Michael Cherney Seeks Justice For Money Owed by Oleg Deripaska

Richest Russian oligarch, Oleg Deripaska, Loses Round

By ERIC REGULY
The Globe And Mail

August 4, 2008
ROME -- Oleg Deripaska is not used to setbacks.

He has been extraordinarily successful since he won the so-called aluminum wars in the 1990s. He is Russia's richest man and is said to be Prime Minister Vladimir Putin's favourite oligarch. Through his holding company, Basic Element, Mr. Deripaska controls $45-billion (U.S.) of assets, among them UC Rusal, the world's biggest aluminum producer, and 18 per cent of Canadian auto parts maker Magna International Inc.



But setbacks are suddenly what he faces. His effort to merge Rusal and MMC Norilsk Nickel, the biggest nickel maker on the planet, to create a global rival to Australia's BHP Billiton Ltd. and Britain's Rio Tinto PLC is hitting land mines. Turns out some rival oligarchs, none of them known for sweet demeanours, have similar designs on the Russian mining company.

Potentially worse is the Michael Cherney affair. Mr. Cherney, a Ukrainian-born Israel citizen of considerable wealth, intrigue and aggression, has gone from ally to foe. While the younger Mr. Deripaska is wealthier, better connected and the savvier businessman, it is Mr. Michael Cherney (Chernoy) who is winning the slugfest.

Proof came last month when Mr. Justice Christopher Clarke, of Britain's Royal Court of Justice, gave Mr. Cherney the right to use British courts instead of Russian ones to try to extract billions from Mr. Deripaska.

Mr. Cherney has documented that he owns 20 per cent of Rusal and wants his booty.

For Mr. Deripaska, the Michael Cherney affair could be damaging. If the case does go ahead in Britain, Mr. Cherney's legal Rottweilers would be sure to hang out all the aluminum wars' dirtiest laundry.

The business deals that propelled Mr. Deripaska from struggling nuclear physics student to oligarch could be examined. Until the case is resolved, Rusal's efforts to list on a stock market may be hampered. So may be Mr. Deripaska's plan to unite Rusal and Norilsk.

By any legal standard, Mr. Cherney's victory is unusual, for neither man resides in Britain nor has any significant business interests there. Judge Clarke's ruling reflects his belief that Mr. Cherney made a "good arguable case" that he had little chance of a fair trial in the messy Russian legal system, and that he might even get assassinated there.

The basic outline of the dispute is fairly simple. Both men had considerable aluminum interests; Mr. Cherney claims he was Mr. Deripaska's partner in an aluminum company called SibAl. Early this decade, the various tycoons who owned aluminum assets agreed to merge those assets, including SibAl, to create an aluminum supergiant. Mr. Cherney claims his partnership with Mr. Deripaska gave him 20 per cent of the new company, Rusal.

In 2001, the two met in London's Lanesborough Hotel to hammer out an agreement. Mr. Deripaska paid $250-million to Mr. Cherney: this is not in dispute. But Mr. Cherney claims Mr. Deripaska also agreed to hold Mr. Cherney's Rusal stake in trust. He wants to be paid for the value of the stake. Mr. Deripaska says there was no deal beyond the $250-million payment. A "fact sheet" produced by Basic Element says: "This amount was a final payment to end Mr. Cherney's interference in Mr. Deripaska's business. Mr. Deripaska denies that there was any agreement to pay further amounts to Mr. Cherney."

Judge Clarke's ruling gives no opinion on the merits of either side's interpretation of the agreement. It only allows the case to be heard in Britain. That means any agreement reached at in the London hotel would be subject to British law. Mr. Deripaska's legal team notes that Russian law does not even recognize the notion of beneficial ownership or trust.

Mr. Cherney's lawyers were brilliant, convincing the judge that Russia's legal system lacks credibility. The implication was that Mr. Deripaska could use his considerable influence to get the judgment he wants. Judge Clarke said as much. In his ruling, he said, "There is significant risk that Mr. Cherney will not obtain in Russia a trial unaffected by improper interference by state actors and that substantial justice may not be done."

The judge said he was persuaded the risks "inherent in a trial in Russia (assassination, arrest on trumped up charges and lack of a fair trial) are sufficient to make England the forum in which the case can most suitably be tried."

Never mind that Mr. Michael Cherney's lawyers argued in 2000 and again in 2004 that cases against him in the American courts should be tried in Russia. Or that Judge Clarke's ruling contains numerous paragraphs about Mr. Cherney's "alleged criminality," including his use of false passports and his detention by Swiss police in 1994 for using a false identity (Mr. Cherney has been convicted of no crime).

It would have been a miracle if Mr. Deripaska's rise to a position of incredible wealth and power by age 40 had hit no speed bumps. But he just hit a big one in the form of Mr. Cherney.

The success, or lack thereof, of Mr. Deripaska's appeal could determine whether Russia's top oligarch can keep building on his momentum.