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Abramovich’s U.K. Trial Ruling Hinges on Credibility, ‘Krysha’

Russian Billionaire Roman Abramovich
Roman Abramovich, Russian billionaire and owner of Chelsea Football Club. Photographer: Simon Dawson/Bloomberg

Roman Abramovich and Boris Berezovsky, Russian oligarchs with ties to the U.K., will learn tomorrow who swayed a London judge during the three-month trial in which both men accused each other of corruption, dishonesty and greed.

On top of settling a personal feud worth as much as $6.8 billion, Judge Elizabeth Gloster’s verdict will provide the first real guidance for British courts on dealing with large, undocumented payments by Russian businessmen for political or physical protection, a practice known as krysha.

“It will be the first judgment that really prizes open the inner workings of Russian commercial life,” said Louis Flannery, a London-based litigator at Stephenson Harwood LLP who isn’t involved in the suit. “It could have huge ramifications for future disputes in this country.”

During the trial that ended in January, Berezovsky said he lost billions of dollars when Abramovich intimidated him into selling stakes in Russian oil and metals businesses too cheaply. Abramovich, now owner of Chelsea Football Club, said Berezovsky never had stakes in the companies and payments he received were for political protection. The trial involved hundreds of hours of court time, millions of pounds in legal fees and witnesses ranging from kitchen staff to billionaires.

“It’s a standard-bearer case in terms of looking at Russian business dealings in the late 90s and early 2000s,” said Philippa Charles, a lawyer at Mayer Brown LLP. Krysha hasn’t yet been comprehensively addressed in the U.K., she said.

Credible Witnesses

The disputed agreements were made orally in a series of meetings at luxury hotels and ski resorts. Berezovsky, who now lives in London, received hundreds of millions of dollars from Abramovich before a final payment of $1.3 billion in 2002.

Gloster’s ruling will hinge on which of the two oligarchs was the more credible witness, as well as how she interprets the practice of krysha, Charles said.

Berezovsky spokeswoman Georgie Gibbs and Abramovich lawyer Karyl Nairn declined to comment.

A win for Berezovsky could lead to even more Russian lawsuits being filed in London, which already attracts a large number of litigants from outside the country because of its reputation for fairness and freedom from political interference.

“If, on the basis of no written agreement, Berezovsky can succeed, there will be others who will think it’s worth a try,” Charles said.

Deripaska Claims

Gloster will hand down a summary of her judgment tomorrow while copies of the full judgment won’t be released until at least Sept. 17, according to a court statement.

Another Russian who made his fortune buying state assets after the fall of the communist regime, United Co. Rusal Chief Executive Oleg Deripaska, is fighting a claim in London that he broke a partnership agreement. Michael Cherney claims he was partners with Deripaska, while the Rusal co-founder said Cherney is a criminal who extorted krysha payments from his aluminum business. That trial will resume in September.

“It would be inappropriate to speculate on the outcome of these proceedings, but either way it will have no direct bearing on Mr. Cherney’s case against Mr. Deripaska,” Paul Slinger, a Deripaska spokesman, said of the Berezovsky lawsuit.

Deripaska appeared as a witness for Abramovich during his trial, accusing Berezovsky of not paying his debts and coming to business meetings dressed in a bathrobe.

Berezovsky denies taking protection payments and maintains he helped Abramovich build up stakes in oil company OAO Sibneft and aluminum assets, which eventually became part of Rusal, in return for a share of the companies. He claims he lost about $6.8 billion when Abramovich told him to sell or face having his stakes confiscated by the Russian government.

The case is: Berezovsky v. Abramovich, High Court of Justice, Queen’s Bench Division, Commercial Court Case No. 09-1080.

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