin Islands and etc., but not in England.” According to the lawyer, the choice of the English court is due to the fact that, in theory, it can accept the case, ignore the judicial acts of Russian courts, and its decision will be relatively easy to enforce in most countries of the world. Aram Grigoryan confirms that the claim does not contain any justification for the competence of the English court, and agrees with the version of the “most effective jurisdiction”. The status of the case on the card on the court’s website is “open”, that is, the claim has been accepted, but this does not prevent the defendants from declaring the lack of competence of the English court, Mr. Grigoryan clarifies.

It can be assumed, says Stanislav Sobolev, senior lawyer at the Regionservice bar association, that the plaintiffs want to take advantage of the doctrine prevailing in common law countries – forum non convenies, which provides for the possibility of considering a case in an English court if there is reason to believe that another court, formally with greater competence will not be able to ensure a lawful, fair and impartial trial.

Aram Grigoryan notes that the plaintiffs mainly refer to conspiracy, that is, a conspiracy of a group of people to commit actions aimed at causing harm: “The plaintiffs need to prove that the group of people acted with intent and created the necessary conditions, including secretly from the plaintiffs, to seize assets and their subsequent appropriation.”

To win the dispute, the plaintiffs must prove that the defendants actually acted in a conspiracy to steal assets, that their actions were contrary to the law and contractual obligations, agrees Dmitry Kletochkin:

“This is a very difficult task, given that the plaintiffs have piled up all the conspiracy arguments. In particular, a large block of arguments is based on the fact that Russian courts illegally considered a number of cases. That is, now the plaintiffs need to prove that the defendants, among other things, influenced the actions of the courts and government agencies in Russia.”

The defendants will only need to justify the business motives for their actions, the lawyer emphasizes. “But I doubt,” says Mr. Kletochkin, “that a number of defendants, including Rosatom, generally recognize the competence of the English court in a dispute related to issues of causing losses and transferring rights to assets in Russian companies.” Therefore, in his opinion, “defendants can simply ignore the court.”

Natalya Skorlygina, Anna Zanina, Olga Mordyushenko