LIC Telecommunications Sarl & Empreno Ventures Limited
v
(1) VTB Capital Plc (2) Delta Capital International AD (3) Maze Sarl (4) Milen Veltchev (5) Viva Telecom (Luxembourg) SA (6) Spas Rusev (7) V Telecom Investment SCA (8) V2 Investment Sarl
In a judgment handed down on 7 February 2018, HHJ Waksman QC (sitting as a Judge of the Commercial Court) determined a number of preliminary issues in ongoing litigation concerning ownership of the Vivacom telecommunications group, described by the Judge as “one of the main players in the Bulgarian telecommunications industry”. The litigation arises out of claims by a Russian businessman, Dmitry Kosarev, that two companies he owns (who are the Claimants in the action) were defrauded of their 43.3% indirect ownership of the Vivacom group by a complex fraud perpetrated by the Defendants (who include VTB Capital plc (“VTBC”) and Milen Veltchev, a former Minister of Finance in Bulgaria). The Defendants are alleged to have procured the sale of shares in the operating subsidiaries of the Vivacom group, held by an intermediate holding company known as “V2”, at an undervalue. The shares in question were pledged to VTBC as security for a loan granted to the group by VTBC. The pledge was exercised by VTBC selling the shares to a third party purchaser (known as Viva Telecom) in November 2015. The Claimants allege that VTBC’s exercise of the pledge was a sham device designed to procure the transfer of the operating subsidiaries to Viva Telecom at an undervalue.
The Claimants allege that their claims are governed by Luxembourg law, which (like English law) prevents a shareholder of a company recovering loss that is reflective of loss suffered by the company. The Claimants sought to circumvent this rule by relying upon the doctrine of fraus omnia corrumpit, i.e. ‘fraud unravels all’, which is an established part of French, Belgian and Luxembourg law. In reliance upon the doctrine of fraus omnia corrumpit, the Claimants alleged that they were entitled not only to damages for loss of their indirect interest in the group but also to an order setting aside the sale of V2.
On a trial of preliminary issues of Luxembourg law, the Judge held that the doctrine of fraus omnia corrumpit did not displace the rule against recovery of reflective loss. The doctrine only displaced a rule where avoidance of the rule or its enforcement was the object of the defendant’s fraud. That was not the case here because avoidance of the rule against reflective loss was not the object of the alleged fraud, which (on the Claimants’ case) was to effect the transfer of the shares of the operating subsidiaries of the Vivacom group to a related party at an undervalue. The doctrine was “not designed to set aside a legal act or reliance upon a legal rule which exists irrespective of the alleged fraud” (paragraph 113). For related reasons, the Judge also held that the doctrine could not be relied upon by the Claimants to set aside the sale of the shares to Viva Telecom (to which sale the Claimants were not party).
The Claimants also brought a subsidiary alternative claim for allegedly losing, by reason of the sale of the shares to Viva Telecom, the opportunity of themselves purchasing or acquiring control of 100% of the Vivacom group. The Judge held that this claim (which was not said to be reflective) involved issues of fact which could not be resolved on a preliminary basis and must therefore go to a full trial.
David Caplan, instructed by White & Case LLP, for the First Defendant.
Craig Orr QC and Saul Lemer, instructed by DAC Beachcroft LLP, for Mr Veltchev and a corporate defendant also sued by the Claimants.
Rachel Oakeshott, instructed by Mishcon de Reya LLP, for the Third Defendant.
Judgment can be downloaded here.