Today, the Moscow Arbitration Court heard our lawsuit seeking to have the drilling rigs deal declared invalid. If there are still people who don’t know what drilling rigs I’m talking about, start here. And here. Here is my now-famous clumsy diagram:
The claims were denied. Of course, we weren’t expecting a miracle, but we had hoped this would at least resemble a real judicial examination of the case on the merits. Judge Elena Vladimirovna Mikhailova very harshly (though with a smile) shattered all those illusions. She did not grant a single motion to compel the production of documents. She did not grant a single motion to call witnesses. She denied the motions of two companies that wanted to join the case as third parties: Grant CJSC, which was the consignee for the rigs and confirmed that the deal was fictitious and void; and Izhdrill Honghua CJSC (the Russian representative office of the Chinese manufacturer), which was prepared to confirm the real cost of the rigs and show that it performed work that, in theory, was supposed to have been done by the Cypriot intermediary. At the previous hearing, the tax service had in fact been brought in as a third party and was ready to testify in our favor. But as soon as this news went on air, everyone at the tax service got slapped down. The tax officials honestly warned us that they had all been forced to write explanatory statements and were forbidden from appearing in the proceedings. And that is exactly what happened—no one from the tax service showed up. So that it’s clear, these are the witnesses we asked the court to summon: 1.** A.L. Kostin — President and Chairman of the Management Board of VTB Bank OJSC.** As the bank’s top executive, he has full knowledge of all the terms of the transaction and of the rationale for VTB-Leasing OJSC entering into it; he can disclose to the court all the terms of the deal, explain the motives behind it, and also explain the dismissal of the two VTB Bank OJSC Management Board members who signed the decisions approving it. **2. Sh.D. Boterashvili — member of the board of directors of the defendant, Well Drilling Corporation LLC. ** He can explain who proposed involving Clusseter Limited in Contract No. K 161/01-07 of July 26, 2007, and for what purpose, as well as how V.I. Popov obtained authority to sign the contract on behalf of Clusseter Limited. **3. V.A. Shamlikashvili ** The wife of Sh.D. Boterashvili. She acted as an intermediary in transferring documents from representatives of Clusseter Limited to V.I. Popov. She can disclose to the court information about the ultimate beneficial owners of Clusseter Limited and the reasons and purposes for the company’s participation in the contract in question. 4. Flarid Zufarovich Fairushin. At the time the deal was concluded, he was the general director of IzhDrill Nordex HongHua LLC, a subsidiary of Sichuan Honghua Petroleum Equipment Co. Ltd, the drilling rig manufacturer, created to sell its products in the Russian Federation. He can confirm that the difference between the contracts cannot be explained by the cost of this work and was artificially created for the unlawful enrichment of Clusseter Limited. **5. A.Yu. Konoplev ** Since September 8, 2009, he has served as general director of VTB-Leasing OJSC. He can explain how the challenged transaction is currently being carried out and can confirm (or refute) that the purpose of the deal was not to generate income from leasing out the drilling rigs, but to embezzle funds from VTB-Leasing OJSC and transfer them to the account of Clusseter Limited. 6. Yu.Ya. Livshits. At the time the contract was concluded, he held the positions of Chairman of the Board of Directors of Well Drilling Corporation LLC and, simultaneously, Chairman of the Board of Directors of Severnaya Ekspeditsiya Mining Company CJSC. He can confirm that he proposed that VTB-Leasing OJSC purchase the drilling rigs directly from Izh Drill Nordex HongHua CJSC; however, VTB-Leasing OJSC refused to buy the equipment from that supplier and instead proposed Clusseter Limited. 7. A.V. Nistratov. As General Director of Well Drilling Corporation LLC, he concluded the challenged contract. He can explain to the court the reasons for and terms of the challenged tripartite contract, as well as the necessity of involving the intermediary company Clusseter Limited. 8. Liu Zhi, a Chinese citizen, signed, on behalf of the manufacturing company, a contract with Clusseter Limited for the sale and purchase of the drilling rigs. He can testify as to when and under what circumstances Clusseter Limited approached them with a proposal to purchase the rigs, and can state the market value of the drilling rigs. **9. Sergei Viktorovich Andreev — director of GRANT CJSC until June 8, 2009, and 10. Yuri Vasilyevich Mikhalev ** Deputy head of GRANT CJSC until June 8, 2009. S.V. Andreev and Yu.V. Mikhalev can explain to the court how delivery of the rigs took place and how GRANT CJSC became the consignee for the rigs. 11. A.S. Puchkov — since December 2008, Deputy President and Deputy Chairman of the Management Board of VTB Bank OJSC. He can explain who the drilling rigs were intended to be supplied to, and why the equipment was purchased at obviously inflated prices. 12. O.K. Dergunova Member of the Management Board of VTB Bank OJSC. She can explain why it was necessary to sign a credit agreement with the Export-Import Bank of China (EXIM Bank of China), under which VTB was provided with US$240 million for 7 years. The bank then provided those funds to its subsidiary leasing company, VTB-Leasing OJSC, in order to refinance the costs of purchasing 30 Chinese-made drilling rigs for subsequent leasing. And we requested documents: From VTB Bank OJSC: materials from internal investigations conducted at VTB Bank OJSC in connection with the approval and conclusion of the deal to purchase 30 ZJ50DBS drilling rigs from the Chinese company Sichuan Honghua Petroleum Equipment Co. Ltd. This evidence could establish that the purpose of the transaction was from the outset contrary to the foundations of law and public morality. the entire set of documents submitted to VTB Bank OJSC for consideration of the approval of a major transaction involving the purchase of 30 ZJ50DBS drilling rigs from the Chinese company Sichuan Honghua Petroleum Equipment Co. Ltd. These contain specific calculations relating to the challenged transaction and therefore may substantiate its knowingly unlawful nature. materials from the review (measures) conducted by the internal control division of VTB Bank OJSC of documents and information relating to the challenged drilling rig purchase transaction, as well as the final report on the results of that review. These contain specific calculations relating to the challenged transaction and therefore may substantiate its knowingly unlawful nature. From the Economic Security Department of the Moscow Main Directorate of the Ministry of Internal Affairs – the inspection materials compiled in response to statements by VTB Bank OJSC shareholder A.A. Navalny regarding unlawful actions by employees of VTB Bank OJSC and VTB-Leasing OJSC. This file contains documents directly related to the subject matter of the dispute, namely: VTB-Leasing OJSC’s legal opinion regarding the challenged transaction; the analytical opinion on the deal prepared by the Risk Analysis and Control Department of the Severnaya Ekspeditsiya group of companies (the initiator of the challenged transaction); explanations by A.V. Borisevich, V.E. Osmolovsky, V.I. Popov, Sh.D. Boterashvili, and Yu.A. Livshits regarding the circumstances of the preparation and conclusion of the challenged transaction. From Severnaya Ekspeditsiya Mining Company CJSC and VTB-Leasing OJSC the business plan prepared by Neo Center, a company accredited by VTB Bank OJSC, as well as the package of documents sent by Severnaya Ekspeditsiya Mining Company CJSC to VTB-Leasing OJSC for consideration of the leasing application. N***one of this wonderful list interested Judge Elena Mikhailova. Not at all. A Constitutional Court ruling describing invalid transactions states plainly: "the anti-social nature of a transaction, which gives the court the right to apply this provision, is identified in the course of legal proceedings with due regard to all the factual circumstances, the nature of the violations committed by the parties, and their consequences.” That is exactly why we demanded that these factual circumstances be examined in court. For example, if Kostin says the deal was problematic and that he fired everyone who had anything to do with it, shouldn’t the court question Kostin, or those he fired, or at least look at the documents showing why he fired them? If, in the police inspection materials, one of the parties says that VTB insisted on including an intermediary in the scheme, shouldn’t the court request those inspection materials? It should. But Judge Mikhailova recognizes only one factual circumstance as relevant: VTB Bank is big, and it knows how to make calls over secure government lines. So, as I said, every single one of our motions was denied, and the claim was dismissed. Let Ivanov and Lebedev keep wringing their hands even more: oh, people here have no respect at all for judicial authority and judges! And why exactly are they not respected? Why do foreign investors laugh when they hear the words “Russian court”? Why does everyone want disputes heard in a London court? Well then, the situation is grim: US$156 million was stolen. The rigs are sitting in a swamp.
Blue buckets on the roofs (a reference to the blue emergency-style beacons used by privileged officials). The courts in their pocket. Life is good. This round, the crooks won outright. But never mind—we’re not dropping the case, we’ll keep digging. It’s upsetting and unpleasant, but that’s the job. We’ll come up with something. No matter how long the rope twists, the end still comes. Everyone will get what they deserve.