Russia ‘raider attack’ case makes it to the High Court

On August 7th, 2012, at a private airport in Budapest, Hungary, two Russian businessmen discussed the ownership of a $3 billion company responsible for the production of approximately 11 per cent of the world's ammonia.

One was Dmitry Mazepin, a native of Minsk, Belarus, who now lives in Moscow and was once a representative in a regional Russian parliament for Vladimir Putin's United Russia party.

The other was Sergei Makhlai (47), chairman of OJSC Togliattiazot (Toaz), a company based in the Russian city of Togliatti, home to the manufacturer of the Lada car. Toaz produces mineral-based fertilisers for global sale and is reportedly the world's largest producer of ammonia.

Makhlai's father, Vladimir, ran the enormous chemical concern from the collapse of the Soviet Union until 2011, when he handed control to Sergei. The father now lives in London, and Sergei is a citizen of the United States.

Links with Kremlin

Both men would appear to have reasons to live outside Russia, where ownership of the oil and gas sector has been consolidated in the hands of a number of enormously rich and powerful individuals, many of them believed to have close links with the Kremlin. The chemicals sector is now the focus of such change.

According to a statement of claim filed with the Dublin High Court this week, Toaz is "one of the last independent chemical enterprises in Russia".

At the Budapest meeting, "Mazepin threatened that if Sergei Makhlai did not arrange for Mazepin to obtain a majority interest in Toaz, it would be the subject of a raid, that Toaz's relationship with [Swiss-based Toaz shareholder] Ameropa would be misrepresented and used for that purpose, and that Toaz would be subject to a forced takeover", according to the the High Court document.

The statement of claim is from shareholders representing approximately 70 per cent of the share capital of Toaz.

The shareholders are all offshore companies and who they hold their shares for is not revealed. The Swiss-based shareholder, Ameropa, which holds a 12.9 per cent stake in Toaz, is not party to the Dublin case.

A company owned by Mazepin, Uralchem, has a 9.9 per cent stake in Toaz and is a direct competitor.

The shareholders allege that the Budapest meeting was one of three between Mazepin and Makhlai where Mazepin threatened Makhlai that he would take over Toaz. The second and third threats allegedly happened in Zurich airport hotels on April 18th, 2013, and June 13th, 2013.

Forced takeover

The idea that a “raid” would lead to the forced takeover of Toaz would have special meaning to any Russian businessman. Raider attack is a direct translation of the Russian term reiderstvo and is a well-recognised phenomenon in Russia whereby a minority shareholder uses a series of civil and criminal lawsuits, often involving the unlawful aid of State authorities, to seize the target company’s assets and shares for a hugely deflated value. Some of the largest concerns in Russia have been seized in this way.

According to the claims made in the High Court, a Dublin company called Eurotoaz Ltd, with a registered address at the offices of Arthur Cox solicitors, is playing a central role in the lawsuits and other moves designed to effect the threats allegedly made by Mazepin and which the statement of claim says were subsequently put into effect. The two Russian directors of Eurotoaz are among the 11 defendants in the High Court case.

Eurotoaz began its campaign of “vexatious litigation” in July 2009, according to the statement of claim, and made five separate criminal and regulatory complaints in 2009 and 2010. All the claims involved disputed shareholder rights and were dismissed or not pursued.

One of the defendants in the High Court case, Yevgeniy Yakovlevich Sedykin, acted with power of attorney for Eurotoaz in the allegedly vexatious claims. Further criminal complaints were made in February 2014.

As part of the claims, different statements were made on behalf of Eurotoaz as to how it had received its alleged shareholding in Toaz. One version was that it inherited the shares from a dissolved Hungarian company, Eurotoaz Hungary, in 1995.

Rejected by courts

Despite their being rejected by the courts, the Russian Investigative Authorities in Togliatti continued to investigate the claims. As part of this process, orders have been made by the courts for the freezing of shares and other assets with a value of $2 billion, the issuing of arrest warrants, and the removal of Sergei Makhla from the Toaz board.

The raiding scheme referred to during the Budapest and Zurich meetings was, according to the statement of claim, the second such effort to seize Toaz by improper means. The earlier attempt had also involved the Irish company Eurotoaz, though at that stage the company was, according to the document, controlled by Victor Vekselberg. Vekselberg is a Russian oligarch who is said by Forbes to have a value of approximately $13.6 billion.

The earlier raid on Toaz ran from 2005 to 2008 and led to charges being brought against Vladimir Makhlai. Some of the charges were used to try to extradite him from the UK. However, in May 2009, an English court refused to extradite Makhlai, in part because of expert witness testimony that the resultant criminal trial in Russia would be political and "the judge would know the outcome expected and come under pressure to provide that outcome", according to the summary of the decision in the statement of claim.

The judgment also relied on unchallenged evidence that “clearly implicates officials from the presidential administration in an attempt to influence a judge’s decision in respect of” Toaz.

Following the failure of his effort to seize Toaz, Vekselberg sold his minority shareholding in Toaz to Mazepin, in 2008, according to the statement of claim.

Mazepin then allegedly set in motion his scheme to seize control of Toaz by improper means, using Dublin-based Eurotoaz.

Inappropriate pressure

The statement of claims says that, in June 2015, Judge Larisa Anatolyevna Sheveleva, a judge in the Moscow Arbitrazh Court, ruled against Toaz in a tax case and a month later lodged a complaint with the prosecutor general Yuri Chaika and a State Duma deputy, Yan Zelinsky, that she had been placed under inappropriate pressure in respect of her judgments, including in relation to the Toaz case, by Supreme Court deputy chairman Oleg Svirdenko.

She said she was “well aware of what I would be facing if I failed to comply with this person’s instructions”. She said that, without protection, she might be forced to recind her complaint. She subsequently withdrew the complaint, according to the statement of claim.

A judge in the Samara region of Russia (where Togliatti is located) who made two judgments in favour of Toaz during the first raiding scheme was dismissed in March 2006. Judge Nadezhda Kostuchenko made a complaint to the European Court of Human Rights, in which she alleged her removal was due to her refusal to submit to pressure from the chairman of the court to find against Toaz. She subsequently withdrew her complaint.

The case being taken by the Toaz shareholders against Mazepin and the other defendants is for damages. The statement of claim says the plaintiffs have suffered an all but total loss in the value of their shares, so the loss being claimed is in the region of $2 billion.

Ongoing war

The defendants have yet to be heard, and the case has yet to go ahead. But the fact that it has been taken in Dublin means a new front has been opened in what is a long and ongoing war for control of a multibillion Russian enterprise that is significantly dependent on foreign earnings. A ruling against Mazepin and the other defendants could have significant implications for their ability to do business outside Russia and particularly in the West.

The London courts have seen numerous such battles over Russian assets, in part because London is where a lot of business figures who decided to leave Putin’s Russia now reside.

Two of the lawyers acting for the shareholders – former attorney general Paul Gallagher SC and Karyn Harty of solicitors McCann Fitzgerald – act for the Irish Bank Resolution Corporation in its case where it is asserting its rights over foreign assets formerly owned by the family of Seán Quinn. That case also involved raider attacks, in that instance on Russian and Ukrainian property companies that in turn controlled the Russian and Ukrainian properties.

Eurotoaz Limited: Dublin company in campaign of ‘vexatious litigation’

Irish company Eurotoaz Limited had accumulated losses of $7.6 million (€7m) at the end of 2014, according to its latest set of filed accounts, and was depending on the continued support of its shareholder.

The shareholder, the accounts said, “has committed to fund the ongoing legal action to reclaim and enforce its rights as the shareholder of the Russian company JSC Togliattiazot” (Toaz).

Toaz has claimed that Russian businessman Dmitry Mazepin controls Eurotoaz.

The notes to the Eurotoaz accounts said the company was the subject of a defamation action being taken against it by Toaz, and that it was the opinion of Eurotoaz’s legal advisers that the “defence at this stage appears good. This will become clearer upon receipt of expert reports.”

Irish court records show a defamation action against Eurotoaz was lodged in 2010, and that there have been no filings in relation to the case since 2013. The beneficial owner of Eurotoaz was Benstock Finance Ltd, of the British Virgin Islands, which had loaned the company $7.8 million, according to the 2014 accounts.

The accounts show that the company's directors were Andrey Babichev, with an address in Voronezh, Russia, and Yuri Starikov, with an address in London. The accounts were audited by Grant Thorton in Dublin, and the company's bankers were the Bank of Cyprus, Nicosia. The registered address was the Arthur Cox Building, Dublin.

The company's filings show its shares were transferred to Benstock in March 2012 from Gyorgy Galantai of Budapest, Hungary. Among the defendants in the proceedings lodged this week in Dublin is Yulia Bolotnikova, whom Toaz says is a lawyer who works for Mazepin's company, Uralchem, and who described herself as "attorney for Eurotoaz" pursuant to a power of attorney executed in March 2012 in the Irish defamation proceedings between Toaz and Eurotoaz.

Toaz also claims Ms Bolotnikova gave evidence for Uralchem in "vexatious litigation" brought against Toaz in Russia.

Mr Babichev is also a defendant. Toaz alleges that he was responsible for submitting evidence to the Russian authorities in support of "Eurotoaz's campaign of vexatious litigation".

Toaz has also said in its statement of claim that Benstock Finance has the same registered office and agent as another of the defendants, Belport Investments Ltd. It claimed that Belport "conspired" with Uralchem to produce a false share purchase agreement used in one of the criminal complaints brought against Toaz in Russia.