OJSC Oil Company Yugraneft v Abramovich & Ors

Factual and Procedural Background

The Claimant, referred to as Yugraneft, a Russian oil company now in liquidation, brings claims for damages against the Defendants, Mr Abramovich and Millhouse Capital UK Limited ("Millhouse"). Yugraneft alleges that it was defrauded by Mr Abramovich through a scheme that reduced its interest in a joint venture company, Sibneft-Yugra, from 50% to less than 1%, causing losses of billions of dollars.

Mr Abramovich is a Russian citizen and former Governor of a Russian province. Millhouse is an English corporation involved in managing Mr Abramovich's assets, with a disputed role in the events.

The dispute involves complex corporate arrangements and transactions over several years, including two Extraordinary General Meetings (EGMs) in 2002 and 2003 that diluted Yugraneft's shareholding in Sibneft-Yugra by issuing new participation interests to offshore companies controlled or associated with Mr Abramovich and Millhouse.

Yugraneft's parent company, Sibir, petitioned the English Companies Court to wind up Yugraneft and appoint an English provisional liquidator to continue the Commercial Court proceedings. The defendants seek dismissal of the claims and challenge the jurisdiction of the English courts over Mr Abramovich, who was served in England but contests his residence status.

Prior proceedings include unsuccessful actions by Yugraneft and Sibir in the British Virgin Islands (BVI), Russia's arbitrazh courts, and Russian criminal investigation authorities, all concerning the legitimacy of the capital increases and share dilutions.

The core allegations are that the dilution scheme was a fraudulent act orchestrated by Mr Abramovich and Millhouse, involving offshore nominee companies and complex transactions including the sale of Sibneft shares to Gazprom, with proceeds allegedly representing the stolen interest of Yugraneft.

Legal Issues Presented

1. Whether the English courts have jurisdiction over Mr Abramovich based on his residence at the time of service.
2. The applicable governing law for the claims, including whether Russian law or English law governs the claims in dishonest assistance, knowing receipt, unjust enrichment, and proprietary tracing.
3. Whether the claims against the Defendants have a realistic prospect of success or are barred by limitation periods under Russian law.
4. Whether Yugraneft's claims are barred by issue estoppel or abuse of process due to prior proceedings in the BVI and Russia.
5. Whether Yugraneft can trace its proprietary interest through the offshore companies and into the proceeds of the sale of Sibneft shares and related assets.

Arguments of the Parties

Appellant's Arguments (Yugraneft)

• The dilution of its 50% interest in Sibneft-Yugra was a massive fraud orchestrated by Mr Abramovich and Millhouse, resulting in loss of billions.
• The offshore companies involved were controlled and managed by Millhouse on behalf of Mr Abramovich, making him liable for knowing receipt, dishonest assistance, and unjust enrichment.
• Claims are alternatively brought under English law and Russian law, contending that English law applies to the equitable claims while Russian law governs the underlying obligations.
• The limitation period under Russian law should not bar the claims because criminal findings, which trigger limitation, have not been made due to alleged corruption and improper conduct by Russian authorities.
• Yugraneft contends that the prior BVI and Russian proceedings do not estop or bar its claims, especially in light of new evidence revealing Millhouse's central role.
• Mr Abramovich was resident in England at the time of service, thus permitting jurisdiction and service out of the jurisdiction.
• Yugraneft asserts proprietary claims tracing its interest into assets held or controlled by Mr Abramovich and Millhouse, including proceeds from the sale to Gazprom and investments in other companies.

Defendants' Arguments (Mr Abramovich and Millhouse)

• The claims are governed by Russian law, which bars the claims as time-barred due to the three-year limitation period starting from knowledge of the violation in 2004.
• Russian law requires a criminal finding before civil claims based on alleged criminal conduct can succeed; no such finding has been made, and the refusals to prosecute are binding.
• Yugraneft's claims are an abuse of process and are barred by issue estoppel due to prior unsuccessful proceedings in the BVI and Russia.
• The offshore companies are separate legal entities holding their own interests; Yugraneft never lost its original participation interest, and dilution by issuance of new shares does not constitute a transfer of its property.
• Yugraneft cannot trace its property into the offshore companies, the Sibneft shares, or the proceeds of sale to Gazprom, nor into assets purchased with those proceeds.
• Mr Abramovich was not resident in England at the time of service; his visits and property holdings do not establish residence or a substantial connection with England.
• Millhouse is a service company with limited assets and operations in England; the main activities relevant to the claims occurred in Russia.
• Even if jurisdiction over Mr Abramovich were established, England is not the appropriate forum as the dispute is overwhelmingly connected to Russia.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court conducted a detailed conflict of laws analysis and found that the claims in dishonest assistance, knowing receipt, and unjust enrichment are governed by Russian law, as the place where the alleged wrongs occurred, the property was situated, and the relevant enrichment arose. The Court rejected the Claimant's contention that English law applies to these claims on the basis of Mr Abramovich's residence or the location of Millhouse.

The Court held that under Russian law, the claims are time-barred because the limitation period of three years began no later than April/May 2004 when Yugraneft knew of the alleged wrongs. The Court acknowledged a dispute between experts regarding whether the limitation period is tolled pending a criminal finding but found that the Russian practice requiring a criminal finding before civil claims can succeed is procedural and should be disregarded for private international law purposes. The substantive limitation period under Russian law therefore applies, barring the claims.

The Court found that Yugraneft cannot establish a proprietary base to trace its interest into the offshore companies or the proceeds of the Sibneft sale to Gazprom. The issuance of new participation interests diluted Yugraneft's percentage interest but did not transfer its original participation interest. The Court rejected the contention that the increased value of Sibneft shares or dividends could be traced back to Yugraneft's interest.

The Court concluded that the claims are an abuse of process and barred by issue estoppel due to prior BVI and Russian proceedings in which similar claims were advanced and rejected. The Court found privity of interest between Yugraneft and Sibir, the latter having funded and controlled the prior litigation, making it just to bind Yugraneft by the prior judgments.

Regarding jurisdiction, the Court found no good arguable case that Mr Abramovich was resident in England at the time of service. His visits were infrequent, short, and largely connected with football matches. His main residence and business interests were in Russia. Millhouse's English operations were limited and primarily concerned with managing Mr Abramovich's non-Russian assets.

Accordingly, the Court set aside service on Mr Abramovich and declined permission to serve him out of the jurisdiction. Even if jurisdiction existed, Russia was the more appropriate forum for the dispute.

Holding and Implications

The claims against Mr Abramovich and Millhouse are dismissed.

The Court held that Yugraneft's claims are governed by Russian law and are time-barred under that law. There is no realistic prospect of success on the claims, and they are also barred by issue estoppel and abuse of process due to prior unsuccessful proceedings in Russia and the BVI. Additionally, the Court found no good arguable case that Mr Abramovich was resident in England at the time of service, and therefore set aside service and refused permission for service out of jurisdiction.

The direct effect is that the claims against the Defendants cannot proceed in England. The Court did not establish any new precedent but applied established principles of private international law, limitation, and procedural fairness to dismiss the claims. The appropriate forum for the dispute is Russia, where the alleged wrongs occurred and where related proceedings have been conducted.