July 9 (Bloomberg) -- United Co. Rusal Chief Executive Officer Oleg Deripaska confronts a figure from his past he might rather forget in a $1 billion courtroom battle with Michael Cherney that began today in London.
Cherney, a businessman living in exile in Israel, sued Deripaska saying they were partners in Russia during the 1990s and that he is owed a share of Rusal, the world’s largest aluminum producer.
Deripaska, a 44-year-old billionaire who made his fortune in Russia’s metals trade, denies they were ever partners. He says Cherney is a criminal who used gangster contacts to get protection payments or “krysha,” according to court documents.
It’s the second major trial in London this year involving Russian oligarchs who made their money in commodities. A three-month, $6.8 billion fight between Boris Berezovsky and Chelsea Football Club owner Roman Abramovich ended in January and is awaiting a verdict from Judge Elizabeth Gloster.
That case saw the men’s reputations battered by accusations of shady dealing in the period following the collapse of communism in Russia, when a select group of individuals prospered by acquiring state assets.
Cherney and Deripaska will be more concerned with gains and losses than their images, said Professor Bruce Bean, a Russian-law specialist at Michigan State University who testified in the Abramovich trial.
“It is impossible to embarrass these gentlemen,” Bean said in an e-mail. “I fully expect that we will have confirmed the tales that have been circulating for almost two decades about the dangerous, criminal nature of the metals trade” in Russia at the time.
While Cherney has been the subject of criminal investigations -- like Deripaska and other prominent Russian businessmen -- he has never been convicted of a crime, his lawyer Mark Howard said today in opening statements.
The case will hinge on two pieces of paper said to contain an agreement for Deripaska to hold shares in trust for Cherney, according to court filings. Cherney claims Deripaska signed the documents in 2001 at the Lanesborough Hotel, which overlooks London’s Hyde Park.
Deripaska is “seeking to rewrite history” and has “told a quite incredible story,” Howard told the court today. The allegations of criminality are “in order to divert attention from contemporaneous documents.”
What’s at Stake
Cherney says Deripaska controlled 66 percent of Rusal directly or indirectly by 2007, and that 13 percent is held for him, according to documents from his claim. That stake may be worth about $1 billion, based on the company’s market value of $8.3 billion. Cherney doesn’t give a figure in his claim.
Deripaska looks forward to demonstrating that the allegations are false, a spokesman said in a statement. His legal team will start their arguments July 11.
Deripaska sought out Cherney so he could use his wealth and connections to grow the aluminum business, Cherney’s lawyer Howard told the court today. “He realized that a partnership with Mr. Cherney could propel him into a different league altogether.”
According to Cherney’s written arguments, released today, some of Deripaska’s own evidence implicates him in bribing a Russian governor, belonging to a criminal organization and ordering a murder.
Direct Knowledge Lacking
Statements implicating both men can be found in police reports and individuals’ statements, according to Cherney’s attorneys. They were made by people without first-hand knowledge and shouldn’t be taken seriously or used to make a case against their client, Cherney’s lawyers said.
“Mr. Deripaska vehemently denies these allegations,” a spokeswoman, Idil Oyman, said by e-mail. “Criminal gangs were operating very widely in post-Soviet Russia. Mr. Deripaska was subjected to a krysha by Mr. Cherney” and another man “and the organized-crime gangs they represented.”
Deripaska declined to comment on “matters that may be the subject of evidence to be given at trial,” Oyman said.
A London judge on July 6 in the final pretrial hearing ruled that three witnesses could give anonymous evidence. Deripaska’s lawyers, who wanted anonymity granted to nine others, will appeal and as a result the identities of 12 people involved in the case will remain secret when the trial starts.
Cherney won’t appear in person. He is the subject of a European arrest warrant in a Spanish money-laundering investigation, according to Deripaska’s legal papers, and will testify through a video link.
In court documents, Deripaska’s lawyers said Cherney is “a lifelong criminal” who began his career in Uzbekistan and moved to Moscow. Deripaska was forced to enter into a protection agreement with Cherney after assassination attempts against him and his associates, he said in court papers. He didn’t say who made the threats.
The fight for market share in Russia two decades ago involved violence and became known as the aluminum wars. Abramovich, a former shareholder in one of the companies that formed Rusal through a series of mergers, testified at his trial that he was reluctant to invest in the business because “every three days someone was murdered.”
Deals were often sealed by handshakes rather than with legal documents, which makes proving their existence in court problematic, said Edward Mermelstein, a New York attorney with wealthy Russian clients.
“It makes litigation for both sides more difficult, and the outcome is less certain,” Mermelstein said.
There are as many as 70 witnesses that may be called in the trail that is expected last until next year.
The case is Cherney v. Deripaska, High Court of Justice, Queen’s Bench Division, Commercial Court 06-1218.
To contact the reporter on this story: Kit Chellel in London at email@example.com.
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