Case No: HC08C02375
Neutral Citation Number: [2010] EWHC 1485 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 21/06/2010 

Before :

MR JUSTICE NEWEY
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Between :

	NORTH SHORE VENTURES LIMITED	Claimant	
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	(1)	ANSTEAD HOLDINGS INC.
(2)	RUSLAN FOMICHEV
(3)	VASILY PEGANOV	Defendants	

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Mr Francis Tregear QC and Mr Paul Sinclair (instructed by Addleshaw Goddard) for the Claimant
Mr Michael Swainston QC and Mr John Machell (instructed by Cooke, Young & Keidan) for the Second and Third Defendants

Hearing dates: 19, 22-26, 29 and 30 March and 14-16 and 19-20 April 2010
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Judgment
Mr Justice Newey: 
1.	This case concerns a $50 million loan made by the Claimant (“North Shore”), a company associated with Mr Boris Berezovsky, the well-known Russian businessman and politician, to the First Defendant (“Anstead”), a company owned by the Second and Third Defendants (respectively “Mr Fomichev” and “Mr Peganov”). The loan was made pursuant to a written agreement dated 14 March 2003 (“the Loan Agreement”), and Mr Fomichev and Mr Peganov entered into a written guarantee of the same date (“the Guarantee”) in respect of Anstead’s liabilities to North Shore.
2.	Although amounts somewhat in excess of the original $50 million have been repaid, it is North Shore’s case that large sums remain outstanding under the Loan Agreement. The total now owed is put at some $47 million.
3.	The disputes between the parties relate to a considerable extent to money which was frozen by the Swiss authorities for upwards of four years. A sizeable proportion of the $50 million lent by North Shore (for most of the period, $18 million) was the subject of a sequestration order made in Switzerland in September 2003, and the money was not all finally released until the end of 2007. The sequestration order was made because of perceived links with Mr Berezovsky, who, at the time, was the subject of investigation in Switzerland in connection with suspected money-laundering offences. The Swiss investigations stemmed, in particular, from dealings relating to Aeroflot, the Russian airline.
The parties
4.	North Shore, the Claimant, was incorporated in the British Virgin Islands on 2 January 2003. FG Services Limited, a Manx company, was appointed as North Shore’s first director, and North Shore’s issued shares were initially held by another Isle of Man company, FG Management Limited, as nominee for a daughter of Mr Berezovsky, Mrs Ekaterina Berezovskaya. The director of North Shore is now Mainstay Services Limited, and the shares have since 2006 been held by another Mainstay company.
5.	Anstead, the First Defendant, was incorporated in the British Virgin Islands in 2000. A Mrs Beverly Hunt and a Mrs Darlene Bayne were appointed as the company’s directors, but it was Mr Fomichev and Mr Peganov who were effectively responsible for decision-making.
6.	Mr Fomichev, the Second Defendant, was born in 1969 and so is now aged 40. His father, Mr Berezovsky said, is (or was) a general in the Russian Federal Security Service (or FSB). After graduating from Moscow State University in 1993, Mr Fomichev worked for a time for Guta-Bank in Moscow. He first worked for Mr Berezovsky and his business partner, Mr Arkadi (or “Badri”) Patarkatsishvili at Consolidated (or, in the original Russian, “Objedinenny”) Bank, which he joined in 1995 or 1996. He was successively Deputy Chairman and Chairman of the Executive Board, and also became Chief Executive Officer, before leaving in about August 2000. 
7.	I was told that Mr Berezovsky and Mr Patarkatsishvili would use Consolidated Bank to invest in projects of theirs. Other companies associated with Mr Berezovsky were shareholders in Consolidated Bank. These included the LogoVAZ, Andava and Forus groups of companies. Members of the LogoVAZ group of companies also had accounts with Consolidated Bank, as did Aeroflot.
8.	Mr Fomichev continued to work for Mr Berezovsky and Mr Patarkatsishvili after his departure from Consolidated Bank. The witnesses diverged to an extent in their descriptions of Mr Fomichev’s role. Mr Fomichev himself said that he assisted Mr Berezovsky and Mr Patarkatsishvili in 2001 with the sale of their holdings in Sibneft, the Russian oil company. He said, too, that he had dealt with Mr Berezovsky’s properties in France for a period: “[f]rom 2001 until 2002, for one year, when Mrs Nosova was not in England and she was waiting for her visa to be done to enter UK”. His position is encapsulated in the following passage:
“I knew the projects that they were delegating to me to do, and about these projects I knew everything. I was not aware about some other businesses ….”
9.	However, Mr Fomichev accepted that he was “very close” to Mr Berezovsky and Mr Patarkatsishvili, and he referred to having a desk in Mr Berezovsky’s offices in London. For his part, Mr Berezovsky described Mr Fomichev as having been his right-hand man for a number of years. He said that, in the period after he left Russia in 2000, Mr Fomichev was for a period the “only person who know everything and who managed my money, my business and so” (Mr Patarkatsishvili being at the time in Georgia and unable to travel to London and “a big group of [his] people stay[ing] in Russia”). 
10.	Mr Berezovsky said that Mr Fomichev’s role diminished only when Mrs Natalia Nosova (who he termed his “right hand woman”) moved to London in about September 2002. Mr Berezovsky said that Mr Fomichev and Mrs Nosova worked together for “maybe half a year, maybe a year”, following which Mr Fomichev gave up the room he had until then had in Mr Berezovsky’s London offices. However, “it never happened,” Mr Berezovsky said, “that Ruslan Fomichev just one day jumped from my office to his personal office”; Mr Fomichev, Mr Berezovsky said, “continued to be informed and participate in discussion almost every day, even after he left the physical space”.
11.	Despite the events which have given rise to the present litigation, Mr Fomichev continued to undertake work for Mr Berezovsky up to 2008. Mr Berezovsky said that Mr Fomichev worked for him and Mr Patarkatsishvili in one capacity or another until 2008. Mrs Nosova, too, spoke of Mr Fomichev working for Mr Berezovsky and Mr Patarkatsishvili in one capacity or another until 2008. Mr Fomichev himself said that he had a very good relationship with Mr Berezovsky until February 2008.
12.	I shall return below (see paragraphs 148-175) to Mr Fomichev’s role in, and knowledge of, Mr Berezovsky’s affairs.
13.	In its original form, the Defence and Counterclaim referred to Mr Fomichev’s English as poor. However, a curriculum vitae for Mr Fomichev describes him as “a native Russian speaker with fluent written and spoken English”. Although Mr Fomichev said that he did not remember who had drawn up this document, it will surely have been prepared either by Mr Fomichev or at least with his endorsement; he accepted in cross-examination that he was the “beneficial owner” of the information. Similarly, Mrs Berezovskaya said that Mr Fomichev’s English “is and was perfectly good”, and in October 2003 Mr Fomichev was interviewed in English in Switzerland (see paragraph 71 below). Whilst Mr Fomichev’s English may well have improved since 2003, it seems to me that Mr Fomichev’s spoken and written English must already have been good by 2003, albeit that, as Mr Fomichev said in cross-examination, he will doubtless have been less familiar with “legal English”.
14.	Mr Fomichev settled in London in April 2002.
15.	Mr Peganov, the Third Defendant, was born in 1975 and so is slightly younger than Mr Fomichev.
16.	By the time he came to give evidence, Mr Peganov spoke English very well indeed. Mr Peganov said, and I accept, that his English was rather less good when the loan was made in 2003.
17.	Mr Fomichev and Mr Peganov first met in 1997, and they went into business together a year or so later, becoming involved in trading oil and meat products and in real estate development. Anstead was set up in 2000 to pursue the trading side of the business. 
18.	Mr Peganov reckoned that the businesses had a turnover of $120-150 million in 2002. The business had offices in Moscow and Ufa, a city in the southern Ural mountains, at the time the loan was made. Mr Peganov’s role was akin to that of a managing director, and he dealt with operational issues in Russia. Mr Fomichev handled matters of financing and liaison with Western counterparties.
19.	Mr Fomichev and Mr Peganov are close friends. 
The Claimant’s witnesses
20.	Mr Boris Berezovsky’s first substantial business venture was LogoVAZ, which ran a car dealership business. He was elected as a member of the Russian Duma in December 1999, but he resigned from the Duma in mid-2000 because, he said, he “didn’t want to be puppet by Kremlin”. In October 2001, Mr Berezovsky left Russia for the south of France, and in October of the following year he moved to London. He has lived in England since then, and he has been granted political asylum.
21.	Mr Berezovsky said that his priority “after the first billion [became] politics”. Mr Fomichev said that when he first met Mr Berezovsky the latter told him that he was “doing politics” and that all business questions should be referred to Mr Patarkatsishvili. Mr Peganov commented that in the late 1990s Mr Berezovsky was “somewhere not on the ground” but “in space”, reflecting the obvious reality that Mr Berezovsky’s life was outside ordinary experience.
22.	Mr Berezovsky maintained that the allegations which have been made against him by the Russian authorities were politically motivated. In similar vein, he said:
 “If I have secrets, it’s just because I’m afraid of Russian authorities which try to fish everywhere.”
23.	I found Mr Berezovsky’s evidence about the events with which I am primarily concerned credible. I nonetheless approach Mr Berezovsky’s evidence with a degree of caution. The reasons include these. First, it is Mr Berezovsky’s own case that he lied when asked during an interview in 2007 about a supposed “economic divorce” between himself and Mr Patarkatsishvili (see paragraphs 293-300 below). Mr Tregear argued that Mr Berezovsky’s conduct was understandable in the circumstances, but it remains an instance of Mr Berezovsky being untruthful. Secondly, although I understand that Mr Berezovsky is not a “details person” (see paragraph 205 below), I find it hard to accept that Mr Berezovsky took as little interest in events in Switzerland as he was inclined to suggest (for example, saying at one point, “I don’t pay any attention what happened in Switzerland”). Thirdly, I am not well-placed to evaluate some of Mr Berezovsky’s evidence: for example, about the alleged “economic divorce” or whether the Russian allegations against him have been politically motivated. I note in this context that the facts set out in Swiss Court documents suggest that it is understandable that the Swiss authorities took the view that dealings between Aeroflot and the Andava and Forus groups merited investigation.
24.	Mrs Ekaterina Berezovskaya is Mr Berezovsky’s daughter. Mr Fomichev came to know Mr Berezovsky through Mrs Berezovskaya, who was a close friend of Mr Fomichev’s wife. Mrs Berezovskaya’s evidence was of limited significance, but I have no reason to doubt that she gave evidence truthfully.
25.	Mr Nikolai Glushkov was one of the founders and shareholders of LogoVAZ before becoming Deputy General Manager at AvtoVAZ, the Russian automobile manufacturer. (Mr Berezovsky said that when Mr Glushkov recognised that his (Mr Berezovsky’s) influence was too “too heavy for him”, he decided to move to AvtoVAZ and he “just gave up all his interest on LogoVAZ” to Mr Berezovsky; for his part, Mr Glushkov said he made a gift of his assets to Mr Berezovsky because he “valued the friendship with [his] friend Boris Berezovsky more than the funds that were earned together”.) In 1996 Mr Glushkov joined Aeroflot as the company’s First Deputy General Director, in which role he was responsible for all the company’s business apart from the technical matters. He was also, for a time, on the supervisory board of Consolidated Bank.
26.	In December 2000, Mr Glushkov was arrested in Russia, and he remained in prison there until March 2004, when he was convicted of certain offences but released because of the time he had already spent in prison. In 2006 he was convicted of a further offence in Russia, but he escaped from the country in July 2006. He has now been granted political asylum in the United Kingdom.
27.	Mr Glushkov’s evidence was primarily of significance in relation to conversations he said he had had with Mr Fomichev in 1999 and 2000. On these matters, I found Mr Glushkov’s evidence credible.
28.	Mr James Jacobson was a partner in Curtis & Co, solicitors, from 2001 until the firm closed in September 2004 following the sudden death earlier in the year of Mr Stephen Curtis, the firm’s senior partner. Mr Jacobson was then a consultant solicitor with Streathers Solicitors LLP until March 2006. He has since lived in Gibraltar, working as a consultant. He struck me as a truthful witness.
29.	Mr Hans-Peter Jenni qualified as a Swiss lawyer, but in 1998 he emigrated to Cyprus, from where he has continued to provide legal and business advisory services. He became a legal advisor to Mr Berezovsky some 17 years ago, and increasingly provided business advice too.
30.	Mr Jenni was on the board of companies in the Andava and Forus groups, and also of a company called Anros SA, and he was charged with a number of offences arising out of dealings involving these companies. On 11 July 2008, he was convicted in Switzerland of aiding and abetting Mr Glushkov in unfaithful management with Aeroflot, for which he was given a 21-month suspended prison sentence and a CHF 90,000 fine. An appeal was unsuccessful, except to the extent that the sentence was reduced.
31.	Notwithstanding his conviction, I found Mr Jenni a persuasive witness.
32.	Ms Natalia Krokhina worked for LogoVAZ and Aeroflot in the 1980s. She was also the chairman of the internal audit commission of Consolidated Bank.
33.	Miss Krokhina provided a witness statement, in respect of which a hearsay notice was served. There having been no opportunity for the Defendants to test Miss Krokhina’s evidence in cross-examination, I do not think I can place significant weight on it.
34.	Mr Damian Landi is a solicitor and partner in Streathers Solicitors LLP. He was responsible for preparing certain spreadsheets in respect of Anstead’s indebtedness to North Shore. He was not cross-examined.
35.	Mr Nicholas Keeling is a director of Mainstay Services Limited, which is now the corporate director of North Shore. Between 1990 and 2005, he was a director of FG Services Limited, which was formerly the corporate director of North Shore. He is nowadays based in Gibraltar. He struck me as a truthful witness.
36.	Mrs Natalia Nosova has known Mr Berezovsky since 1991, when she became Deputy General Manager (for finance) in LogoVAZ. She has since worked with Mr Berezovsky and, until his unexpected death in February 2008, Mr Patarkatsishvili. Mr Berezovsky said that she was his “right hand woman” from about September 2002, and Mr Fomichev spoke of her as “a treasurer for the … joint venture between [Mr Berezovsky] and [Mr Patarkatsishvili]”. She was a member of the board of Consolidated Bank at the same time as Mr Fomichev.
37.	Mrs Nosova’s loyalty to Mr Berezovsky may have influenced her interpretation of some events, but I found her factual evidence generally convincing.
The Defendants’ witnesses
38.	Mr Fomichev and Mr Peganov, the Second and Third Defendants, gave evidence themselves.
39.	I am afraid that I cannot consider Mr Fomichev a reliable witness. It is clear that Mr Fomichev gave untruthful evidence to the Swiss Federal Prosecutor to try “to limit [his] exposure and mitigate the seriousness of [his] own position” (see paragraphs 71 and 72 below). It seems to me that Mr Fomichev was prepared to give untruthful evidence in these proceedings, too, in the hope of defeating North Shore’s claims. As Mr Tregear pointed out, the changes which have taken place in Mr Fomichev’s case are striking. Defences which bulked large during the trial (notably, of non-disclosure and as to agreements said to have been reached in 2006 and 2007) emerged only late in the day. Other defences (for example, that Mr Fomichev had not signed the Guarantee) were abandoned.
40.	Although in some ways an attractive witness, I also have reservations about Mr Peganov’s evidence. For example, I was not satisfied with the explanations he gave about a document entitled, “Business-Plan For the period of 2003 -2004” which was sent to North Shore’s solicitors in March of this year. I have concerns, too, about changes in Mr Peganov’s case. In particular, until late last year Mr Peganov denied that the Guarantee had been signed by him or on his behalf, stating, for instance, in a witness statement dated 22 April 2009, “I did not sign the Guarantee which is the subject of these proceedings”. In the event, the Guarantee proved to have been signed on Mr Peganov’s behalf by his secretary: when giving oral evidence, Mr Peganov said that he had spoken to his secretary on the telephone and told her to sign a document which had been faxed to her if it had Mr Fomichev’s signature on it, that he had discovered that the document in question was a guarantee when he returned to Moscow a day or two later and that a member of his staff (possibly a driver) had sent the document back to Curtis & Co. On the basis of that evidence, the April 2009 witness statement may have been strictly accurate, but it was hardly frank.
41.	Turning to witnesses called by Mr Fomichev and Mr Peganov, Mr Andre Houman is a director of Trusban International SA, a trustee management company. He lives and works in Switzerland.
42.	It was Mr Houman who, on Mr Fomichev’s instructions, arranged for Anstead to be incorporated. He continued to be involved with Anstead’s management until the company’s shares were re-settled on the Jirehouse Resettlement Foundation in mid-2008 (as to which, see paragraph 88 below).
43.	In his evidence, Mr Houman stressed (and I accept) that he did not give any legal advice to Mr Fomichev or Mr Peganov. As Mr Houman said, he “only ever acted as an intermediary between them and the corporate directors of Anstead and then only under instructions from [Mr Fomichev and Mr Peganov] and communicating with the directors”. He was willing to accept that he could be described as an “offshore robot”.
44.	Mr Houman was insistent that he told Mr Jacobson in 2003 that he (Mr Houman) was not acting as Anstead’s legal representative. I do not accept that evidence. It derives no support from the contemporary documents and is contradicted by Mr Jacobson’s evidence. In other respects, however, I found Mr Houman’s evidence credible.
45.	Mr Eugene Jaffe is the chief executive officer of Salford Capital Partners Inc, an asset management company whose registered office is in the British Virgin Islands. While Mr Tregear formally challenged his evidence, he did no more: Mr Jaffe was not cross-examined on the detail of his evidence.
46.	Mr Olivier Peclard is a Swiss lawyer and a partner in the Geneva firm Bonnant, Warluzel & Partners. He was plainly a truthful witness.
47.	Mrs Tatiana Rapp was the financial director of Anstead between September 2003 and September 2006. Her recollection of events was, understandably, imperfect, but I have no reason to doubt that she told the truth as she remembered it.
Representation
48.	North Shore was represented by Mr Francis Tregear QC and Mr Paul Sinclair, Mr Fomichev and Mr Peganov by Mr Michael Swainston QC and Mr John Machell.
The loan
49.	The Loan Agreement was made between North Shore and Anstead on 14 March 2003 and provided for North Shore to give Anstead a $50 million loan facility. The facility was to last a minimum of 16 months. Subject to that, repayment was to be made on four months’ notice.
50.	The Loan Agreement included the following terms:
i)	Clause 2.2 provided as follows:
“The proceeds of each Advance shall be used for the business undertaken by [Anstead] and the Related Entities [i.e. four other companies associated with Mr Fomichev and Mr Peganov] and such business comprising the sale or purchase of processed meat and meat products primarily for supply in the Russian Federation and the sale and purchase of petroleum products in the Russian Federation and for no other purpose”;
ii)	Clause 3.1 stated that an advance would be made by North Shore to Anstead provided that, among other things, “not later than 11.00 a.m. on the third Business Date before the proposed Drawdown Date [North Shore] has received a completed Notice of Drawdown” (clause 3.1.1). The expression “Notice of Drawdown” was defined in clause 1.1 as “a notice of [Anstead’s] wish to borrow an Advance in or substantially in the form set out in Schedule 2”. Paragraph 8 of that form was in the following terms:
“We request that the Advance be made available to us on the date specified in the Schedule to this letter, by payment to account no. 603.274 of Anstead Holdings Inc. at CIM Banque s.a. (Geneva) Switzerland”;
iii)	Clause 4.1 provided for Anstead to pay interest at the rate of 15% on the first business day of each month;
iv)	Clause 4.2 provided as follows:
“If a default is made in the payment of any amount under this Agreement, interest will accrue on the amount in respect of which that default has been made as if that amount were an Advance made from the date of default until payment (as well after as before judgment), and that interest will be calculated at the rate (as determined by [North Shore]) which is the aggregate of the Interest Rate [viz. 15%] and 5% (five per cent)”;
v)	Clause 12.5 barred Anstead from, among other things, disposing without North Shore’s consent of any of its assets except for full value on arm’s length terms in the normal course of business;
vi)	Clause 18.1 provided as follows:
“All payments required to be made by [Anstead] hereunder shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of and without deduction for or on account of any set-off or counterclaim”;
vii)	Clause 21.1 provided as follows:
“No failure to exercise, nor any delay in exercising, on the part of [North Shore], any right or remedy under the Finance Documents [an expression defined to include the Loan Agreement] shall operate as a waiver thereof ….”;
viii)	Clause 24 stated that the Loan Agreement was governed by English law; and
ix)	Clause 25.1 provided for the Courts of England to have jurisdiction to determine disputes.
51.	The Loan Agreement also provided for North Shore to be provided with security in a number of ways, including by Anstead’s (bearer) shares being pledged in favour of North Shore.
52.	Mr Fomichev explained how the loan money was to be used in a letter dated 12 March 2003 to Mrs Berezovskaya and the Trustees of the Itchen Trust. The letter read as follows:
“I refer to the proposed loan arrangement between Anstead Holdings Limited and North Shore Ventures Limited and the intended assignment of the same to the Itchen Trust. In this regard, I can advise that the monies received from the loan will be used to finance various trade exports of meat to the Russian Federation and to also purchase diesel oil for subsequent trading on the markets.
In summary, Anstead Holdings Limited has an arrangement with Boston Agrex regarding meat exports into Russia. Boston Agrex holds various sub accounts for, inter alia, all of the main meat producers based in Brazil. On this basis, Anstead pays monies in advance for the purchase of a meat quota which is utilized by Boston Agrex as a type of guarantee and in essence helps finance the trade of meat to Russia through the use of various associated Russian companies. These companies including Kruglyigod (and Vnesheconomgruppe) have contracts with the Brazilian meat suppliers to export meat to Russia (pursuant to a state quota) which are approved by the Russian authorities and in which they have three months to sell the meat and pay the Brazilian supplier.
In addition, we are also planning to purchase diesel oil from BP in order to sell the same on the market and to Vitoil. The majority of the funds under the loan agreement will be used in this regard.
I also understand you need independent confirmation from me regarding the use of the monies and can confirm that they will not be used in the fulfilment of criminal or illegal activities (inclusive of tax evasion activities) whether conducted in the UK or any overseas countries. I also confirm that the payments of interest and capital repayments of the loan will not include the proceeds of any criminal or illegal activity inclusive of tax evasion activities.”
53.	The Itchen Trust, to whose trustees the letter was addressed, was associated with Mr Berezovsky: he “put the money in” and was “deemed the settlor” (to quote from Mr Jacobson). Mr Fomichev had been a trustee until the end of 2002. Mrs Berezovskaya was added as a beneficiary of the Trust for the purpose of the loan to Anstead.
54.	The money held by the Itchen Trust, some of which was appointed in favour of Mrs Berezovskaya and then lent to Anstead, derived from the sale of Mr Berezovsky’s interest in Sibneft. The sale was effected, Mr Berezovsky explained, by means of a structure proposed by Mr Curtis, and in which Sheikh Sultan from Abu Dhabi was interposed between Mr Berezovsky and Mr Roman Abramovich. Mr Fomichev confirmed in evidence that he knew that the money lent to Anstead came out of the Itchen Trust and was derived from the Sibneft transaction.
55.	On 14 March 2003, Curtis & Co sent a letter to Mr Fomichev, Mr Berezovsky, Mrs Berezovskaya and the Trustees of the Itchen Trust summarising the reasoning behind the structure of the Loan Agreement and the payments to be made and received under it. The letter stated:
“In order to facilitate the loan arrangement, Katia Berezovskaia (“KB”) agreed to be appointed as a beneficiary of the Itchen Trust and to receive a distribution in the sum of $50 million. It was also agreed that this sum would immediately be loaned by a company which is beneficially owned by KB to Anstead Holdings Inc. (which we understand from Ruslan Fomichev is beneficially owned by himself and his partner Vasili Peganov) upon the terms agreed between the parties in the Loan Agreement. The mechanism agreed for the distribution to KB was particularly important insofar as the Trustees felt uncomfortable loaning the money directly from the Trust to Anstead Holdings Inc. and did not believe that, taking into account their duties especially to the beneficiaries, it was a good investment for the Trust.
As KB had agreed to the distribution, it was then agreed that the Loan Agreement would be assigned back to the Trust and that the funds to be repaid would be resettled as trust funds into an offshore account to be set up by the Trustees. Although the security provided under the Loan Agreement is deemed by all to be insufficient (and with no due diligence having taken place) BB [i.e. Mr Berezovsky] has nonetheless agreed to this arrangement and it was important to receive his consent to this action as he was the original settler of the funds of the Trust….”
56.	On 16 June 2003, in accordance with the terms of the Loan Agreement, Mr Houman sent Mr Jacobson the bearer share certificates for Anstead. The share pledge was not signed. Mr Jacobson said that he considered that holding the shares provided North Shore with satisfactory protection and so did not continue to press for a signed pledge agreement.
The Guarantee
57.	The Guarantee, which is also dated 14 March 2003, provided, by clause 2, as follows:
“In consideration of North Shore executing the Loan Agreement the Guarantors [namely, Mr Fomichev and Mr Peganov] hereby jointly and severally guarantee to pay to North Shore on demand (and upon the event of a default of any payment by the Principal [viz. Anstead] under the Loan Agreement) all money and discharge the Indebtedness as primary obligor and not only as guarantor, and also agree to indemnify North Shore on demand from and against any loss it may incur as a result of or in connection with its having now or hereafter advanced any money to the Principal together with interest thereon and all other sums due under this Guarantee.”
58.	The expression “the Indebtedness” was defined in clause 1.2 as:
“all the Principal’s present or future indebtedness to North Shore under the Loan Agreement and all the Principal’s other liabilities to North Shore whatsoever and wheresoever together with interest, commission, bank charges and any other costs, charges and expenses (on a full indemnity basis) charged or incurred by North Shore in enforcing this Guarantee and any other security held by North Shore from time to time”
59.	Clause 10.2 of the Guarantee is in the following terms:
“This Guarantee shall be governed by and construed in accordance with English law and shall be subject to the exclusive jurisdiction of the English courts.”
60.	I refer to further provisions of the Guarantee in paragraphs 177 and 183 below.
Drawdown of the loan
61.	$27 million of the $50 million loan facility was drawn down by transfers to an account (number 603.274) which Anstead held with C.I.M Banque in Geneva on 3 April, 29 April, 19 May and 2 June 2003. 
62.	By the end of May 2003, however, Anstead was being asked to open a new sub-account at C.I.M Banque. In an email sent to Mr Houman (and copied to Mr Fomichev) on 30 May, Mr Jacobson said:
“Please also can you ensure that Anstead opens up a separate sub account for it to receive monies from our client account and that, from that account, enough money should be retained to settle the interest payments under the loan agreement. We will also need confirmation that all interest payments are to be paid from this account and that the funds have not been inter mingled. By this process we will be able to track the source of funds.
When it comes to the capital repayment, full due diligence will need to be done on the source of the monies being repaid.”
63.	In the same vein, Mr Jacobson sent Mr Fomichev an email in the following terms on 14 July 2003:
“I need to transfer the remaining sum on our client account (held on behalf of North Shore) to Anstead.
I would suggest that Anstead opens a sub account at CIM Banque in which this sum can be deposited and from that account the payment of interest can be made to the Itchen Trust. In addition, no other funds should be intermingled with the funds in the new account and subsequent payments should only be made from the account (and not to the account).”
64.	On 24 July 2003, after Curtis & Co had received a notice of drawdown in respect of the remaining $23 million of the loan facility signed on behalf of Anstead by Mr Fomichev and Mr Peganov on 23 July 2003, Mr Jacobson sent Mr Fomichev an email in which he stated:
“Can you make sure that the monies are placed in a separate Anstead account in order that the interest (payable under the loan) can be paid from this account. Please also ensure that no other funds are inter mingled with these funds.
In this regard, I will need a new account number today in order to make the transfer. Please confirm the details.”
Mr Jacobson was subsequently sent a fax giving new details of a new account with C.I.M Banque (number 604.869), and on 7 August 2003 the $23 million was transferred to that account.
65.	The $50 million was transferred from Curtis & Co’s client account, which was held with Clydesdale Bank. The money had been transferred into that account from an account which the Itchen Trust then held with Clydesdale Bank.
The freezing of some of the loan in Switzerland
66.	On 13 August 2003, C.I.M Banque wrote to Mr Fomichev asking for, among other things, a “written declaration as to the purpose of this new account [viz. account number 604.869]”, a copy of the Loan Agreement and additional information about the lender, including:
“-	a formal declaration as to the Beneficial Owners of the Company and their personal profile;
-	documentation with respect of the origin of the funds that served to extend a loan to your Company.”
Mr Fomichev having told C.I.M Banque that the required information could be obtained “from James Jacobson from Curtis and Co … or through Mr Houman”, C.I.M Banque copied their letter to Curtis & Co on 15 August. In response, Mr Jacobson sent to Mr Fomichev on 5 September, with a view to their being forwarded to C.I.M Banque, a number of documents, including:
i)	a letter from FG Management Limited (which at that stage held North Shore’s shares) confirming that Mrs Berezovskaya was the beneficial owner of the shares; and
ii)	a letter from Curtis & Co in which they stated that they could “advise that the funds transferred from Clydesdale Bank were ultimately derived from a transaction involving the sale of beneficial interests in shares of a Russian oil company”.
67.	On 17 September 2003, C.I.M Banque sent Curtis & Co a fax asking if they:
“could provide … the following information if possible today:
-	all the information about the beneficial owner of the funds (nationality, date of birth, occupation, etc.)
-	origin of funds of the beneficial owner
-	all the information about the diligence duty that have been done”
Curtis & Co replied the next day:
i)	naming Mrs Berezovskaya as the beneficial owner of the funds, and giving details of her nationality, date of birth and passport number; and
ii)	stating:
“The funds emanated from a distribution from a Gibraltar Trust of which Ms. Berezovskaya is the beneficiary. In turn, the settled funds in that Trust derived from the proceeds of a transaction relating to the sale of the beneficial interests in shares in an oil company.
… The funds which were remitted by the Trust to our client originally came from Clydesdale Bank (UK Bank) and had been held there from June 2001. You will appreciate that Clydesdale Bank would have effected their own due diligence relating to the origin of the funds. In addition, we acted as the solicitors for the purchaser in this particular transaction and we have retained all of the original transactional documents at our offices. For reasons of confidentiality we cannot release the documents to you (or copies thereof) but are more than willing to let you view the documents at our offices.”
68.	Anstead instructed Mr Alan Bionda, a Swiss lawyer. Mr Bionda both asked C.I.M Banque “to lift immediately the decision (if any) of freezing the ‘ANSTEAD’ assets deposited with [it]” and requested Mr Jacobson to supply additional information. In response, Curtis & Co stated in a reply of 2 October:
“By way of assistance, we can advise that the loan sum ultimately derived from the proceeds of the sale of beneficial interests in the shares of a well known Russian oil company. In this regard, we acted for the purchaser of the shares (and the guarantor) in the oil transaction and can advise that the guarantor was a member of a Middle Eastern Royal Family. We also received confirmation from the guarantor that the ultimate proceeds of the funds emanated solely from his personal accounts. In addition, we can confirm that the funds received were paid by instalments (between June and August 2001) into a Gibraltan Trust’s account held with the Clydesdale Bank (London) and were treated as settled funds into the Trust. The funds remained in the Trust’s account until they were transferred to our client account (held at Clydesdale Bank) in April 2003. The funds were then remitted from our client account to CIM Banque in accordance with the terms of the Loan Agreement.
You will appreciate that both Clydesdale Bank and ourselves undertook the relevant due diligence on the source of the funds at the time of the oil transaction and both parties were satisfied with the information provided.
With regard to the Loan Agreement, we can advise that as it is governed by English law we consider that the beneficial ownership of the loan sum would have passed to Anstead Holdings upon the receipt of the relevant drawdown notice (from Anstead) and transfer request from this firm to the Clydesdale Bank being implemented. In effect, we can confirm that at the time of the Loan Agreement BB [i.e. Mr Berezovsky] was not a beneficiary of the Trust and that, further, EB [i.e. Mrs Berezovskaya] is one of a number of beneficiaries, as the Trust is discretionary in nature. We do however consider that BB’s status has no relevance in relation to the legality of the loan agreement and ownership of the funds. As a matter of interest, BB was granted political asylum by the British authorities on 10th September 2003.”
Mr Bionda appears to have relayed this letter to C.I.M Banque.
69.	By this stage, a sequestration order had been made, on 26 September 2003, in respect of account 604.869 (and also initially account 603.274) with C.I.M Banque. On 2 October 2003, the Swiss Federal Public Prosecutor, Mr Patrick Lamon, authorised C.I.M Banque to carry out Anstead’s instructions in relation to $5 million of the money held in its accounts. On 15 October, however, the Federal Prosecutor refused to lift the sequestration further.
70.	The basis for the sequestration emerges from the recitals to the 15 October order. These state (in English translation):
“[T]he 23rd September 2003 the Communications office (Money Laundering Reporting Office Switzerland) transmitted to the Prosecutor a communication under Article 9.
[F]rom this communication Anstead Holdings Inc. received on 7th August 2003 US$23 million from North Shore Ventures Limited into account no. 604 869 which was opened especially for this purpose at CIM Banque in Geneva.
[T]he [documentation] transmitted to confirm this transaction confirms that Ekaterina Berezovskaya is the beneficial owner of North Shore Ventures which is the company lending US$50 million to Anstead Holdings.
[T]he above mentioned person is the daughter of BB [i.e. Mr Berezovsky] who is under criminal investigation concerning a suspicion to participate in a criminal organisation to launder money under Articles 260 and 305 of the Criminal law.
[T]he beneficial owners of Anstead Holdings are Vassili Peganov and Ruslan Fomichev and Ruslan Fomichev is considered notably as a political and commercial partner of BB.
… BB is considered a politically exposed person subject to proceedings in many countries.
[F]rom the law firm of Curtis & Co. in London the funds transmitted derived from benefits obtained from sale of participations in a Russian oil company. 
[A]t this stage it is not possible to determine exactly the origin of the funds transferred on 7th August 2003 in conformity with the Loan Agreement dated 14th March 2003.
[W]e can doubt that Ekaterina Berezovskaya is the real owner of the funds in question and therefore the criminal origins cannot be excluded.
[I]t is necessary to investigate more clearly the legitimacy of such transactions so an investigation will be conducted considering the amount that is in question.”
71.	On 21 October 2003, Mr Fomichev was interviewed in Switzerland by the Federal Prosecutor. A record of the interview was prepared, which Mr Fomichev signed by way of confirmation. The record states (in English translation) that Mr Fomichev was warned at the beginning of the interview that he was “obliged to provide true information” and:
“of the judicial consequences regarding a false declaration, such statements being made with the aim of misleading justice, and of the impediment to criminal proceedings….”
The record also discloses that Mr Fomichev gave evidence as follows:
i)	Having referred to Mrs Berezovskaya, Mr Fomichev said:
“To my knowledge, she is the beneficiary of the trust. I was told this by the lawyer S. CURTIS when he negotiated the deal with myself and Mr. V. PEGANOV…. I do not know the name of the trust….”
ii)	Asked whether he had any business or contractual links with Mr Berezovsky, Mr Fomichev said:
“I never had any business or contractual dealings with Mr. B. BEREZOVSKI…. Nevertheless, I must specify that when I was the Vice-President of the OBEDINENNY BANK, Mr. B. BEREZOVSKI was the President of the Supervision Committee appointed by the shareholders of the bank. I had a very good relationship with him. My contact with him was not hierarchical, due to our positions in the bank. Upon leaving the bank I remained in touch with him. We met from time to time for a drink. I still have a good relationship with him. We cross paths, we occasionally meet. We speak about business”;
iii)	In response to a further question about whether he had business dealings with Mr Berezovsky, Mr Fomichev said:
“I did not do any business with Mr. B. BEREZOVSKI. I never asked him for money, nor did I lend him any money.
I have no knowledge of the activities of Mr. B. BEREZOVSKI. I read the papers in order to understand what he is doing on a political level. Mr. B. BEREZOVSKI is not interested in my dealings, he is more interested in politics”;
iv)	Asked whether Mr Berezovsky had been the subject of investigations, Mr Fomichev said:
“I do not know, I know that he was granted political asylum in Great-Britain”;
v)	Asked about the origin of the $50 million lent to Anstead, Mr Fomichev said:
“This money came from the CLYDESDALE BANK in London. According to statements made by Mr. S. CURTIS, this money came from the sale of shares in a Russian petroleum company. It is Mr. S. CURTIS himself who told me so.
I do not know the circumstances surrounding the sale of the shares of a petroleum company. For me it was sufficient to know that this money was deposited in a European bank and that measures of due diligence had been taken. I initially thought that obtaining a loan from that family could draw a lot of attention, but I was reassured by all the verifications which had been confirmed to me by Mr. S. CURTIS, as well as the fact that substantial due diligence had been carried out in the context of this deal.”
72.	Mr Fomichev accepted in cross-examination that some of the evidence he had given to the Swiss Federal Prosecutor had not been true. He said that he had been “trying to limit [his] exposure and mitigate the seriousness of [his] own position”.
73.	It had been anticipated that Mr Curtis (of Curtis & Co) would also give evidence to the Federal Prosecutor on 21 October 2003. While, however, he travelled to Switzerland, he returned to the United Kingdom without in the event making himself available for interview. It was, it seems, when he was in Switzerland that Mr Curtis prepared some manuscript notes headed “Summary” which were subsequently provided to the Swiss authorities. The notes began:
“Prosecutor requested that S. L. Curtis attend only on basis that client confidentiality waived. Neither Sheikh [i.e. Sheikh Sultan, mentioned in paragraph 54 above] or Trust agree to do so.”
The notes proceeded to provide information about the origin of the funds and the basis of the loan to Anstead.
74.	By late November 2003, Mr Peclard had taken over from Mr Bionda as Anstead’s Swiss lawyer. In a letter to Mr Jacobson of 25 November, Mr Peclard said that he was counting on him to provide information to satisfy Mr Lamon (the Federal Prosecutor) and that he was expecting to receive shortly affidavits from Mr Curtis, Mrs Berezovskaya and Clydesdale Bank. On 16 December Curtis & Co supplied Mr Peclard with an affidavit sworn by Mrs Berezovskaya in which she:
i)	Confirmed that she was the sole beneficial owner of North Shore;
ii)	Explained that the funds lent to Anstead “derived from a distribution made to [her] from a Gibraltan Trust of which [she was] one of the named beneficiaries”; and
iii)	Said:
“I can further advise that the funds which were derived from the Gibraltan Trust emanate from the personal funds of His Highness Sheikh Sultan Bin Khalifa Al Nahyan who is head of the Crown Prince Office in Abu Dhabi and are the proceeds of sale of the beneficial interests in shares in a Russian oil company. I am advised that the source of the funds were reviewed by the Gibraltan Trust’s bankers (Clydesdale Bank plc based in London, England) and Curtis & Co who were solicitors acting for His Highness Sheikh Sultan Bin Khalifa Al Nahyan.”
Curtis & Co said that they were unable to provide other affidavits “at this stage”. Mr Peclard responded that he was expecting more than the sole affidavit of Mrs Berezovskaya.
75.	By the end of 2003, the amount frozen had been reduced to about $18 million. During 2004 Mr Peclard supplied Mr Lamon with additional information and documents with a view to obtaining the release of that money. On 24 August, Mr Peclard told Mr Lamon in a letter that he was “forced to look at initiating proceedings”, to which Mr Lamon replied (in English translation):
“… [B]efore taking a decision on your request to lift the attachment, I still need to receive an information I requested from a judicial authority through a Rogatory Commission; the requested authority indicated that the elements will be provided by the end of this week, at [which] point [in] time I will issue my decision.”
76.	A week later, Mr Lamon rejected the request for the sequestration order to be lifted. The reasons given included these (in English translation):
“[O]n the 21st October 2003, Ruslan FOMICHEV made a deposition by way of providing information;
[H]e stated on several occasions that ‘he never had any commercial or contractual business relations with BEREZOVSKI Boris’ … , that he had no knowledge of the activities of the above named … and that he had only periodic contacts with said person … ;
[T]he documents obtained following a request for mutual judicial assistance of the Tribunal de Grande Instance at Marseilles revealed that said court had opened proceedings relating to the financing of very expensive property in the Cote d’Azur by the Societe d’Investissement France Immeubles (SIFI);
[T]he French investigation tends to show that Boris Abramovitch BEREZOVSKI is the true owner of one or more of said properties, SIFI being in reality a front company;
[T]he notes of Jean-Louis Bordes, director of SIFI, which were seized during the investigation carried out at the head office of the company and at his private residence, mention that Ruslan FOMICHEV is the treasurer of Boris Abramovitch BEREZOVSKI;
… Ruslan FOMICHEV appears to this date to be the only person appearing in both the Swiss and French proceedings, and who also has business links with Boris Abramovitch BEREZOVSKI;
[T]his new evidence reveals the deceitful contents of the statements made by Ruslan FOMICHEV during his testimony, and imposes the greatest caution as to his version of the facts;
[T]o this date, Ruslan FOMICHEV has given numerous explanations as to the use of the disputed sums, but has failed to provide any proof as to the legitimacy of the funds whilst taking care not to mention his business relations with Boris Abramovitch BEREZOVSKI;
[T]herefore it is possible that the sum of USD 50 million, transferred from NORTH VENTURES LTD, BVI, to ANSTEAD HOLDINGS INC. BVI, is not a simple loan as claimed by the requesting parties … .”
77.	As mentioned in that order, the materials provided by the French authorities included:
i)	Notes made by Mr Bordes naming Mr Fomichev as Mr Berezovsky’s “New treasurer”; and
ii)	Correspondence dating from 2001, either sent to Mr Fomichev or referring to him, from which it appears that Mr Fomichev was involved with matters relating to SIFI and, more specifically, its funding.
78.	In March 2005, Mr Peclard made a further request to Mr Lamon for the sequestration to be lifted. Mr Lamon, however, declined to do so. Mr Peclard appealed this decision, but on 16 August 2005 a Swiss Court (the Cour des Plaintes) rejected the appeal. In the course of its judgment, the Court observed (in English translation):
“… both the statements of Ruslan Fomichev and the hand written document drafted by Stephen Curtis [doubtless, the manuscript notes referred to in paragraph 73 above] or the information provided by the latter at the time when he refused to comply with the summons to testify issued by the MPC [i.e. the Confederation Public Prosecution Office] … raise doubts as to the legitimate origins of the funds.”
79.	Anstead filed an appeal on 16 September 2005. In a response, Mr Lamon referred to a “new element … which reinforces the real suspicions which put into doubt the legality of the origin of the funds loaned to [Anstead]”:
“in a request for mutual judicial assistance dated 27th September 2005 sent to the Confederation Public Prosecution Office, the Dutch judicial authorities explain that they are at this moment in time carrying out investigations relating to the financial affairs of Boris BEREZOVSKI. They consider that certain substantial funds are of a criminal origin, in particular the financial movements relating to the sale of SIBNEFT, a transaction…. In particular, they reveal that the CLYDESDALE BANK would have terminated its links with Boris BEREZOVSKI in 2001, and that the said banking institution, despite repeated requests from Stephen Curtis deceased, never wanted to certify in writing that the termination of the relationship with Boris BEREZOVSKI was not due to ‘money laundering concerns’ after the presentation by the above mentioned lawyer to Boris BEREZOVSKI of the SIBNEFT transaction….”
In November the Dutch authorities apparently stated that Mr Berezovsky was “not regarded as a suspect in the Dutch investigation … or in the request for assistance to the Swiss authorities”. However, on 5 December the Federal Court dismissed Anstead’s appeal.
80.	With regard to Clydesdale, Mr Jacobson said in evidence:
“They wouldn’t be completely straightforward in their response, because the understanding that I had was that they didn’t want other banks relying on their due diligence and relying on their correspondence.”
81.	On 11 May 2007, Mr Peclard wrote to Mr Lamon formally to request the unfreezing of Anstead’s account. Mr Lamon, in response, suggested a meeting or discussion, and a meeting in Bern followed. The upshot was that Mr Lamon agreed to release $4.5 million at once and indicated that he would agree to the balance being released unless something of real substance came to light by the end of the year. As Mr Peclard explained in evidence:
“[U]ntil the final release I was a bit anxious but, frankly, unless something really material in substance would come before the end of the year, I was quite confident that we would be able to put an end to this saga.”
82.	In a letter to Mr Peclard dated 15 November 2007, Mr Lamon referred to a conversation he and Mr Peclard had had and then said (in English translation):
“I confirm that I wish to hear your client, Ruslan Fomichev, regarding the facts of the case before taking any decisions which the criminal proceedings and its developments may now justify.”
83.	On 3 December 2007, Mr Peclard wrote to Mr Lamon in the following terms (in English translation):
“Referring to our recent conversations/correspondence, I hereby request, on behalf of and on account of ANSTEAD, immediate release, after fifty months of investigations and in the absence of any new cogent evidence of a nature to justify continuation of the sequestration of its accounts in CIM Bank, Geneva, immediate release from this measure.
In the context of release from sequestration, I confirm to you that our clients have no objection to a sum of the order of CHF 75,000 being withheld by the Confederation for its costs and emoluments.”
Mr Lamon replied on 6 December with a request that Anstead pay CHF 73,310.45 in respect of his costs and expenses, which Mr Peclard immediately agreed. Mr Lamon then, on 10 December, formally lifted the sequestration order.
84.	Mr Peclard explained (and I accept) as follows:
“[Anstead] had to agree (i) to abandon the idea of seeking damages against the Swiss Confederation because of the attachment of Anstead’s account for more [than] 4 years and (ii) to reimburse the Swiss Confederation its [costs] and expenses amounting to CHF 73,310.40 in order to have Federal Prosecutor Lamon releasing their account. Their renunciation to act against the State is implicit from my exchange of correspondence with Federal Prosecutor Lamon while in recognising that my clients were indebted to the State up to CHF 73,310, I was admitting that they had no claim against it.”
Mr Peclard said (and again I accept) that he and Mr Lamon had spoken explicitly about Anstead abandoning any claim against the State and that the agreement of which that was part had its genesis in the Bern meeting in the middle of the year. Mr Peclard further said:
“[T]he purpose was not to battle against the State; the purpose was to release the funds as quickly as possible.”
For this reason, Mr Peclard said, no detailed consideration was given to any possible claim against the State.
85.	Mr Peclard was inclined to attribute the time it took to obtain the release of the frozen money to a lack of cooperation on the part of North Shore. That assessment, as it seems to me, somewhat oversimplifies matters. In the first place, it appears that one of the reasons for the delay (or, to put matters slightly differently, one of the factors which allowed Mr Lamon to continue to oppose the release of the money) was the fact that Mr Fomichev had given untruthful evidence in October 2003. Secondly, it is not obvious to me that further explanations from North Shore would have satisfied the Swiss authorities, especially since it was Mr Peclard’s assessment that Mr Lamon “was trying to obtain as much information as possible … concerning Mr Berezovsky” and “wanted to keep the pressure by maintaining this blocking order as long as possible”. Thirdly, Mr Fomichev himself had considerable knowledge as to the origins of the money (see paragraph 54 above).
Use of the frozen money
86.	Anstead was allowed to undertake foreign exchange transactions with the frozen money; profits of some $2.7 million were generated in this way. Anstead also earned some interest on the frozen money, but at very modest rates (for example, 1.97% in March 2004).
Repayments
87.	Anstead first made a repayment on 30 July 2004, when it transferred $250,000 to North Shore. Further sums totalling $4,905,000 were paid to North Shore in the remainder of 2004. Repayments of $16,842,600 were made in 2005, $17,326,500 in 2006 and $4,452,976.57 in 2007. Finally, Anstead paid $13,400,000 on 28 January 2008. In all, Anstead has repaid $57,177,076.57.
Anstead: new shares, migration, conversion and dissolution
88.	As already mentioned (paragraph 56), the certificates in respect of Anstead’s (bearer) shares were deposited with Curtis & Co in 2003. In May 2007, however, new shares were issued to Aberdeen Foundation, a Panamanian nominee trust company, on behalf of Mr Fomichev and Mr Peganov. In the following year, these shares were “resettled” on Jirehouse Resettlement Foundation, and between August and October of 2008 the company was migrated to Nevis and converted into a trust foundation known as Anstead Holdings Trust Foundation. On 31 October 2008, Anstead Holdings Trust Foundation assigned all its assets bar two (which were assigned to Jirehouse Resettlement Foundation) to Bilagio Associates SA, a British Virgin Islands company of which Mr Fomichev and Mr Peganov were the beneficial owners. Anstead Holdings Trust Foundation then gave notice of dissolution in accordance with section 78(1)(c)(i) of the Nevis Multiform Foundations Ordinance 2004. That provision states that a multiform foundation “shall be dissolved” where “the purpose of the multiform foundation is fulfilled or becomes incapable of fulfilment as determined … by ordinary resolution of the management board and by ordinary resolution of the supervisory board and absolute beneficiaries (if any)”. Section 78(2) then provides as follows:
“Where a multiform foundation is dissolved pursuant to the provisions of subsection (1), a person shall be appointed … to supervise the dissolution of the multiform foundation (and such person is referred to in this Ordinance as the ‘liquidator’), and who shall have all authority, powers and discretions to do all things that are necessary or desirable for the orderly supervision of the dissolution of the multiform foundation and the winding up of its affairs, and shall collect the assets and property of the multiform foundation and, after discharging or making adequate provision for the discharge of the liabilities or obligations of the multiform foundation, shall distribute the remaining assets and property of multiform foundation ….”
89.	Mr Fomichev said that he was completely unaware at the time of the cancellation of the bearer shares or of the issue of new shares in favour of Aberdeen Foundation. He said that he did not discover this until March 2009. He also said that, although he had settled his interest in the shares on Jirehouse Resettlement Foundation, he “signed a lot of other companies to this trust”. He had, he explained, given instructions for shares belonging to him to be transferred to Jirehouse. He further said that, although he knew that Anstead was moving to Nevis, he did not himself take any steps to achieve this. He observed that there had been a “series of mistakes”. Mr Fomichev agreed that, on dissolution, Anstead was emptied of all its assets and liabilities except its liability to North Shore, but said that he did not know why this was done.
90.	Mr Peganov likewise said that he was completely unaware at the time of the cancellation of the bearer shares or of the issue of new shares in favour of Aberdeen Foundation. He also said that he instructed his lawyers to transfer his interests in a list of companies to a discretionary trust established at that time.
91.	Strange as it may seem, Mr Houman confirmed (and I accept) that Mr Fomichev and Mr Peganov were not consulted about the issue of shares to Aberdeen Foundation in substitution for Anstead’s bearer shares. Mr Houman explained as follows:
“… in 2007, because the BVI corporate regulations were changing so that issued bearer shares would require to be cancelled and re-issued, to be held by licensed custodians, Trusban took the decision to cancel all the bearer shares that had been issued in respect of those BVI companies for which it was responsible and to issue replacement shares. These shares would thereafter be held in Trusban’s own nominee trust company known as Aberdeen Foundation.
What happened was that we instructed our agent in BVI … to arrange for all our managed BVI companies to be reviewed and where those companies had issued bearer shares, the shares were to be cancelled and substitutes issued to be held in the name of Aberdeen Foundation …. I certainly did not check which companies were involved at the time. Furthermore, we did not inform the individual beneficiaries of the shares affected ….”
Mr Houman said in cross-examination, “we took the decision to change the bearer shares into Aberdeen shares on a mass way and we didn’t make any specific study about each company.”
Assignment of Mrs Berezovskaya’s interest in North Shore
92.	Although it was initially envisaged that North Shore would assign the benefit of the loan to the Itchen Trust (see paragraph 55 above), that never in fact happened.
93.	On 30 May 2008, Mrs Berezovskaya assigned to her father her beneficial interest in North Shore’s shares. Mrs Berezovskaya said that the assignment was effected because “by this stage [she] realised that it was likely that a claim would be made by North Shore and [she] did not want to be involved if [she] could avoid it”. She pointed out, moreover, that the $50 million had come from her father in the first place. Mr Berezovsky said that “when the story ... become complicated, I didn’t want my daughter to be involved any problems”.
Certificate
94.	On 30 May 2008, Mainstay Services Limited, as North Shore’s sole director, certified that North Shore was owed $34,894,207.73. This certificate is considered further in paragraphs 183-193 below.
The present proceedings
95.	The present proceedings, making claims against Anstead under the Loan Agreement and against Mr Fomichev and Mr Peganov as guarantors, were issued on 20 August 2008.
96.	No defence having been filed by Anstead, a default judgment was entered against it on 27 February 2009 for $35,393,008.23 plus interest and costs. Mr Fomichev and Mr Peganov contend that the judgment is a nullity on the basis that, as a result of its dissolution pursuant to section 78(1)(c)(i) of the Nevis Multiform Foundations Ordinance 2004 (paragraph 88 above), Anstead had already ceased to exist. Be that as it may, neither Anstead nor its liquidator took any part in the trial.
The issues
97.	It is Mr Fomichev’s and Mr Peganov’s case that they are entitled to avoid the Guarantee on grounds of non-disclosure. In the alternative, they dispute whether Anstead is liable to North Shore (and, if so, to what extent) under the Loan Agreement.
98.	I address the question of non-disclosure, and other issues specific to the Guarantee, in paragraphs 99-194 below. Issues relating to the Loan Agreement are considered in paragraphs 195-316 below.
Non-disclosure
The alleged non-disclosure
99.	Mr Fomichev and Mr Peganov contend in their Re-Amended Defence that they are entitled to set aside the Guarantee because:
“North Shore failed to disclose to [them] that (in summary):
(a)   Mr Berezovsky, and companies with which he was associated, were the subject of investigations by the Swiss authorities, including into embezzlement and other matters relating to the Russian company Aeroflot.
(b)	The Swiss authorities had frozen bank accounts of Mr Berezovsky and the companies with which he was associated and had supplied a substantial number of documents to the Russian authorities.
(c)	Consequently, there was a very substantial risk that the proposed Advances (associated as they were with Mr Berezovsky) might be frozen if they were paid to Switzerland.”
100.	North Shore admits that Mr Berezovsky and, hence, North Shore knew of the matters set out in (a) to (c) above, but denies that it was under any duty to disclose them.
The legal principles
101.	It is common ground between the parties that it can sometimes be incumbent on a creditor to disclose unusual facts to a prospective guarantor. There is dispute, however, as to the scope of the duty. Mr Swainston contended that the duty required disclosure of (a) unusual facts concerning the transaction proposed to be guaranteed and/or (b) facts which, in the circumstances of the proposed loan, the putative surety would not expect to exist. Mr Tregear suggested that the duty is more limited: a creditor taking a guarantee for a loan need only, he said, disclose unusual features of the contract between the creditor and the principal.
102.	Smith v The Bank of Scotland (1813) 1 Dow. 272, an early case, concerned a “bond of cautionry” given to the Bank of Scotland for a Bank agent called Paterson. The cautioners “said, that they were taught by the Bank to believe that Paterson was a good man, when the Bank knew, or had reason to believe, that he was not so, and they offered to prove, that the Bank did, at the time of requiring this additional security, know of Paterson’s misconduct, or had good reasons to believe that he had misconducted himself” (see 292). The report records that Lord Eldon expressed the following view (at 294-295):
“if [the employer] knew himself to be cheated by an agent, and concealing that fact, applied for security in such a manner, and such circumstances, as held out to others as one whom he considered as a trust-worthy person, and any one, acting under the impression that the agent was so considered by his employer, had become bound for him; it appeared to him [Lord Eldon] that he [the employer] could not conscientiously hold that security.”
103.	The principle has its origins in the law relating to misrepresentation. In Lee v Jones (1864) 17 CB (NS) 481, Blackburn J explained Lord Eldon’s judgment in the Smith case on the following basis (at 506):
“I think the effect of Lord Eldon’s judgment in that case is, that it was so little to be expected that a bank would continue in their service an agent who had already by breach of trust run into their debt, that the application for security amounted, as he says, to ‘holding him forth to the sureties as a trustworthy person’,”
and Blackburn J continued:
“I think that it must in every case depend upon the nature of the transaction, whether the fact not disclosed is such that it is impliedly represented not to exist....”
Earlier in his judgment, Blackburn J had said (at 503-504):
“But I think, both on authority and on principle, that, when the creditor describes to the proposed sureties the transaction proposed to be guaranteed (as in general a creditor does), that description amounts to a representation, or at least is evidence of a representation, that there is nothing in the transaction that might not naturally be expected to take place between the parties to a transaction such as that described.”
104.	Guarantees are to be distinguished from contracts of insurance, which are uberrimae fidei. In The North British Insurance Company v Lloyd (1854) 10 Ex. 522, Pollock CB, giving the judgment of the Court of Exchequer, explained (at 533):
“It seems to us an incorrect proposition, that the same rule prevails in the case of guarantees as in assurances upon ships or lives, in which it is a settled rule that all material circumstances known to the assured are to be disclosed, though there be no fraud in the concealment. This is peculiar to the nature of such contracts, in which in general the assured knows, and the underwriter does not know, the circumstances of the voyage or the state of health.”
In Lee v Jones, Blackburn J commented (at 503) that “great practical mischief would ensue if the creditor were by law required to disclose everything material known to him, as in a case of insurance.”
105.	As a practical matter at least, fidelity guarantees have tended to be treated differently from guarantees in respect of loans. In this context, two decisions of the House of Lords from the 1840s can be contrasted. Railton v Mathews (1844) 10 Cl & F 934 concerned a bond given for the fidelity of a commission agent. The surety challenged the bond on the ground of concealment by the employers of material circumstances affecting the agent’s credit prior to the date of the bond. In the House of Lords, Lord Campbell said (at 943):
“If the defenders had facts within their knowledge which it was material the surety should be acquainted with, and which the defenders did not disclose, in my opinion the concealment of those facts, the undue concealment of those facts, discharges the surety; and whether they concealed those facts from one motive or another, I apprehend is wholly immaterial.”
106.	In the following year, however, a challenge to a bond taken by bankers was unsuccessful, in Hamilton v Watson (1845) 12 Cl & F 109. The complaint in Hamilton was that it “was not communicated to [the surety] that the security into which he was about to enter for [the principal] was not for a fresh cash credit to that person, but was in fact a mere undertaking to pay an old debt of his”. Lord Campbell was again one of those to give a speech. He said the following (at 118-120):
“Your Lordships must particularly notice what the nature of the contract is. It is suretyship upon a cash account. Now the question is, what, upon entering into such a contract, ought to be disclosed? And I will venture to say, if your Lordships were to adopt the principles laid down, and contended for by the appellant’s counsel here, that you would entirely knock up those transactions in Scotland of giving security upon a cash account, because no bankers would rest satisfied that they had a security for the advance they made, if, as it is contended, it is essentially necessary that every thing should be disclosed by the creditor that is material for the surety to know. If such was the rule, it would be indispensably necessary for the bankers to whom the security is to be given, to state how the account has been kept: whether the debtor was in the habit of overdrawing; whether he was punctual in his dealings; whether he performed his promises in an honourable manner;– for all these things are extremely material for the surety to know. But unless questions be particularly put by the surety to gain this information, I hold that it is quite unnecessary for the creditor, to whom the suretyship is to be given, to make any such disclosure; and I should think that this might be considered as the criterion whether the disclosure ought to be made voluntarily, namely, whether there is anything that might not naturally be expected to take place between the parties who are concerned in the transaction, that is, whether there be a contract between the debtor and the creditor, to the effect that his position shall be different from that which the surety might naturally expect; and, if so, the surety is to see whether that is disclosed to him.”
Lord Campbell continued:
“[The case] rests merely upon this, that at most there was a concealment by the bankers of the former debt, and of their expectation, that if this new surety was given, it was probable that that debt would be paid off. It rests merely upon non-disclosure or concealment of a probable expectation. And if you were to say that such a concealment would vitiate the suretyship given on that account your Lordships would utterly destroy that most beneficial mode of dealing with accounts in Scotland.”
107.	The distinction between suretyship for the fidelity of a servant and a guarantee in respect of a banking account was the subject of discussion in London General Omnibus Company Ltd v Holloway [1912] 2 KB 72. In that case, the Defendant had, “at the request of the plaintiffs and of a servant of the plaintiffs, executed a bond for 200l. as a security to the plaintiffs for the fidelity of the servant, who, before the time of the request, to the knowledge of the plaintiffs, in whose employ he had been already for two years, but not to the knowledge of the defendant, had been guilty of misappropriating moneys of his employers” (to use words of Kennedy LJ at 84). It was held that the bond could not be enforced. Farwell LJ explained as follows (at 82-83):
“A man may have the misfortune to be robbed by his servant in the course of his business: if he is, it is a mischance; but it is perfectly legitimate and usual for a man to carry on his business on borrowed money, including money borrowed from his bankers by way of overdraft, and the surety knows this, and becomes surety for the very purpose of enabling him to do so. There is nothing in such a case which the surety does not know as well as any other member of the community, and nothing therefore which needs to be disclosed to him. The surety may well complain ‘I did not know that your servant was a thief’; but he cannot be heard to complain ‘I did not know your customer had been overdrawing his account or what the nature of his business was.’ ... No surety asked to guarantee a banking account is entitled to assume that the customer of the bank has not been in the habit of overdrawing; the proper presumption in most instances is that he has been doing so, and wishes to do so again.”
108.	Kennedy LJ saw the difference between Railton v Mathews and Hamilton v Watson as lying in the distinction between “intrinsic circumstances” and “extrinsic circumstances”. He said (at 85-86):
“There is apparent, at the outset of the comparison [between Railton v Mathews and Hamilton v Watson], according to Story’s useful discrimination (see Story’s Equity Jurisprudence, § 210), the difference between intrinsic and extrinsic circumstances, the first forming the very ingredients of the contract, and the latter forming no part of it, but only accidentally connected with it, or rather bearing upon it, so as to enhance or diminish the price of the subject-matter, or to operate as a motive to make or decline the contract. In regard to such extrinsic circumstances, no class of case occurs to my mind in which our law regards mere non-disclosure as a ground for invalidating the contract, except in the case of insurance.”
Kennedy LJ went on to express the view (at 86) that in both Railton v Mathews and the case before him “the honesty of the servant, which is the subject-matter of the suretyship bond, is plainly an intrinsic circumstance”. On the other hand, said Kennedy LJ (at 87-88):
“in the case of the suretyship or guarantee of a financial account, the previous pecuniary dealings between the creditor and the person whose future liability the surety is invited to secure constitute only extrinsic circumstances. They may be material circumstances, such as might affect the judgment of the person who is asked to be surety. But, in the language of Sir Frederick Pollock (Principles of Contract, 8th ed., p.568), ‘the creditor is not bound to volunteer information as to the general credit of the debtor or anything else which is not part of the transaction itself to which the suretyship relates: and on this point there is no difference between law and equity.’ The bank or other creditor cannot reasonably be taken as affirming, by mere silence respecting earlier dealings, the financial ability of the person whom the proposed surety is asked to guarantee. I say ‘cannot reasonably be taken,’ because ... the probable reason for requiring a guarantee is dissatisfaction with the customer’s credit. The law will rightly refuse to find in mere silence an implied representation to the surety, in circumstances where the surety cannot reasonably contend that he inferred, in the absence of any statement to the contrary, that a particular state of facts existed different from that which did in truth exist.”
109.	Vaughan Williams LJ, in the course of his judgment, quoted from the longer of the two passages from Lord Campbell’s speech in Hamilton v Watson which are set out in paragraph 106 above and commented (at 79):
“Lord Campbell, it is true, takes as his example of what might not be naturally expected an unusual contract between creditor and debtor whose debt the surety guarantees, but I take it this is only an example of the general proposition that a creditor must reveal to the surety every fact which under the circumstances the surety would expect not to exist, for the omission to mention that such a fact does exist is an implied representation that it does not.”
110.	Each member of the Court used the language of misrepresentation. Vaughan Williams LJ said (at 80):
“I think that the non-disclosure by the plaintiffs of the fact that to their knowledge the clerk had been guilty of defalcations in their service before the bond was executed constituted a representation that he had not been guilty of such dishonesty.”
Farwell LJ said (at 82), “it is a case of relief from a contract into which the surety was induced to enter by a misrepresentation made by the person taking the suretyship bond, either wilfully or through forgetfulness”. Kennedy LJ said in a passage quoted above that the law would “refuse to find in mere silence an implied representation to the surety” in the circumstances he mentioned. (The emphasis has been added in each instance.)
111.	The duty of disclosure was referred to in Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773. Lord Nicholls said (in paragraph 81):
“It is a well-established principle that, stated shortly, a creditor is obliged to disclose to a guarantor any unusual feature of the contract between the creditor and the debtor which makes it materially different in a potentially disadvantageous respect from what the guarantor might naturally expect. The precise ambit of this disclosure obligation remains unclear.”
Lord Scott of Foscote, after citing the passage from the judgment of Vaughan Williams LJ quoted in paragraph 109 above, said (in paragraph 188):
“The general proposition expressed by Vaughan Williams LJ was somewhat extended by King CJ in Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd (1991) 58 SASR 184. The duty of disclosure, said King CJ, extends to any unusual feature surrounding the transaction between the creditor and the surety (a) of which the creditor is or ought to be aware, (b) of which the surety is unaware, and (c) which the creditor appreciates, or in the circumstances ought to appreciate, might be unknown to the surety and might affect the surety’s decision to become a surety. This statement of the extent of the disclosure obligation may be too wide. But at least, in my opinion, the obligation should extend to unusual features of the contractual relationship between the creditor and the principal debtor, or between the creditor and other creditors of the principal debtor, that would or might affect the rights of the surety....”
112.	One of the cases before the House of Lords was Bank of Scotland v Bennett. There, Mrs Bennett gave a guarantee (limited to £150,000), supported by a charge over a property at 15 Elthiron Road, Fulham, in respect of sums owing to the bank by a company called Galloway Seafood Co Ltd. The bank had agreed to increase the company’s overdraft to enable it to build a new factory, and South West Scotland Investment Fund Limited (“SWIFT”) had also agreed to lend money to the company. SWIFT took a charge from the company, and it was agreed between SWIFT, the company and the bank that the SWIFT charge should rank ahead of charges held by the bank. The bank did not inform Mrs Bennett of this ranking agreement. Nor was she told that the bank had obtained a valuation which put the value of the completed factory “well below the likely construction costs that the company would incur in building the new factory” (see 875F-G).
113.	Lord Scott stated his conclusions in relation to Bank of Scotland v Bennett as follows:
“346 In my opinion, the ranking agreement between the company, the bank and SWIFT falls within the general proposition expressed by Vaughan Williams LJ in London General Omnibus Co Ltd v Holloway.... A surety who pays off the creditor is entitled to be subrogated to the rights of the creditor in respect of the debt in question. And if the creditor, in order to discharge the debt, has recourse to security provided by the surety, the same applies. So, in the present case, if Mrs Bennett had paid the bank the £150,000, or if the bank had obtained payment by realising its security over 15 Elthiron Road, Mrs Bennett would have been entitled to the benefit of the Bank's rights against the company in respect of the £150,000. These rights would have included the bank's rights under its fixed and floating charges. But those rights were subject to the ranking agreement.
347 Moreover the ranking agreement reduced the amount of the company's assets that would be available for the payment of the company's debts to the bank and correspondingly increased the likelihood that the bank would make a call on ... Mrs Bennett ... under the guarantee and would enforce its security over 15 Elthiron Road. The ranking agreement did affect the rights of Mrs Bennett as surety.
348 In my opinion, the bank ought to have disclosed to Mrs Bennett, or to the solicitor acting for her, the existence of the ranking agreement.
349 The deputy judge thought that the facts regarding the valuation of the factory premises should also have been disclosed by the bank. Here, I do not agree. It is, I think, up to an intending surety to satisfy himself about the value of the principal debtor's assets or the principal debtor's credit worthiness.
350 The bank's obligation to disclose the existence of the ranking agreement arose, in my opinion, under the general law applicable to suretyship contracts. Mr Jarvis, counsel for the bank, accepted that if the bank had an obligation to disclose the ranking agreement and if Mrs Bennett [was] ... unaware of it, Mrs Bennett was entitled to have the legal charge set aside.”
114.	Lord Hobhouse observed (in paragraph 131) that the “existence of the ranking agreement was important and qualified the transaction as it was disclosed to the surety”.
115.	The most recent of the cases to which I was referred was Estate of Imorette Palmer (decd) v Cornerstone Investments & Finance Co Ltd [2007] UKPC 49. One of the issues in that case was whether a power conferred by section 8(3) of the Jamaican Moneylending Act of 1938 should be exercised to grant relief to a moneylender in respect of a transaction otherwise rendered unenforceable by section 8(1) of the Act. Lord Scott, delivering the judgment of the Privy Council, said:
“[40] There is, moreover, an obligation on a creditor to disclose to an intending surety, per Lord Campbell in Hamilton v Watson ... –
“. . . anything that might not naturally be expected to take place between the parties who are concerned in the transaction, that is, whether there be a contract between the debtor and the creditor, to the effect that his position shall be different from that which the surety might naturally expect”
Vaughan Williams LJ in London General Omnibus Co Ltd v Holloway ... cited the above passage from Lord Campbell's judgment in Hamilton v Watson and continued (at 79):
“Lord Campbell, it is true, takes as his example of what might not be naturally expected an unusual contract between creditor and debtor whose debt the surety guarantees, but I take it this is only an example of the general proposition that a creditor must reveal to the surety every fact which under the circumstances the surety would expect not to exist, for the omission to mention that such a fact does exist is an implied representation that it does not.”
[41] It appears to their Lordships that these dicta are relevant to the question whether the court should exercise its power to validate the securities which have become unenforceable by virtue of s 8(1). The fact that Mr Salter's liability [Mr Salter being the principal debtor] in respect of the $160,000 part of the $250,000 related to a sum he had not been lent and from which he had had and would have no benefit, a sum owing to Cornerstone [i.e. the moneylender] by a third party whose default would trigger the liability of the ladies under their guarantee and mortgage, ought to have been made known to them. Mrs Gallimore's [Mrs Gallimore being a guarantor] unchallenged evidence at trial was inconsistent with any knowledge by her of that fact. It is impossible to know whether, if the fact referred to had been known to her and her co-guarantors and mortgagors, they would have been willing to give the security that they did.”
116.	I should mention two of the other cases on which Mr Tregear relied. The first, Wason v Wareing (1852) 15 Beav 151, involved an attempt by a surety to avoid a deed he had executed in 1848. Romilly MR dismissed the application on the basis that the surety could have obtained the relevant information before he executed the deed. He said (at 155):
“I have always considered it to be a rule of equity, that where a party relies on his ignorance of facts, he must shew, not only that he had not the information, but that he could not with due diligence obtain it. Here he obtained the information with perfect ease when he applied for it.
Believing that he did not know it until the beginning of 1850, I must still hold that he is in the same situation in equity as if he had had the information in 1848, because he was then referred to persons who were willing to give it, and did give it when applied for.”
The other case was the New Zealand case of Shivas v Bank of New Zealand [1990] 2 NZLR 327, where Tipping J said the following (at 364):
“It must not be overlooked in the present case that one of the plaintiffs was not only an intending surety but also the accountant of the company whose bank account was to be guaranteed. To suggest in those circumstances that the bank had a wider duty of disclosure is an unattractive proposition because the bank would have had every reason to expect that Mr Falloon [one of the plaintiffs] in his capacity as accountant of the company was fully familiar with the company’s financial position or could make himself familiar if he wished. The bank was also entitled in my view to take the view that Mrs Shivas [the other plaintiff] as the co-trustee could, if she had wished, have made an appropriate inquiry of Mr Falloon as to the company’s position and as to the risks inherent in the transaction of guarantee into which she was being requested to enter.
What I am saying is that the bank’s duty of disclosure must be assessed against what the bank might reasonably have expected the intending guarantors to know already or to be able to ascertain without difficulty should they have been minded to do so.”
117.	The decision of the High Court of Australia in Behan v Obelon Proprietary Ltd (1985) 157 CLR 326 is also of interest. In that case, a creditor had known that one of two co-sureties had no assets but had not informed the other co-surety of that fact. It was held that it had been under no obligation to do so. The High Court explained as follows (at 330):
“In the light of the primary judge’s finding … that the appellant and Mr Freeburn [i.e. the surety with no assets] were negotiating as co-venturers and that Mr Freeburn was authorized to negotiate on behalf of the two of them, Obelon [i.e. the creditor] was entitled to assume that the appellant was aware of Freeburn’s financial position and that, being aware of it, she was prepared to enter into the guarantee. And, quite apart from the finding made by the primary judge, there is the circumstance that, generally speaking, a co-surety as well as the creditor may reasonably be expected to make his or her own inquiries about the financial worth or standing of another co-surety and to form an opinion on the basis of those inquiries. In this situation information possessed by the creditor concerning the financial worth or standing of one co-surety could not ordinarily be regarded as information about an unusual and unexpected feature of the transaction which would require disclosure by the creditor to the other co-surety.”
118.	The authorities lead me to the following conclusions as to the law.
119.	First, the obligation of a creditor to make disclosure to a prospective guarantor need not, even in the case of a guarantee for a loan, be limited (as was Mr Tregear’s submission) to features of the contract between the creditor and the principal debtor. In London General Omnibus Company Ltd v Holloway, Vaughan Williams LJ treated Lord Campbell’s reference (in Hamilton v Watson) to “whether there be a contract between the debtor and the creditor, to the effect that his position shall be different from that which the surety might expect” as “only an example of the general proposition that a creditor must reveal to the surety every fact which under the circumstances the surety would expect not to exist”.  Vaughan Williams LJ’s remarks were, moreover, quoted with apparent approval by Lord Scott in both the Etridge and Estate of Imorette Palmer cases. In Etridge, Lord Scott also said that the disclosure obligation of a creditor should “at least” extend to unusual features of “the contractual relationship … between the creditor and other creditors” as well as of that between the creditor and the principal debtor, and the House of Lords concluded that a ranking agreement ought to have been disclosed in Bank of Scotland v Bennett. Further, it would, as it seems to me, be surprising if a loan creditor never had to disclose anything other than a feature of the contract between himself and the principal debtor: as is pointed out in O’Donovan and Phillips, “The Modern Contract of Guarantee”, 2003 English edition, at paragraph 4-13, “it would be somewhat odd if the creditor was obliged to disclose an unusual contractual term of the principal agreement, but not the fraudulent practices of the principal”. Moreover, I find it difficult to see why there should be a difference of principle between fidelity and other guarantees. I agree with Mr Swainston that a fidelity guarantee does not differ in commercial character from other species of guarantee. While, therefore, I can well understand why, in the case of a guarantee for a loan, a creditor should not normally be taken to have made any representation as to anything other than the contract between creditor and principal debtor, there appears to be no good reason for a special rule of law to that effect. On balance, I consider that the better view is that even a loan creditor can have an obligation to disclose an unusual feature other than of the contract with the principal debtor.
120.	Secondly, a creditor need not, on the other hand, disclose anything which the prospective guarantor could reasonably be expected to know. A creditor is not, as it seems to me, to be taken to have made a representation in respect of a matter unless he could expect the guarantor not to know it. The fact that a loan creditor is not normally under an obligation to disclose matters bearing on the principal debtor’s creditworthiness can be explained on this basis. “The bank or other creditor cannot reasonably be taken as affirming, by mere silence respecting earlier dealings, the financial ability of the person whom the proposed surety is asked to guarantee” because “the probable reason for requiring a guarantee is dissatisfaction with the customer’s credit” (to quote from Kennedy LJ in the London General Omnibus case, at 87); in other words, the guarantor can be expected to know that there is reason for concern as to the principal’s creditworthiness. Likewise, in Behan v Obelon Proprietary Ltd the creditor “was entitled to assume that the [surety] was aware of [her co-surety’s] financial position” (see 330). Again, in Shivas v Bank of New Zealand the creditor was not obliged to disclose matters with which a surety could have been expected to be familiar as the principal debtor’s accountant or which the other co-plaintiff could have been expected to discover from her co-trustee.
121.	Thirdly, it is immaterial that a prospective surety could be expected to be ignorant of a particular matter if he could be expected to know of the risk in general terms. Where, for example, a loan creditor seeks a guarantee, the prospective guarantor can be expected to assume that there are grounds for doing so, and the creditor is not to be taken as making any representation as to the principal debtor’s creditworthiness. The prospective guarantor will not be able to complain that he was unaware of particular circumstances casting doubt on that creditworthiness.
122.	Fourthly, while a creditor does not have to disclose every material risk (guarantees not being contracts uberrimae fidei), a risk must be material to be disclosable. For example, in Railton v Mathews Lord Campbell spoke (at 943) of a surety being discharged if creditors “had facts within their knowledge which it was material the surety should be acquainted with” (emphasis added), and in Lee v Jones Blackburn J said (at 504) that there was evidence of misrepresentation if, among other things, a creditor knew that “if [a fact] were known to [the surety], he would not enter into the contract of suretyship”. A creditor need not, therefore, disclose a matter unless it is capable of rendering the risk the guarantor is undertaking more onerous than the guarantor would otherwise expect.
123.	That leads to a fifth point, which is that a guarantee can be avoided only if the non-disclosure was in fact significant to the guarantor. A contract cannot be rescinded for misrepresentation unless the representee was induced to enter into the contract by the representation. Similarly, a surety cannot avoid a guarantee for non-disclosure by the creditor unless disclosure of the relevant information would have made a difference to him. Thus, in London General Omnibus Company Ltd v Holloway Farwell LJ referred (at 82) to “relief from a contract into which the surety was induced to enter by a misrepresentation” (emphasis added) and Vaughan Williams LJ said (at 77):
“The question for judge or jury to put to himself or themselves seems to be, Would the surety have entered into this contract of suretyship if the non-disclosed fact had been disclosed to him?”
Accordingly, a guarantor who in fact knows something cannot escape his guarantee merely because the creditor, ignorant of the guarantor’s knowledge, ought to have told him of it.
124.	These propositions have, as it seems to me, the following, among other, implications for the present case:
i)	Notwithstanding that the matters of whose non-disclosure Mr Fomichev and Mr Peganov complain are not features of the Loan Agreement (i.e. the contract between creditor and principal debtor), they are matters that North Shore could, in principle, have been obliged to disclose to Mr Fomichev and Mr Peganov. Were it the case, say, that Mr Fomichev and Mr Peganov had been wholly ignorant of the risks referred to, then (subject to the implications of clauses 5.4 and 5.5 of the Guarantee, as to which see below) it would, in my judgment, have been incumbent on North Shore to make disclosure. The “very substantial risk that the Proposed Advances … might be frozen if they were paid to Switzerland”, especially in circumstances where drawdowns were prima facie to be deposited with a Swiss bank, would, as it seems to me, have represented an unusual and highly relevant feature of a kind that a creditor ought to have disclosed to prospective guarantors (subject to clauses 5.4 and 5.5 of the Guarantee);
ii)	North Shore will nevertheless have had no duty to disclose the matters in respect of which complaint is made (a) if and to the extent that Mr Fomichev and Mr Peganov could each reasonably be expected to know of the matters or of the relevant risks in general terms and (b) any other matters were not material; and
iii)	Mr Fomichev and Mr Peganov would not in any event be entitled to avoid the Guarantee unless a non-disclosure was in fact significant to them (so that disclosure of the relevant information would have made a difference to them).
125.	I turn to consider (a) the investigations and proceedings in Russia and Switzerland, (b) press coverage relating to them and (c) the extent to which Mr Fomichev and Mr Peganov had knowledge of them.
Investigations and proceedings in Russia and Switzerland
126.	In 1996 Andava SA, a Swiss company within the Andava group, was appointed to manage funds derived from Aeroflot’s overseas ticket sales. The funds were used to pay Aeroflot’s overseas expenses. Mr Jenni described Andava as a “treasury centre”.
127.	When he was prosecuted (see paragraph 30 above), Mr Jenni argued that there was a sensible business hedging purpose behind the Andava transactions. That this was so was, he said, accepted in the Swiss proceedings, but what was not accepted was “the conditions, the fees that have been paid for this”, the Court taking the view that “Aeroflot factually could not earn money with the rouble [devaluing]”. Mr Jenni said that he had provided expert evidence on this aspect, but only after the main trial, and that it had not been admitted. Mr Glushkov, in his evidence, did not agree that the arrangements were bound to operate to the disadvantage of Aeroflot, and, as regards the suggestion that he had a conflict of interest, he maintained that “as soon as [he] informed Central Bank of Russia of this conflict, there was no conflict legally”. For his part, Mr Berezovsky said:
 “Is it conflict of interest or not? From the classical point of view, yes. From the point of view what happened that time in Russia, could be no.”
128.	In 1997-1998 there was a criminal investigation in Russia into Aeroflot-related dealings. The investigation was closed in June 1998, but it was re-opened in January of the following year. In May 1999 the Russian State Office of Public Prosecutor petitioned the Swiss Federal Public Prosecutor for legal assistance in connection with investigations into matters relating to Aeroflot. Those under investigation were stated to include Mr Berezovsky and Mr Glushkov.
129.	On 1 July 1999, the Swiss Prosecutor froze bank accounts of Andava, Forus and Anros (as to which, see paragraphs 7 and 30 above). 
130.	In November 1999, the Russian criminal charges against Mr Berezovsky were dropped, and the charges against Mr Glushkov were not proceeded with. However, on 30 October 2000 the Deputy Prosecutor General publicly announced his intention to bring Aeroflot-related charges against Mr Berezovsky, leading Mr Berezovsky to flee Russia. On 7 December 2000, Mr Glushkov was arrested, and he was then in prison in Russia until March 2004. 
131.	The investigation in Switzerland continued and the accounts there remained frozen. (In fact, they are still frozen now.) Moreover, a separate investigation was initiated in Switzerland in 2002, the investigation of economic criminal cases having become, as Mr Jenni explained, a federal responsibility rather than a matter for the cantons. 
132.	In November 2002 Russia issued another request for legal assistance to the Swiss authorities. This request related to LogoVAZ and AvtoVAZ.
133.	In April 2003, Mr Berezovsky was arrested in London following a Russian request for his extradition. Mr Berezovsky said that he had heard a little before this, seemingly by 6 March, that an attempt would be made to extradite him.
134.	On 2 April 2003, Mr Jenni said, there was a new wave of searching of companies and so on.
135.	Mr Glushkov was convicted of three charges in Russia on 12 March 2004, but he was released on the basis of the time he had already spent in prison. The matters of which Mr Glushkov was convicted were, he said, excess of administrative power, non-repatriation of hard currency and attempting to escape from prison. According to Mr Glushkov, there was then political pressure for him also to be convicted of fraud, and that happened in 2006. In July 2006, however, Mr Glushkov escaped from the country.
136.	Mr Jenni confirmed that Andava, Forus and Anros intervened in the Swiss proceedings to argue the case from their perspective. Mr Berezovsky, however, said that he did not remember this and that, if it happened, it did not do so on his instructions.
137.	As mentioned above, Mr Jenni was ultimately convicted, in 2008, of aiding and abetting Mr Glushkov in unfaithful management with Aeroflot. Mr Glushkov stressed when giving evidence that he was not himself tried or even charged in Switzerland.
138.	Mr Berezovsky said in evidence that his position was that the Russian allegations against him were politically motivated. Mrs Nosova said that the accusations relating to Aeroflot and AvtoVAZ lacked substance and were “only political”. Mr Glushkov, too, maintained that the charges were purely political and had no substance. Mr Berezovsky similarly said that the “only reason why [Mr Glushkov] was convicted is political reason”.
139.	Mr Berezovsky said that “all dates connect to political events in Russia”. He explained:
“When Mr Primakov took chair of prime minister of Russia [in 1998], I was absolutely opposite of that, and Primakov have direct order to prosecutor to open case against of me …. Then Primakov was fired and the pressure to me become less, and their case was closed, dropped. Then Putin took power and I broke relations with him, and Putin gave order again to general prosecutor to open the case.”
Press coverage
140.	Over the years, there has been very considerable press coverage of Mr Berezovsky’s affairs, including of matters related to Aeroflot. In 1999 press reports referred to the Swiss authorities assisting with a Russian investigation into matters relating to Mr Berezovzsky and Aeroflot, including by carrying out searches in respect of Andava and Forus and by asking “banks based in Geneva and Lausanne to report all accounts and deposits belonging to Berezovsky and another eight Russians implicated in the Aeroflot affair” (to quote, for example, from a Kommersant article, in English translation) and by freezing bank accounts of Mr Berezovsky. In November 1999, it was reported that the Russian charges against Mr Berezovsky had been dropped. In the summer of the following year, however, the press reported that the Swiss Courts had refused a request by Mr Berezovsky for his bank accounts to be unfrozen. Thus, on 24 July 2000 the Lenta.ru website said (in English translation):
“The Supreme Court of Switzerland has refused Boris Berezovsky’s request to unfreeze his accounts in Swiss banks. As a representative of the Swiss Court said, ‘Berezovsky’s request, submitted through his lawyers, was considered by the Court and has been left unsatisfied.’
To remind you, Berezovsky’s accounts were frozen after Switzerland opened a large-scale investigation into cases of corruption. The Swiss Prosecution Service is currently conducting an investigation into the fact of large sums from 'Aeroflot' passing through the Companies Forus and Andava SA in Lausanne.
On the 26th June the Russian investigator Nikolai Volkov is flying to Switzerland where he will be shown over 800 documents concerning the ‘Aeroflot Case’. RBK announces that he will be permitted to take about 200 documents to Moscow.”
141.	In the autumn of 2001 the press reported that the Russian authorities had once again brought charges against Mr Berezovsky. A Daily Telegraph article of 23 October 2001, for instance, said:
“THE RUSSIAN businessman Boris Berezovsky has been put on the country’s most wanted list accused of corruption and money laundering.
The general prosecutor’s office has charged Mr Berezovsky in absentia, according to reports in the Russian press at the weekend….
Mr Berezovsky is accused of embezzling millions of pounds from Russia’s national airline, Aeroflot, during 1990.”
142.	There was renewed press reference to proceedings in Switzerland in the summer of 2002. On 9 July, Kommersant reported (in English translation):
“Yesterday proceedings began in the ‘Aeroflot’ case and yesterday the French newspaper ‘Le Monde’ announced that the baton of the Russian investigators who discovered the laundering of ‘Aeroflot’’s money through the firms Andava and Forus has been taken up by the Prosecution Service of Marseilles which is mainly interested in what role Boris Berezovsky played in the money laundering….
The beginning of the Court proceedings [in Moscow] coincided surprisingly with an article in the newspaper Le Monde under the sensational sub-heading ‘After Switzerland and Russia, France is starting its own investigation into the case of the misappropriation of the funds of the Russian airline ‘Aeroflot’.’”
In the same issue, Kommersant reported on an interview with Mr Berezovsky, quoting Mr Berezovsky as saying (in English translation):
“In the French newspaper there is a gross distortion of what the situation is really like in reality. Beginning from its first paragraph, in which it says that apparently at some time Switzerland investigated the ‘case of the misappropriation of the Russian airline ‘Aeroflot’’s funds’. Switzerland never carried out any investigation – neither into ‘Aeroflot’ nor into Andava and Forus. An investigation is being conducted in one country – Russia – and it is purely political….”
143.	In April 2003, there were reports both of Russian attempts to extradite Mr Berezovsky and of searches in Switzerland. A Swiss website carried an item on 2 April headed, “Police launch raids in Aeroflot probe”. An article from Forbes Global dated 14 April reported:
“Last month, after years of investigation at home, Berezovsky was arrested by London police at the request of Russian prosecutors and released on £100,000 bail. A London court is beginning proceedings on bringing Berezovsky back to face trial in a Moscow court.”
Clydesdale Bank
144.	There was reference before me to Clydesdale Bank asking for accounts associated with Mr Berezovsky to be moved.
145.	Mr Jacobson said that Clydesdale Bank had made a request to this effect in August 2001. He explained that the bank had said that, following a change of policy, it no longer wanted to bank high net worth individuals. He thought that “it was more of a reputational issue for the bank as opposed to a money-laundering issue”, but he understood that the reputational concerns could extend to money-laundering issues. Clydesdale was, Mr Jacobson said, “quite keen to finalise the closures of all of the accounts”.
146.	Mr Keeling confirmed that Clydesdale Bank was keen to close accounts of Mr Berezovsky and the Itchen Trust. He noted that there was “quite a long lead-in time”.
147.	Mr Berezovsky observed that he thought that Clydesdale decided to close his accounts because they were “afraid of Russians who will not allow them to work under this huge market”.
Knowledge of Mr Fomichev and Mr Peganov
148.	There are stark disputes between the parties as to what Mr Fomichev and Mr Peganov could be expected to know, and in fact knew, about the Swiss investigations and the risks arising from them.
149.	A number of North Shore’s witnesses maintained that Mr Fomichev, in particular, was very familiar with what was happening in Switzerland.
150.	Mr Berezovsky himself said:
 “I know for certain that Mr Fomichev was well aware from about 1999 of the investigations in Switzerland and the fact that bank accounts there were frozen. Mr Fomichev was very closely involved in assisting me in my financial dealings. He was the person who operated my finances at the time. I described him in my last statement as my ‘right hand man’. It was of critical importance that he knew all about the investigations against me and whether it was safe to transfer money to different accounts in different jurisdictions. This was a constant source of discussion for me and the small group of trusted individuals I dealt with which included, at the time, Mr Fomichev.”
151.	In similar vein, Mr Berezovsky said:
 “... I know that Fomichev was deeply involved, much better than me, in everything what happened in Switzerland, because everything what happened in Switzerland connect to money, to business, and Fomichev knew well that I don’t know almost anything about that and it’s a reason why he took care of that.”
152.	Mr Berezovsky said that his recollection (although he accepted that he could not remember well) was that the $50 million loan was made through a vehicle associated with Mrs Berezovskaya because Mr Fomichev “did not want to borrow the money directly from [him] as [he] was a politically exposed person”.
153.	With regard to the Russian attempt to extradite him in the spring of 2003, Mr Berezovsky said that everyone in his team knew that an extradition warrant was in prospect. He also said that all those around him understood that his arrest would be “just form”. 
154.	Mr Glushkov said that he “specifically discussed with [Mr Fomichev] all of the investigations and court proceedings in Russia and Switzerland in detail during the course of a number of meetings” before his arrest in December 2000. He referred to two meetings in particular:
“In 1999, following the freezing of my bank accounts in Switzerland, I recall meeting Ruslan Fomichev at my apartment on Sretensky Boulevard in Moscow. I discussed with him arrangements for moving bank accounts in Switzerland which were in the names of two individuals who were close to me and who remain in Russia.... Ruslan offered his help with the process of moving accounts from Switzerland....
Again I specifically recall another meeting with Ruslan Fomichev at an apartment on Bagrationovsky Street, Moscow, towards the end of 2000. I told Ruslan that I thought I would definitely be going to prison and that I wanted to ensure the financial security of two individuals....”
155.	Mr Jenni said that, following the actions of the Swiss authorities in July 1999, he “met [Mr Fomichev] on a number of occasions in order to keep him and [Consolidated] Bank fully informed as to what was happening in Switzerland”. He said, too, that in about 2000 Mr Fomichev arranged for a Mr Samuelson to give a presentation on the establishment of an offshore trust structure, Mr Berezovsky having become increasingly concerned to protect his investments from possible interference by the Russian authorities. Mr Jenni said that the discussions at the meeting were led by Mr Samuelson and Mr Fomichev, who, he said, had a detailed knowledge of Mr Berezovsky’s assets. In cross-examination, Mr Jenni said:
 “At least when I was listening to the presentation of Mr Samuelson, the reasoning was that this structure that he proposed would give defence against any attacks and so on ... – obviously it was this concern that led to this presentation”
156.	With regard to Mr Samuelson, a Curtis & Co attendance note in respect of a meeting on 19 February 2002 with, among others, Mr Fomichev relating to the Sibneft transaction records:
“Ruslan Fomichev explained that after the problems with Clydesdale, he had asked Christopher Samuelson to make arrangements to accept payments.”
157.	Mr Jenni further said:
 “Aside from his position at [Consolidated] Bank [Mr] Fomichev and I were part of the group of people who advised and assisted [Mr Berezovsky] in relation to his wider business ventures. In this capacity [Mr Fomichev] was also party to discussions which took place within this group of people in respect of the Aeroflot investigations and the actions of the Swiss authorities.”
When asked in cross-examination what basis there was for saying that Mr Fomichev should have assumed that problems in Switzerland were continuing in 2003, Mr Jenni said:
“Because we were informing him, I was informing him about the developments in Switzerland. I was talking with him about our appeals, recourses that have been rejected. I have been informed him that we ... had enquiries, that we had testimonies to give and so on. All these things have been always discussed. So he knew that in Switzerland things were not quiet, there were things happening.”
158.	Ms Krokhina said the following in her witness statement:
 “In 1999 I had a number of meetings with Ruslan Fomichev, the Chairman of the Executive Board of [Consolidated] Bank, in order to discuss the difficulties which Aeroflot faced after the investigation started. The situation around Aeroflot and its Swiss partners was very sensitive for [Consolidated] Bank as the aftermath of the 1999 actions of Russian and Swiss authorities caused difficulties for the partner companies and people with whom we worked close for a number of years. Of course, we were all in contact and shared the news of the course of events and had the information about the freezing of the Andava’s, Forus’s, and other, bank accounts in Switzerland by the Swiss authorities. Ruslan Fomichev being on the Board of Directors of [Consolidated] Bank, was more informed than myself of the whole situation around the mentioned companies.”
However, as I have already said (paragraph 33), I do not think I can place significant weight on Ms Krokhina’s evidence when there has been no opportunity to cross-examine her.
159.	Mrs Nosova said that the investigations in Russia and Switzerland and the freezing of bank accounts in Switzerland were discussed frequently in Mr Berezovsky’s inner circle, and that both she and Mr Fomichev belonged to that circle and participated in the discussions. 
160.	More specifically, Mrs Nosova remembered showing Mr Fomichev in 1999 a document detailing requests which the Russian authorities had made to Switzerland for bank accounts and other assets to be traced. Mrs Nosova said that she showed Mr Fomichev the document so that he would know that it extended to members of the families as well as to companies.
161.	Mrs Nosova said that Mr Fomichev remained “very actively involved in Mr Berezovsky’s and Mr Patarkatsishvili’s affairs abroad” after leaving Consolidated Bank. Mr Fomichev was, Mrs Nosova said, “managing [Mr Berezovsky’s] finances ... at least from 2000 until September 2003”. She said:
 “[Mr Fomichev] was operating [Mr Berezovsky’s] finances; he was setting up bank accounts for him with banks. He was instructing lawyers; he was paying the legal bills. He knew everything that was going on.”
Elsewhere, she said:
 “[Mr Fomichev] was generally involved because he was managing the finances here – he was involved in setting up ... offshore structures, where the monies were flowing, big amounts of money. He was involved with setting up accounts with Clydesdale Bank in the Sibneft transaction. He was involved on everyday basis.”
Even after 2003, Mrs Nosova said, Mr Fomichev “was still working for Mr Berezovsky and [Mr Patarkatsishvili] but on investment projects”.
162.	Mrs Nosova maintained that Mr Fomichev was “completely aware of the risks related to the Swiss jurisdiction”. She said that Mr Fomichev was present at numerous discussions, and she observed:
“[Mr Fomichev] was also quite an inquisitive fellow, he was asking everybody about it.”
163.	According to Mrs Nosova:
“... [I]t was at the request of Ruslan Fomichev that the loan was not given directly by Boris [Berezovsky] but through his daughter Katya. It was at the request of Mr Fomichev that the loan was made through Katya, because Mr Fomichev wanted to distance Boris from this loan. It shows that he knew the risks and he took the risk.”
164.	Mrs Nosova said that, when she discovered that loan money had been paid to Switzerland and frozen, she had been “very much surprised that Mr Fomichev and Mr Peganov had decided to pay the money there and take that risk”. Mrs Nosova explained:
 “Why he send the money to Switzerland? I couldn’t understand that. Because he was completely aware of the investigations. He knew there was a risk, and he still took this risk and sent the money there.... Mr Fomichev made a mistake in judgment apparently. He took the risk, he made a mistake.”
Her evidence in this respect is consistent with her remark, in an email to Mr Fomichev of 1 November 2004, that she “never understood how [he] could send [the money] there [i.e. to Switzerland]”. 
165.	In similar vein, Mr Jenni said:
 “I spoke to Ruslan Fomichev after the Anstead account had been frozen and told him that he should have considered more carefully the risk of having the funds associated with Boris paid to an account in Switzerland. Ruslan’s response was that it was his money and Anstead was his business and had nothing to do with Boris. He thought, wrongly as it turned out, that the connection with Boris was remote enough that there was no risk of the funds being frozen.”
166.	Mr Berezovsky also expressed amazement that the money had been sent to Switzerland. He said in a witness statement:
 “Although I am informed that the destination of the loan payments in Switzerland was in one of the schedules to the Loan Agreement, I did not know at the time of the Loan Agreement that Anstead had asked for the monies to be paid there. When I found out that the monies had been transferred to Switzerland and had been frozen I remember being amazed that Mr Fomichev and Mr Peganov had taken this risk. I regarded them as completely to blame for what had happened. I remember saying to Mr Fomichev words to the effect: ‘Are you crazy paying the money into Switzerland?’”
During his oral evidence, Mr Berezovsky said:
i)	“… Ruslan asked me to take in consideration that money were frozen and I didn’t accept that, because it’s fault not mine, it was fault of Ruslan. He gave address where to send money and I even … was not informed about that”;
ii)	“… I never accept not to pay interest for frozen money, because it was not my fault”.
167.	With regard to Clydesdale Bank’s request that accounts be moved, Mr Jacobson said that Mr Fomichev would have been fully aware of the position with the bank. He commented that the “relationship between [Mr Fomichev] and [Mr Berezovsky] was close”. More specifically, he said:
“[Mr Fomichev] was a trustee of the Itchen Trust, and the Itchen Trust was asked to move their accounts, and it all fell under the same umbrella.”
168.	Turning to the Defendants’ evidence, Mr Fomichev stated in a witness statement dated 21 December 2009 that he was aware when the Loan Agreement was being negotiated that Mr Berezovsky “was being investigated in Russia”, but “had no idea at all that [he] was being investigated by Swiss Courts”. He explained:
“I have only recently learned that [Mr Berezovsky] had been investigated by the Swiss as far back as 1999 and I understand now that the Swiss Courts had previously seized money held by or on behalf of [Mr Berezovsky].”
Mr Fomichev expanded on the point slightly in a further witness statement of 8 February 2010:
“I was aware of the Aeroflot allegations and the fact that Mr Berezovsky had been investigated by the Russian authorities, but I had no idea of the Swiss involvement.”
169.	However, Mr Fomichev modified his position somewhat in a witness statement dated 15 March 2010, in which he said:
“Having reviewed the press materials which have been produced in these proceedings, I believe I was aware in very general terms in 1999 that the Swiss authorities had provided assistance to the Russian investigation and had frozen accounts of the Andava and Forus groups of companies in Switzerland in relation of the Aeroflot case. I have always considered this assistance by the Swiss authorities at the Russian authorities’ request to be part of the Russian investigations, as opposed to a separate criminal investigation instigated by the Swiss authorities themselves ….
By the time of the loan in 2003, I had assumed that the Swiss assistance had long since ended. The assistance was given four years before the loan and I was aware that the Russian investigation against Mr Berezovsky was dropped in 2000 ….”
170.	As Mr Tregear pointed out, only shortly beforehand a solicitor acting for Mr Fomichev and Mr Peganov had drawn no similar distinction between, on the one hand, the Swiss authorities assisting a Russian investigation and, on the other, investigations initiated by the Swiss themselves. On 2 March 2010, the solicitor had stated in a witness statement that Mr Fomichev and Mr Peganov had not been aware that Mr Berezovsky and companies associated with him had been “the subject of investigations by the Swiss authorities (both by way of assistance to the Russian authorities and a separate investigation by the Swiss) into money laundering and embezzlement”.
171.	Mr Fomichev recalled meeting Mr Glushkov at the Sretensky Boulevard apartment, but said that he did not remember a meeting at the Bagrationovsky Street apartment and that he did not believe that he had ever discussed the Aeroflot investigations and Court proceedings in Switzerland with Mr Glushkov in any detail. As regards Mr Jenni’s evidence, Mr Fomichev said that he did not recall being kept “fully informed as to what was happening in Switzerland” by Mr Jenni, denied Mr Jenni’s evidence that he had been party to discussions in respect of the Aeroflot investigations and the actions of the Swiss authorities and said that, as far as he was concerned, the reason for considering how Mr Berezovsky’s investments were held was that “there was no real structure at all at that point, or if there was, it was in complete disorder”. Likewise, Mr Fomichev said that he did not recall discussing with Ms Krokhina either the Aeroflot investigations or the freezing of the bank accounts of Andava and Forus. Mr Fomichev was, moreover, “certain” that he had not seen the document showing requests which the Russian authorities had made to Switzerland for bank accounts and other assets to be traced (as to which, see paragraph 160 above).
172.	Mr Fomichev accepted in cross-examination that he was aware that the Clydesdale Bank had decided in 2001 that accounts held by the Itchen Trust and a number of other entities associated with Mr Berezovsky should be closed. He said, though, that he was not aware of the time-frame for closing the accounts.
173.	For his part, Mr Peganov accepted that he knew that the Russian Government was trying to pursue Mr Berezovsky. More specifically, he was aware in 1999 that Mr Berezovsky was the subject of an investigation and criminal charges in connection with Aeroflot, and he thought that he had probably read articles referring to Swiss investigations.
174.	Mr Peganov said that he would have read articles in Kommersant about Mr Berezovsky and so that he might have read the article quoted in the first half of paragraph 142 above. He said, though, that if he read that article, he will also have read Mr Berezovsky’s reported reaction (see paragraph 142). More generally, Mr Peganov observed that the Russian media are “even now … not a good source of information” and “were not a proper source of information in that time”. He also said that he forgot most of what he read in the press. He did not, he said, pay any attention to the press stories until the $23 million was frozen. Further, Mr Peganov attributed the Russian investigations to politics, explaining:
“Maybe business was like an instrument, but I think it was only politics and I still think that it was only politics.”
He said:
“Mr Berezovsky is so bright a person that his career going up and down so many times, it was very difficult to understand in a particular time where he is now, he is under the ground or in the space, so it was very difficult to identify what’s going on with him. Even now it’s still the same.”
Conclusions in relation to Mr Fomichev’s and Mr Peganov’s knowledge
175.	I arrive at the following conclusions:
i)	As a general matter, I prefer the evidence given by North Shore’s witnesses to that given by Mr Fomichev;
ii)	Mr Fomichev was particularly closely involved with Mr Berezovsky’s business and financial affairs up to about September 2002, when Mrs Nosova moved to London. His role then diminished, but he worked with Mrs Nosova into 2003, and he was still very much abreast of Mr Berezovsky’s business and financial affairs when the Loan Agreement was concluded;
iii)	The defence of non-disclosure was not raised until late last year. At that stage, and afterwards, Mr Fomichev maintained that he knew of investigations in Russia but not of any in Switzerland or that the Swiss Courts had seized money associated with Mr Berezovsky. In March of this year, he accepted that he had, after all, known that the Swiss authorities had assisted with the Russian investigation, but he claimed that he had assumed that the Swiss assistance had come to an end and that he was not aware of the separate investigation instituted in Switzerland. The truth, in my judgment, is that Mr Fomichev will have known of both the Swiss assistance with the Russian investigations and of the investigation initiated in Switzerland in 2002. I also consider that Mr Fomichev knew that Swiss accounts linked to Mr Berezovsky remained frozen;
iv)	On balance, I think that Mr Berezovsky and (especially) Mrs Nosova are probably correct that Mr Fomichev wanted the loan to be made through Mrs Berezovskya because he appreciated that Mr Berezovsky was (in Mr Berezovsky’s phrase) a “politically exposed person” and thought it advisable to distance him from the transaction;
v)	As regards the Russian attempts to extradite Mr Berezovsky in April 2003, the chances are that Mr Fomichev knew that they were in prospect by the time he entered into the Guarantee. In any event, the extradition proceedings did not alter the risks appreciably. Confirmation of that is to be found in subsequent events. There can be no doubt that Mr Fomichev was aware of the extradition proceedings by April 2003 and, hence, well before the $23 million drawn down. The $23 million was nonetheless paid to C.I.M Banque in Switzerland;
vi)	A similar point can be made as regards the searches that took place in Switzerland in April 2003. Mr Fomichev will have known of the searches when they happened (aside from anything else, they were reported in the press), but they did not deter him from having the loan moneys paid to Switzerland;
vii)	The reality must be, as Mrs Nosova in particular said, that Mr Fomichev miscalculated. He must have reckoned, as Mr Jenni noted (paragraph 165), that the connection with Mr Berezovsky was sufficiently remote for there to be no risk of the money being frozen. In the event, that assessment proved wrong;
viii)	Mr Fomichev knew, and could reasonably be expected to know, about the substance of the Swiss investigations. In particular, he knew, and could reasonably be expected to know, that the Swiss authorities had assisted with the Russian investigation, that they had opened an investigation of their own and that accounts associated with Mr Berezovsky had been, and continued to be, frozen. It is doubtless the case that Mr Fomichev’s knowledge will have been less detailed than, say, Mr Jenni’s, but he knew enough to be able to evaluate the risks, and he may well have had a better grasp of the detail than Mr Berezovsky did. The details of which Mr Fomichev may have been unaware were not material and would not have made a difference to him;
ix)	Mr Peganov probably knew relatively little about events in Switzerland. It is true that Mr Peganov would sometimes read about Mr Berezovsky in the press and that some of the press coverage referred to Switzerland, but I cannot infer from that that Mr Peganov had any real understanding of what was happening in Switzerland;
x)	However, Mr Peganov could reasonably be expected to have been told of the position in Switzerland by Mr Fomichev, the friend and co-venturer whom he had left to pursue the negotiations relating to the Loan Agreement and Guarantee (see further in this respect paragraphs 203, 228 and 231 below);
xi)	Although the Loan Agreement referred (in the draft “Notice of Drawdown” set out in a schedule) to payment being made to a Swiss account, the likelihood is that Mr Berezovsky was not conscious that the money was being paid there. I do not accept Mr Fomichev’s evidence that he specifically recalled discussing with Mr Berezovsky the fact that the loan money was to be sent to Switzerland. For his part, Mr Peganov spoke in a witness statement about “the intention that the money would be used from Switzerland” being discussed when he met Mr Berezovsky, but he (Mr Peganov) rather backed away from the suggestion during cross-examination.
176.	In the circumstances, I take the view that, even aside from clauses 5.4 and 5.5 of the Guarantee (which are considered below), Mr Fomichev and Mr Peganov would not be entitled to avoid the Guarantee on the ground of non-disclosure.
Clauses 5.4 and 5.5 of the Guarantee
177.	Clause 5 of the Guarantee was headed “Protective clauses” and provided as follows:
“The liability of the Guarantors shall not be affected nor shall this Guarantee be discharged or diminished by reason of:
…
5.4	the doing or the omitting to do anything on the part of North Shore that but for this provision might operate to exonerate or discharge the Guarantors from any of their obligations under this Guarantee;
5.5	and this Guarantee shall not be discharged or affected by anything that would not have discharged or affected the Guarantors liability if the Guarantors had been a principal debtor to North Shore instead of a guarantor.”
178.	Mr Tregear argued that each of these clauses is apt to preclude a claim of non-disclosure. As regards clause 5.4, he would say that the claim would involve the suggestion that North Shore’s omitting to do something (viz. make disclosure) operated “to exonerate or discharge the Guarantors from … obligations under the Guarantee”, and clause 5.4 specifically provided that such an omission was not to affect the liability of the guarantors or to discharge or diminish the Guarantee. With respect to clause 5.5, Mr Tregear contended that the duty of disclosure only arises because of the special nature of a surety contract, and that accordingly the alleged non-disclosure “would not have discharged or affected the Guarantors liability if the Guarantors had been a principal debtor to North Shore instead of a guarantor”.
179.	Mr Swainston countered that clauses 5.4 and 5.5 have no application to default on the part of North Shore before the Guarantee was concluded. The clauses, he said, do not even purport to exclude liability for pre-contractual misrepresentation. More specifically, Mr Swainston suggested that clause 5.4 is entirely prospective in its natural reading and that the purpose of the clause (which is a standard one) is to ensure that a guarantee is not discharged by matters such as indulgence to the debtor or the giving of extra time. Mr Swainston contended that it would take very clear words indeed to exclude liability for pre-contractual misrepresentation and that there are none here.
180.	I can summarise my own conclusions as follows:
i)	As Gross J observed in Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2005] 2 All ER (Comm) 783 (at paragraph 130), “words, even in exclusion clauses, mean what they say and the parties will be held to the bargain into which they have entered”;
ii)	If their words are given their natural and ordinary meaning, clauses 5.4 and 5.5 are both wide enough to cover pre-contractual non-disclosure. There is nothing in the language of the clauses to indicate that they are concerned only with events post-dating the conclusion of the Guarantee;
iii)	The law “does not permit a contracting party to exclude liability for his own fraud in inducing the making of the contract” (per Lord Bingham in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349, at paragraph 16); fraud, as is said, “unravels all”. It doubtless follows that clauses 5.4 and 5.5 do not extend to fraudulent non-disclosure. However, fraud is not alleged in the present case;
iv)	It is by no means inherently improbable that the parties to the Guarantee should have intended to exclude liability for (non-fraudulent) non-disclosure by North Shore. Anstead was a vehicle for Mr Fomichev and Mr Peganov. Although not directors, it was in practice they who managed its affairs, and it was they who stood to benefit from its activities. In the circumstances, it would not be surprising if the parties to the Guarantee intended Mr Fomichev and Mr Peganov to be in no better position than Anstead as regards obligations of disclosure;
v)	That the clauses may extend to cases other than pre-contractual non-disclosure is not important. The fact that a clause may cover one situation does not preclude it from covering another as well;
vi)	In short, clauses 5.4 and 5.5 would reasonably be understood to extend to the non-disclosure alleged by Mr Fomichev and Mr Peganov and they are therefore to be so construed;
vii)	Even, therefore, if I had not arrived at the conclusions set out in paragraphs 175 and 176 above, I would have held that clauses 5.4 and 5.5 prevented Mr Fomichev and Mr Peganov from avoiding the Guarantee for non-disclosure.
Conclusion in relation to the alleged non-disclosure
181.	For the reasons given above, I hold that Mr Fomichev and Mr Peganov are not entitled to avoid the Guarantee.
Other issues
182.	Several other issues relating to non-disclosure were aired during the trial. These included (a) whether, were the Guarantee not binding as against Mr Peganov, neither could it be binding as against Mr Fomichev (because there is a principle to the effect that all guarantors are discharged where one is not bound), (b) whether any right to rescind had been lost as a result of affirmation and (c) whether Mr Fomichev and Mr Peganov should be denied relief because they lacked “clean hands”. Given the conclusions I have already arrived at, I do not think I need express any views on these questions.
The effect of the certificate
183.	Clause 3.4 of the Guarantee provided as follows:
“A certificate signed by North Shore of the amount for the time being of the Indebtedness and/or the amounts due to North Shore shall be conclusive evidence for all purposes against the Guarantors unless manifestly incorrect.”
184.	A provision in comparable terms was considered by the Court of Appeal in IIG Capital Llc v Van Der Merwe [2008] EWCA Civ 542. There, clause 4.2 of the relevant guarantees provided that:
“A certificate in writing signed by a duly authorised officer or officers of the Lender stating the amount at any particular time due and payable by the Guarantor under this Guarantee shall, save for manifest error, be conclusive and binding on the Guarantor for the purposes hereof.”
It was held that summary judgment had rightly been given against the Defendants, Mr and Mrs Van Der Merwe, for money which had been certified as due pursuant to clause 4.2. Waller LJ, with whom the other members of the Court agreed, explained as follows:
“[30] The question at the end of the day is what on the true language of these deeds of guarantee did the Van Der Merwes agree. I accept there is a presumption against these being demand bonds or guarantees; I also accept that the documents must be looked at as a whole. I accept that cl 3 which would only be necessary if the deeds were or might be undertaking a secondary liability, points in favour of the presumption and that there are other terms which appear in what I would call normal guarantees given to banks in relation to a customer's indebtedness. It will thus only be if clear language has been used in the operative clauses that the presumption will be rebutted.
[31] I turn thus to the operative language of the deeds of guarantee. By condition 2.1 the guarantor (Mr or Mrs Van Der Merwe) agreed 'as principal obligor … not merely as surety' that 'if … the Guaranteed Moneys are not paid in full on their due date … it [the guarantor] will immediately upon demand unconditionally pay to the Lender (IIG) the Guaranteed Moneys which have not been so paid'. The guaranteed moneys are defined as 'all moneys and liabilities … which are now or may at any time hereafter be due, owing, payable, or expressed to be due, owing or payable, to the Lender from or by the Borrower' (my emphasis). The obligation to pay moneys 'expressed to be due' 'upon demand' 'unconditionally' as 'principal obligor' 'not merely as surety' would indicate that the Van Der Merwes were taking on something more than a secondary obligation. 
[32] Clause 4.2 then provides that '[a] certificate in writing signed by a duly authorised officer … stating the amount at any particular time due and payable by the Guarantor … shall, save for manifest error, be conclusive and binding on the Guarantor for the purposes hereof'. I agree with the judge that that clause puts the matter beyond doubt. Any presumption has by the language used been clearly rebutted. Apart from manifest error, the Van Der Merwes have bound themselves to pay on demand as primary obligor the amount stated in a certificate pursuant to cl 4.2.”
185.	Waller LJ was not swayed by an argument to the effect that Mr and Mrs Van Der Merwe would not be entitled to an indemnity from the principal debtor. He said the following:
“[26] I am not persuaded that the company [i.e. the principal] would not be bound to indemnify the Van Der Merwes. It seems to me that where a loan agreement requires the giving of guarantees whether on demand guarantees or only secondary liability guarantees of that loan, a call and payment of what is found to be due from the guarantors will lead almost certainly to a right of indemnity from the company if the guarantee has to be paid.
[27] Furthermore I am inclined to the view that even if there is no express contract negotiated between the Van Der Merwes and the company it is strongly arguable that the Van Der Merwes will have a remedy against the company and in my view if the company refused to seek return of the overpayment, the guarantors would have a right of subrogation by which they could force IIG [i.e. the creditor] to pay back sums found to have been overpaid.
[28] But it seems to me that strictly what precise mechanism there might be for repayment is not the most relevant question when considering what the guarantees themselves require. If of course they do not require payment of the certified sum, then no difficulty arises. Leave to defend must be given so that the defences that the company could raise could be considered at a trial. If the guarantees by their clear language do require payment, then it was for the Van Der Merwes to protect themselves against that eventuality.”
186.	There had been reliance at first instance on the reference in clause 4.2 to “manifest error”. The judge, Lewison J, had commented as follows (in paragraph 52):
“[Counsel for Mr and Mrs Van Der Merwe] fastened on the phrase in cl 4.2 'save in the case of manifest error'. A 'manifest error' is one that is obvious or easily demonstrable without extensive investigation. [Counsel for Mr and Mrs Van Der Merwe] referred to the decision of Thomas J in Invensys plc v Automotive Sealing Systems Ltd [2002] 1 All ER (Comm) 222. That was a case in which a certificate made by an expert was to be conclusive save in the case of manifest error. Thomas J held that the expert's reasons could be examined in order to determine whether he had made a manifest error. But since the contract in that case provided for the expert to give reasons, Thomas J was undoubtedly right to say that the parties must have contemplated that those reasons could be examined to see whether any manifest error had been made. By contrast, in the present case the certificate was not required to contain any reasons. I did not derive any assistance from the Invensys case.”
Waller LJ expressed the view (in paragraph 34) that Lewison J’s conclusion on manifest error was clearly right.
187.	In the present case, Mainstay Services Limited, as North Shore’s sole director, signed a “Certificate of Indebtedness” dated 30 May 2008. The certificate was in the following terms:
“Upon advice received which we believe to be correct, we hereby advise that the sum outstanding and due and payable by Anstead Holdings Inc to Northshore Ventures Limited is US$34,894,207.73.”
188.	The certificate was sent to Mr Fomichev and Mr Peganov under cover of letters of the same date. The letters stated that the amount shown in the certificate had been calculated in accordance with a schedule which had been sent to Anstead. The schedule, which was enclosed with the letters to Mr Fomichev and Mr Peganov, included both interest on the frozen money and “Default Interest” at 20%.
189.	Mr Tregear contended that the certificate provides conclusive evidence of the amount due to North Shore. Mr Swainston, however, said that it is evident that the amount certified includes (a) interest on the frozen money and (b) interest calculated on the basis of monthly compounding applying a default rate of 20%. On that basis, he argued (to quote from the outline closing submissions):
“If Mr Fomichev and Mr Peganov are right that interest is not payable on the Frozen Loan Monies and/or that interest should be calculated on the basis of annual compounding (with a two week grace period) and without a default rate of 20% the certificate is manifestly incorrect.”
Mr Swainston further maintained that it could not be suggested that the guarantors were not entitled to ask the Court to determine the true terms of the Loan Agreement before considering whether the amount stated in the certificate was manifestly incorrect.
190.	One of the points Mr Tregear made in response was that the schedule setting out how the amount shown in the certificate had been calculated did not itself form part of the certificate. The actual certificate, he pointed out, makes no reference to the frozen money, compounding or the application of a default rate; the certificate simply states the amount said to be due. While this is true, it does not seem to me to matter. Absent, perhaps, an arithmetical error, North Shore would not have arrived at a figure as large as that certified without (a) including interest on the frozen money or (b) compounding with monthly rests and using the stated default rate. It would thus have been possible to infer without reference to the schedule that the figure given in the certificate must be incorrect if Anstead was not liable to North Shore for interest on the frozen money or calculated using monthly rests with a 20% default rate.
191.	Mr Tregear relied, however, on Lewison J’s description of a “manifest error” as one that is “obvious or easily demonstrable without extensive investigation”. Mr Tregear argued that it was not “obvious or easily demonstrable without extensive investigation” that North Shore was not entitled to claim interest on the frozen money or on the basis of monthly compounding with a 20% default rate. Of course, it is North Shore’s case that the certificate is not incorrect at all: it claims that the amount certified was owed to it by Anstead pursuant to the Loan Agreement. But Mr Tregear said that, even were that wrong, the basis of calculation was not obviously flawed and could not be shown to be such without extensive investigation, such as has been undertaken in these proceedings.
192.	Provisions such as clause 3.4 may be open to criticism (see e.g. O’Donovan and Phillips, “The Modern Contract of Guarantee”, English edition, at paragraph 5-107), but their validity has been accepted by the Courts. It would, as it seems to me, run counter to the evident intention of such clauses for it to be open to a guarantor, faced with (say) an application for summary judgment founded on a certificate, to argue that it would be seen at the conclusion of a lengthy trial that the certificate was wrong on the basis of arguments like those which Mr Fomichev and Mr Peganov have advanced in the present case in relation to the Loan Agreement. In the circumstances, the certificate was not “manifestly incorrect” when it was issued and so provided conclusive evidence of the amount due to North Shore under the Guarantee.
193.	In the circumstances, I hold that the certificate is to be taken as providing conclusive evidence, as between North Shore on the one hand and Mr Fomichev and Mr Peganov on the other, of the extent of Mr Fomichev’s and Mr Peganov’s liability to North Shore as at the date of the certificate.
Conclusions on the Guarantee
194.	For the reasons given above, I conclude that (a) the Guarantee is enforceable as against Mr Fomichev and Mr Peganov and (b) the certificate provides conclusive evidence of the amount owed as at its date.
Issues relating to the Loan Agreement
195.	The points raised by Mr Fomichev and Mr Peganov with regard to Anstead’s liability to North Shore under the Loan Agreement can be summarised as follows:
i)	The Loan Agreement should be rectified by the deletion of clause 4.2;
ii)	Clause 4.2 of the Loan Agreement is void as a penalty;
iii)	The Loan Agreement contained implied terms as to the availability for use of money advanced under it;
iv)	The Loan Agreement contained an implied term as to the availability of a North Shore account into which payment could be made;
v)	The Loan Agreement was varied in November 2004 and February 2006;
vi)	The Loan Agreement was varied in late 2007 or, alternatively, an estoppel arose at this stage;
vii)	The Loan Agreement was discharged wholly or in part by frustration.
I shall take these points in turn.
Rectification
Introduction
196.	It is Mr Fomichev’s and Mr Peganov’s case that the Loan Agreement should be rectified by the deletion of clause 4.2. This clause is set out in paragraph 50(iv) above. It stipulated that, if Anstead failed to pay interest at the beginning of a month (in accordance with clause 4.1), that interest was itself to bear interest and at a rate 5% higher than the 15% rate set in clause 4.1. Clause 4.2 thus provided for a default rate of 20%, with monthly compounding.
The pleaded case
197.	Paragraph 4.1(2) of the Re-Amended Defence and Counterclaim is in the following terms:
“It was agreed between, and the continuing common intention of, North Shore (acting by Mr Berezovsky) and Anstead (acting by Mr Fomichev) that the interest rate payable on the Advances would be simple interest at 15% per annum. It was not intended or agreed that interest would be compounded or that there would be a default rate of interest. Consequently, the Loan Agreement fails to record the true agreement between North Shore and Anstead and falls to be rectified by the deletion of clause 4.2.”
Law
198.	In Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, Lord Hoffmann adopted (in paragraph 48) the following summary of the requirements for rectification given by Peter Gibson LJ in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71 (at paragraph 33):
"The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention."
199.	Rectification is not available “where the parties, whatever their previous intention may have been, have ceased to retain that intention as their governing intention and have formed instead an intention to be bound by the precise terms of the document in question, regardless of possible discrepancies between its provisions and prior or other intentions on their part” (Spry, “Equitable Remedies”, 7th edition, at page 612). A party seeking rectification must, moreover, “counteract the inherent probability that the written instrument truly represents the parties’ intention because it is a document signed by the parties” (per Brightman LJ in Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505 at 521).
Facts
200.	The possibility of Anstead being lent $50 million seems to have been raised between Mr Berezovsky and Mr Fomichev at the end of 2002 or in January 2003.
201.	It is not in dispute that, although the loan was formally made by North Shore, Mr Berezovsky was behind it. Mr Berezovsky accepted this in evidence. Similarly, Mrs Nosova said, “of course it was the money of Mr Berezovsky behind the transaction”. Mr Berezovsky said that he made the loan because Mr Fomichev was very close to him, and he remarked that he appreciated the fact that Mr Fomichev had followed him to London.
202.	Mrs Nosova raised strong objections to the loan, believing that it would not be repaid. She further told Mr Berezovsky that, if the loan were to be made, he should ensure that a written contract should be drawn up. At the time, many transactions involving Russian parties were agreed orally, but she took the view that that would be inappropriate in this instance.
203.	Mr Peganov attended a meeting with Mr Berezovsky and Mr Fomichev in London. He said that there was no discussion at his meeting with Mr Berezovsky about compound interest or a default rate. Mr Fomichev also said that there was no discussion, either at that meeting or otherwise, of a default rate or compounding. Mr Peganov agreed, however, that compounding was common practice. He also said:
“I do not remember the detail of [Mr Fomichev’s] negotiations with [Mr Berezovsky], and it is quite possible that I was not given full details, because, in line with our general practice, I would have left [Mr Fomichev] to deal with the matter.”
204.	For his part, Mr Berezovsky was clear that there was discussion about interest being compounded. His recollection was less clear as regards the 20% default rate for which the written Loan Agreement provided. He said:
“I remember well 50 million, perfect; 15 per cent compound rate, definitely; and we discussed, I don’t remember, 20/25 per cent, I don’t remember well, what happened if Ruslan will not be in time. This is exactly my understanding I present to Curtis.”
Elsewhere, he remarked, “I don’t remember really I discuss with Ruslan or I discuss that with lawyers”.
205.	Mr Berezovsky said in evidence that he “left the precise structuring of the loan arrangements to Mr Fomichev and to [his (Mr Berezovsky’s)] lawyers, Curtis & Co”. He explained that, particularly after he had gained control of a powerful Russian television station in 1995, he was generally more concerned with the big picture than with the details of a project, which he tended to leave to partners and associates. In cross-examination, Mr Fomichev agreed that Mr Berezovsky was not a details person.
206.	On 7 February 2003, Mr Jacobson (of Curtis & Co) sent Mr Fomichev and Mrs Nosova an email reading as follows:
“Further to the meeting with BB [i.e. Mr Berezovsky] on Wednesday afternoon, I attach a list of the commercial terms which I believe to have been agreed in relation to the loan.
Terms
1)	Loan sum: of $50 million;
2)	Period: 1 year
3)	Interest on Loan payable at 15% per annum (but to be paid monthly);
4)	Provision for RF [i.e. Mr Fomichev] to draw down in instalments for the first month but with an obligation to draw down the full amount by 1st March – interest to be charged pro rata on the sums drawn down in the first month.
Security
1)	Personal guarantee to be given by Ruslan Fomichev;
2)	Personal guarantee to be given by Vasily Peganov;
3)	Pledge of all the shares held by Ruslan Fomichev and Vasily Peganov in Anstead Holdings;
4)	Pledge of all the shares over any other relevant trading companies involved;
5)	Fixed and floating charge over assets of Anstead;
6)	Fixed and floating charge over assets of relevant trading companies;
7)	Appointee of BB to be appointed to the Board of Directors of Anstead;
8)	Appointee of BB to be appointed to the Board of Directors of the relevant trading companies;
9)	BB to have an appointee as a signatory on all the accounts including Anstead Holdings and the trading companies and all accounts to be signed jointly.
I would be grateful if you could both confirm the above terms as it will then make it easier to draft the appropriate agreements….
There seems to be quite a lot of documentation work to do in relation to bringing this matter to a conclusion but, subject to receiving the above, I believe that we can put this together relatively quickly….”
In his evidence, Mr Jacobson said that this email gave the “main terms”. He also said that he was not aware at the time of any other term regarding the payment of interest and, in particular, of the provisions for default interest ultimately included in the Loan Agreement.
207.	The email was copied to a Mr Alan Jones, a solicitor who had worked for Mr Berezovsky before. Mr Jacobson had already asked Mr Jones “to prepare a draft loan agreement and supporting security arrangements which would have all of the full protections one would expect for a loan of this size and nature” (to quote from Mr Jacobson’s witness statement). When giving oral evidence, Mr Jacobson said that his instructions (he thought, from both Mrs Nosova and Mr Jenni) were to have a “full force loan agreement” and that the “default provisions would have been inserted as part of the instruction”. Mr Jacobson explained that, whereas he had never drafted a “full protections” loan agreement, Mr Jones was “a heavyweight lawyer in commercial agreements”.
208.	Although the 7 February email was also copied to Mrs Nosova, she was no longer involved in matters relating to the loan. When Mr Berezovsky decided to proceed with the loan despite her advice to the contrary, she “refused to participate any further in the process of preparing this loan” (in her words in cross-examination). Mr Fomichev remembered Mrs Nosova telling him that she was not involved and did not wish to hear about the loan. Further, Mr Fomichev told Mr Jacobson in an email in February 2003:
“And just to let You know that Natalia [Nosova] is not [involved] in the process of this transaction”.
209.	Mr Fomichev replied to Mr Jacobson’s 7 February email on 11 February 2003. In respect of all but four of the numbered points quoted in paragraph 206 above, he said “OK”. In the case of the first point 4 (drawdown), he wrote, “It is not 01/03/03 but 15/03/03”. As regards points 7, 8 and 9, he commented:
“Not realistic at all. We can provide all the information about money and account transactions to the appointee of BB but we can not lock ourself with the obligation to repay the loan and interest and at the same time not to be able to conduct any business if appointee blocks the transaction. Or if Appointee blocks the transaction than we don’t pay any interest and all the consiquences of than blocking relays to BB.”
210.	On 18 February 2003, Mr Jacobson sent Mr Fomichev a letter in the following terms:
“I refer to the proposed Loan arrangement in the sum of $50 million to Anstead Holdings Inc. which we understand is to be sourced from a company or entity in which Mr Berezovskiy has an interest or connection. As you are an established client of this firm, there is a potential conflict of interest arising and, as we have advised, we are not able to act on your behalf in relation to this matter. In this regard and as you are aware, we are instructed by Mr Berezovskiy who is aware of the potential conflict.
In view of the above, I have an obligation to recommend that you seek separate independent legal advice in relation to the Loan (including all of the Loan documents / security documents relating thereto)….”
Mr Jacobson proceeded to ask that Mr Fomichev countersign the letter to acknowledge its contents, which Mr Fomichev did.
211.	On 20 February 2003, Mr Jacobson emailed to Mr Fomichev a draft of the Loan Agreement and also “draft formats for the Debentures and Share Pledge Agreements”. Towards the end of the email, Mr Jacobson said:
“Alan Jones, who has assisted in drafting the Loan Agreement has suggested that we meet up during the course of Monday afternoon to finalise all of the documentation and to accommodate any amendments you may have. Please let me know if you (and your lawyers) can attend that meeting.”
212.	Four days later, on Monday 24 February 2003, Mr Jacobson sent Mr Fomichev the following email:
“Sorry that you couldn’t make the meeting today (4.00pm) and confirm that we will see you at Interpark House at 10.00am tomorrow. In the meantime, do you or your lawyers have any comments on the drafts that we can deal with or address before the meeting tomorrow?”
213.	On 26 February 2003, Mr Jacobson sent an email to Mr Houman, copying the email to Mr Fomichev and Mr Jones. Mr Jacobson referred to a telephone call he had had that day with Mr Houman, and he continued:
“I understand from Ruslan Fomichev that you are his/Anstead’s legal representative in relation to the proposed loan arrangements which Anstead is entering into with ancillary securitising documentation. We have already forwarded to your client a draft of the loan agreement, debenture(s) and pledge agreement(s) which he has discussed with us. We hope to send to you tomorrow a number of revised documents for your review and approval. You will need to instruct BVI counsel to provide an opinion in due course….”
Mr Fomichev agreed in cross-examination that he had discussed the terms of the loan agreement with Mr Jacobson. Mr Jacobson said, and I accept, that he had been told by Mr Fomichev that Mr Houman would be his and Anstead’s legal representative. 
214.	Mr Jacobson wrote to Mr Houman again on the next day, once more copying the email to Mr Fomichev and Mr Jones. Mr Jacobson said:
“Further to my email yesterday, I thought it would be appropriate to forward to you the template debenture and pledge agreement as security provided by Anstead that were briefly discussed with Ruslan Fomichev at our meeting on Tuesday. These agreements are presently governed under English law and we would need to take local law advice (BVI) to ensure that the documents are applicable under BVI law. Could I ask you to discuss these with your client and to thereafter approve the documents (subject to any changes agreed with Ruslan Fomichev) in order that they may then be adapted to BVI law.”
215.	Mr Houman responded the same day with an email reading:
“we acknowledge receipt of your two messages, and will contact you as soon as we will receive the instructions of Mr. R.F.”
216.	On 3 March 2003, Mr Jacobson sent Mr Houman an email including the following:
“In addition, I note that bearer shares are in issue. I presume these are held by RF and VP. Please confirm that these will be deposited and held by our office once execution of the documentation has taken place.
In the meantime, we are intending to proceed with the granting of options (in our clients favour) of the shares held in the various Russian trading companies. We have drafted a format enclosed that will need to be adapted to Russian law. Can you review on behalf of your client and confirm in principal its contents.
We have also drafted a short form of Guarantee which may have to be executed by your clients and which is also enclosed. Please also review this document and revert with any comments.”
On the next day, Mr Jacobson sent Mr Houman a further email, in which he said:
“I now enclose a revised format for the loan agreement for your review which was discussed with Ruslan Fomichev at our recent meeting.”
Both emails were copied to Mr Fomichev and Mr Jones.
217.	It was at about this time that North Shore was identified as the lender. It had previously been thought that the loan might be made by the Itchen Trust.
218.	On 5 March 2003, Mr Jacobson sent an email to Mr Houman, which he copied to Mr Fomichev, in which he said:
“I refer to my earlier emails and note that I have not heard from you in relation to the documentation previously forwarded.
If you have any queries in relation to the documents then please let me know as I understand that we are hoping to complete this matter very shortly.”
Mr Jacobson noted that, once Mr Houman had approved the documents, he would need to arrange for BVI counsel to confirm Anstead’s ability to enter into the Loan Agreement.
219.	In an email to Mr Houman of 7 March 2003, Mr Jacobson wrote:
“Further to the meeting with Ruslan Fomichev yesterday I enclose a new draft of the loan agreement … for your review which I hope reflect the amendments discussed yesterday. I have also enclosed a Summary of the main terms (as requested by Ruslan) together with a Schedule.”
The email was copied to Mr Fomichev.
220.	Mr Fomichev said that his impression at the time was that Curtis & Co and North Shore were “just doing the window dressing”. However, he accepted in cross-examination that there might, in total, have been 10 or 12 negotiation meetings.
221.	On 13 March 2003, Mr Jacobson emailed revised drafts of certain documents to Mr Houman for his “review”. The email was copied to Mr Fomichev. However, Mr Fomichev said in cross-examination that he did not read the Loan Agreement.
222.	On the following day, Mr Jacobson sent Mr Houman, with a copy to Mr Fomichev, various documents including the Loan Agreement, with a view to their execution by Anstead’s directors. Mr Jacobson emailed the Guarantee direct to Mr Fomichev, with a request that he execute it and arrange for Mr Peganov to do so too.
223.	The Loan Agreement was subsequently executed and dated 14 March 2003 (as were other documents). The Loan Agreement was signed on behalf on Anstead by Mrs Yvette Rogers and Mrs Darlene Bayne, who were by now the company’s directors.
224.	Minutes of a meeting of the Trustees of the Itchen Trust held on 14 March 2003 include the following:
“The Trustees then considered the Loan Agreement and the proposal for the Loan Agreement to be assigned to the Trust and for the proceeds received thereunder (including interest) to be treated as a re-settlement of funds into the Trust. It was noted that the main terms of the Loan Agreement provided that the principal sum would be repaid at the earliest on expiry of the 16th Month after execution of the Loan Agreement and that interest would be paid on the sum at a rate of 15%/annum to be paid monthly.”
Those present (by telephone) were Mr Keeling and Mr Jenni.
225.	When, some 19 months later, Mrs Nosova sent Mrs Rapp some interest calculations, Mr Fomichev protested that they were based on a 20% rate and compounding. He said in an email of 1 November 2004:
“You are calculating compound interest + penalty!!
The penalty should be calculated from end of august because before that the lender was not ready to receive the interest …. . So we had an amount to pay agreed with Mr Jacobson as of end of May 2004 and we will continue to respect the agreement in this case. The loan was at 15 % but not 20% Compound!!! …”
226.	In the course of her reply, Mrs Nosova said:
“In my opinion, what you still have to negotiate with [Mr Berezovsky] is:
1.	Whether you pay or not on the frozen money
2.	Whether the interest is only compounded or we also have to increase the interest rate as provided for by the agreement.
As to my position, I am not prepared to say anything about the frozen money, I never even told B.my opinion about it as, apparently, he has his own, though to you I can say that I never understood how you could send it there either, but I am willing to support that if the rate is compounded that we do not have to apply the increase of the interest rate as the Parties probably did not mean it and the wording of the credit agreement just does not correspond to their intentions.”
227.	Mrs Nosova said in evidence that the contents of this email reflected a discussion she had had with Mr Berezovsky, who had proposed this as a pragmatic way forward for the time being. 
228.	Mr Peganov accepted that he was not involved in the process of finalising the Loan Agreement and that he did not review it.
Conclusions
229.	On balance, I consider that the oral discussions between Mr Berezovsky and Mr Fomichev, whether at the meeting also attended by Mr Peganov or otherwise, probably included reference to compounding but not to the 20% default rate for which the Loan Agreement came to provide. Mr Berezovsky was himself unclear as to what discussions he had had as regards the default rate.
230.	To say, however, that the default rate was not the subject of oral discussion between Mr Berezovsky and Mr Fomichev is not to say that Mr Berezovsky (or North Shore) had a continuing intention that the Loan Agreement should not provide for such a rate. In fact, I have not been persuaded that Mr Berezovsky (or North Shore) had a continuing intention that the Loan Agreement should not provide either for compound interest or for a 20% default rate. From an early stage, it was Mr Berezovsky’s intention that the loan to Anstead should be the subject of a written agreement, and I see no reason to suppose that he intended that agreement to contain nothing that had not been mentioned in his discussions with Mr Fomichev. Mr Swainston suggested in closing that any provision of the Loan Agreement which had not been foreshadowed in Mr Jacobson’s 7 February email could be rectified out. I do not agree. To take a mundane example, the Loan Agreement contained a provision barring set-off. Nothing will presumably have been said on the subject of set-off during the discussions between Mr Berezovsky and Mr Fomichev, but it cannot, in my judgment, be said that it was Mr Berezovsky’s intention that the Loan Agreement should contain no such provision; to the contrary, he intended there to be a professionally-drafted contract incorporating such provisions as the lawyers deemed appropriate, and the clause dealing with set-off was one such provision. The position is similar, as it seems to me, with clause 4.2. There is no inconsistency between Mr Berezovsky having agreed a headline interest rate of 15% and intending that the written loan agreement should include, if the lawyers thought fit, provision for 20% compound interest in the event of default.
231.	Further, I have not been persuaded that even Anstead had a continuing intention that the Loan Agreement should not contain clause 4.2. Neither Anstead’s directors nor Mr Houman will have had a view one way or the other. Neither is Mr Peganov important in this context, since he left the finalisation of the Loan Agreement to Mr Fomichev. As for Mr Fomichev, it is apparent that the Loan Agreement was discussed with him on more than one occasion and revised following such discussions. Perhaps he assumed that Anstead would be paying interest on time and so that clause 4.2 was unimportant. But I am not satisfied that, when the Loan Agreement was signed, Mr Fomichev did not intend it to contain clause 4.2.
232.	In short, whether the parties’ intentions are to be judged on a subjective or objective basis (as to which, see Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, especially at paragraphs 57-66), Mr Fomichev and Mr Peganov have not established that clause 4.2 did not correspond to the intentions of either of the parties to the Loan Agreement.
233.	Having regard to the conclusions set out in the previous paragraphs, I do not need to consider whether it would have been appropriate for me to rectify the Loan Agreement at the request of Mr Fomichev and Mr Peganov and without either of the parties to the Loan Agreement (namely, North Shore and Anstead) having made any application for rectification.
The default rate
234.	Mr Fomichev and Mr Peganov contend that clause 4.2 of the Loan Agreement (which, as already mentioned, provided for default interest) is void as a penalty.
235.	The law in this respect is conveniently summarised as follows in Lewison, “The Interpretation of Contracts”, at paragraph 16.12:
“Where the rate of interest payable on a loan is liable to increase in the event of default by the borrower, the increased rate may be penal if it operates with retrospective effect or if the increase is exceptionally large. But where the increase is modest and operates prospectively, it will not be struck down as a penalty.”
236.	That paragraph is supported by Lordsvale Finance Plc v Bank of Zambia [1996] QB 752. In that case, Colman J said (at 763):
“It is clear that, if a loan agreement were to provide that upon the happening of a default in payment by the borrower the rate of interest were to be increased with retrospective effect, that which would be payable on default would be a sum in addition to the amount of principal and interest outstanding which would be calculated by reference to a period of time during which the borrower was entitled to the use of the principal and which might vary in length depending upon when the default in payment occurred in relation to the period of borrowing. Moreover, the amount of interest which would be payable would be unrelated to the extent of default. If therefore default in payment triggered a retrospective increase in the rate of interest, it would be impossible to say in advance how much extra interest would become payable and what arithmetical relationship it would have to the amount of time during which the principal was outstanding. Moreover, assuming that any increase in the rate of interest was to continue into the future, the period of time during which the default was continuing would be compensated by the continuing increased rate, but also by the accumulated increase in the interest derived from the period before default. Such a provision would therefore have all the indicia of a penalty.
Where, however, the loan agreement provides that the rate of interest will only increase prospectively from the time of default in payment, a rather different picture emerges. The additional amount payable is ex hypothesi directly proportional to the period of time during which the default in payment continues. Moreover, the borrower in default is not the same credit risk as the prospective borrower with whom the loan agreement was first negotiated. Merely for the pre-existing rate of interest to continue to accrue on the outstanding amount of the debt would not reflect the fact that the borrower no longer has a clean record. Given that money is more expensive for a less good credit risk than for a good credit risk, there would in principle seem to be no reason to deduce that a small rateable increase in interest charged prospectively upon default would have the dominant purpose of deterring default. That is not because there is in any real sense a genuine pre-estimate of loss, but because there is a good commercial reason for deducing that deterrence of breach is not the dominant contractual purpose of the term.”
237.	Mr Berezovsky said that the non-default interest rate for which the Loan Agreement provided (viz. 15%) “was much lower than would be available at the time in Russia for a foreign currency loan with no collateral”. Mr Peganov said that “an interest rate of 15% was the normal commercial rate for loans such as the North Shore loan at the time”. Mr Fomichev similarly described 15% as “then the normal commercial rate in Russia”.
238.	The key question is whether the increase on default (from 15% to 20%) was of such a size as to mean that it was “stipulated as in terrorem of the offending party” (to use words of Lord Dunedin in Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1915] AC 79, at 87). Mr Swainston argued that there was no evidence that the increased rate was anything other than an in terrorem imposition to enforce payment. Mr Tregear, on the other hand, maintained that the uplift was commercially justifiable.
239.	I have concluded that the increase in interest rate (by, essentially, a third) was justifiable and did not represent a penalty.
Implied terms relating to availability for use
240.	Mr Fomichev and Mr Peganov contend that the Loan Agreement contained implied terms as to the availability for use of money advanced under it. 
241.	Paragraph 4.7 of the Re-Amended Defence and Counterclaim alleges that the Loan Agreement contained the following implied terms:
“(a)	the money advanced under the Loan Agreement would be free and clear to be used by the borrower; and/or
(b)	the money so advanced would be free and clear to be used by the borrower for the express commercial purpose for which it was advanced; and/or
(c)	no interest would become due in respect of any part of the Advances that was frozen by a relevant authority, acting reasonably, by reason of matters concerning or connected to North Shore or the principals behind it (namely, Mr Berezovsky and/or Ms Berezovsky).”
242.	Both sides referred me to Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, where the Privy Council commented on the process of implication. Lord Hoffmann, delivering the judgment of the Board, explained as follows:
“21 … [I]n every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. … [T]his question can be reformulated in various ways which a court may find helpful in providing an answer - the implied term must ‘go without saying’, it must be ‘necessary to give business efficacy to the contract’ and so on - but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?
22 There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is ‘necessary to give business efficacy’ to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word ‘business’, is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman [2002] 1 AC 408 was decided. The second, conveyed by the use of the word ‘necessary’, is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.
23 The danger lies, however, in detaching the phrase ‘necessary to give business efficacy’ from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case, at p 459, when he said that in that case an implication was necessary ‘to give effect to the reasonable expectations of the parties’.
24 The same point had been made many years earlier by Bowen LJ in his well known formulation in The Moorcock  (1889) 14 PD 64, 68:
‘In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men …’
25 Likewise, the requirement that the implied term must ‘go without saying’ is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. Any attempt to make more of this requirement runs the risk of diverting attention from the objectivity which informs the whole process of construction into speculation about what the actual parties to the contract or authors (or supposed authors) of the instrument would have thought about the proposed implication. The imaginary conversation with an officious bystander in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227 is celebrated throughout the common law world. Like the phrase ‘necessary to give business efficacy’, it vividly emphasises the need for the court to be satisfied that the proposed implication spells out what the contact would reasonably be understood to mean. But it carries the danger of barren argument over how the actual parties would have reacted to the proposed amendment. That, in the Board's opinion, is irrelevant. Likewise, it is not necessary that the need for the implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the terms of the contract and the relevant background. The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument. In such circumstances, the fact that the actual parties might have said to the officious bystander ‘Could you please explain that again?’ does not matter.”
243.	In the present case, Mr Swainston argued that the terms for which he contended express in words what the Loan Agreement, read against the relevant background, would reasonably be understood to mean. Mr Swainston argued that the terms flowed from clause 2.2 of the Loan Agreement, which  is set out in paragraph 50(i) above but which I shall repeat here for convenience:
“Purpose and Application
The proceeds of each Advance shall be used for the business undertaken by the Borrower and the Related Entities and such business comprising the sale or purchase of processed meat and meat products primarily for supply in the Russian Federation and the sale and purchase of petroleum products in the Russian Federation and for no other purpose.”
Mr Swainston also drew an analogy with contracts for the sale of goods and of hire. Mr Swainston pointed out that a contract for the sale of goods will contain implied terms as to quality and fitness for purpose. As regards contracts of hire, Mr Swainston suggested that a horse hired out must not be lame. Mr Swainston argued that a contract for the loan of money must contain comparable terms. It is, he maintained, of the essence of any loan agreement that the money loaned should be available to be used by the borrower.
244.	Mr Tregear disputed that any of the alleged terms should be implied. He argued that the alleged terms are not necessary for the Loan Agreement to work, whatever appeal they may be said to have from the point of view of reasonableness, and that the Court should be reluctant to imply new terms when the terms of the loan were set out very fully in the Loan Agreement. More specifically, he suggested that clauses 6, 7, 8 and 9 of the Loan Agreement point away from implying the alleged terms. In broad terms, clauses 6 and 7 provide for Anstead to bear any tax, clause 8 for Anstead to indemnify North Shore in respect of costs arising from changes in the law, and clause 9 for North Shore to be excused from further performance should that become illegal. Mr Tregear argued that these provisions show that the cost and risk of outside events was to be borne by Anstead.
245.	I was not referred to any case in which a Court had considered whether a term as to fitness for purpose or the like was implied in a loan agreement. That is hardly surprising since questions as to the properties of a payment will not normally arise. An object which is sold or let on hire may or may not be well-made and suited to a particular purpose. In contrast, there cannot usually be any debate as to the quality of money or its suitability for different purposes.
246.	In principle, however, it seems to me that a loan agreement will typically contain an implied term of some kind as to the availability for use of the money lent. Suppose that, as a result of some feature of a lender, a borrower was unable to make any use, ever, of a loan.  I would find it most surprising if no legal remedy were available to the borrower even if the lender had known both that the money would be sterilised and that the borrower was not aware that that would be so. Mr Tregear suggested that, in such a case, the borrower might be able to invoke principles relating to sharp practice. My own feeling, however, is that a borrower might sometimes be expected to have some remedy regardless of whether there had been sharp practice: because, say, the lender had not anticipated that there would be a problem with the money he lent. In an ordinary case, the loan agreement would as a minimum, I think, reasonably be understood to mean that the money lent would not be rendered wholly useless throughout the term of the loan agreement as a result of conduct of the lender, without fault on the part of the borrower and in circumstances where the borrower had no reason to know of the risk that the money would not be available for use.
247.	Expressed in the language of traditional tests for the implication of terms, it seems to me that an implied term of some sort will usually be “necessary to give business efficacy” to a loan agreement and be such that the “officious bystander” would have been suppressed with the “common, ‘oh, of course’”.
248.	The analogies which Mr Swainston drew with contracts of sale and hire are, as it seems to me, helpful. The Sale of Goods Act 1979 (as amended) provides that, where goods are sold in the course of a business, there is an implied term that the goods supplied are of satisfactory quality, and the quality of goods can include “fitness for all the purposes for which goods of the kind in question are commonly supplied” (see section 14(2) and (2B)(a)). Where the purchaser makes known to the seller any particular purpose for which the goods are being bought, there is a further implied term that the goods supplied are reasonably fit for that purpose (see section 14(3)). In the case of a contract for the hire of goods, section 9(2) of the Supply of Goods and Services Act 1982 means that, if the goods are bailed in the course of a business, there is an implied condition that the goods are of satisfactory quality (although the condition does not extend to matters which ought to have been revealed by any examination which the bailee undertook before the contract was made – section 9(3)(b)), and section 9(4) introduces an implied condition as to fitness for purpose comparable to the term which arises with a sale of goods (although the condition does not apply where the circumstances show that the bailee does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the bailor – section 9(6)). Further, while the terms implied in contracts for the sale or hire of goods are now laid down by statute, there were common law precursors. The Sale of Goods Act 1893, which the Sale of Goods Act 1979 superseded, was largely based on the common law. Similarly, contracts of hire had been recognised to contain implied terms before the Supply of Goods and Services Act was passed. Thus, in Fowler v Lock (1872) LR 7 CP 272 Grove J concluded (at 281) that “where there is a hiring of goods, not agreed to as specific chattels, and where … the person hiring has no reasonable means of ascertaining their quality, the hirer is bound to supply such as are reasonably fit for the purpose”. Somewhat more recently, Pearson LJ observed in Astley Industrial Trust Ltd v Grimley [1963] 1 WLR 584 (at 590): 
“The decided cases show that normally, in a hiring or hire-purchase agreement, the person who lets goods on hire assumes some contractual responsibility for the fitness of the goods for the purpose for which the hirer requires them, but that the existence and the extent of this obligation depends upon the contractual intention of the parties, which is to be ascertained from the provisions of the particular agreement and from the relevant facts of the situation in relation to which the agreement was made.”
249.	A contract of hire is, in a sense, a contract for a loan. It differs from a loan of money in that the hirer has to return the particular chattels hired out. In contrast, a borrower need not, of course, repay his lender with any specific money. There is, nonetheless, enough similarity between the two types of transaction to suggest that, like contracts of hire at common law, a contract of loan can be expected to include some implied term as to usability.
250.	I do not think that either the fact that the Loan Agreement is lengthy or the inclusion in the Loan Agreement of clauses 6-9 is sufficient to exclude the implication of a term as to usability. Even long and detailed contracts can contain implied terms. Further, while clauses 6-9 may testify to a tendency to provide for risks to be borne by Anstead, they do not address circumstances such as those in which the money was frozen in the present case.
251.	On the other hand, I do not consider that any implied term will have extended to problems arising from matters of which Anstead was aware when it entered into the Loan Agreement or even of which it could reasonably be expected to have been aware. The Loan Agreement would not, as it seems to me, reasonably be understood to involve a promise from North Shore in respect of such problems, and it is not, as I see it, necessary to imply a term extending to such problems. That any implied term should not cover such problems is, moreover, generally in keeping with what was said in Fowler v Lock (“no reasonable means of ascertaining … quality”), as well as with sections 9(3)(b) and 9(6) of the Supply and Goods and Services Act 1982.
252.	On the facts, I have concluded that Mr Fomichev (and, hence, Anstead) was aware, and could reasonably be expected to have been aware, of the Swiss investigations as a result of which the $23 million was frozen (see paragraph 175 above). It follows, in my judgment, that there was no breach of any implied term as to usability. 
Implied term as to availability of a North Shore account
The alleged implied term
253.	A further implied term is put forward in paragraph 4.8 of the Re-Amended Defence and Counterclaim. It is there pleaded that, if the Loan Agreement is not to be rectified by the deletion of clause 4.2, it was an implied term that “there would be no default – for the purpose of triggering compounding and an obligation to pay default interest under clause 4.2 – until North Shore had a bank account to which interest under clause 4.1 could be paid and had notified Anstead of the relevant bank and the account details”.
Facts
254.	On 24 January 2004, Mr Jacobson sent Mr Fomichev an email in which he said that he understood that Anstead wished to begin making interest payments and continued:
“As indicated previously (see email dated 12th May 2003) the Bank/Trustees will require confirmation of the source of funds from your remitting bank before payments can be made. As soon as you can provide this I will then be authorised to release the Bank details to you….”
255.	On 6 February 2004, Curtis & Co faxed to Mr Peclard a letter in which they said:
“We note that Anstead has not paid any interest to date. We therefore advise you that unless the outstanding interest payments are made within 14 days of the date of this letter with confirmation of their source of funds our client will have no alternative other than to issue a default notice for the repayment of the capital sum and all interest sums due….”
Replying on 18 February, Mr Peclard said that there was no reason for Anstead to pay interest on the blocked funds, but that interest of $3,627,082.37 would be paid before the end of the month. He concluded:
“The payment will be made either with a banking check from CIM Bank to the order of your client which will be sent by DHL to you or by a transfer to your account for which I would need the details.”
256.	Mr Peclard sought permission from Mr Lamon to pay the $3,627,082.37 from account 604.869 with C.I.M Banque, but that was refused on 27 February 2004. In parallel with this, North Shore was taking steps to open an account with First Curacao International Bank N.V. (“FCIB”).
257.	On 17 March 2004, Mrs Rapp emailed Mr Jacobson for “the Bank details in order to transfer amount of accrued interest under Loan agreement”. Mr Jacobson replied on the same day:
“We are trying to set up the account but the bank need some new ID documents from the beneficial owner. In addition the company will need a confirmation from Anstead or its lawyers on the source of funds.”
258.	By 20 April 2004, North Shore had, it appears, succeeded in opening an account with FCIB; Mr Jacobson wrote to Mrs Rapp:
“I can advise that North Shore has a bank account but the directors of North Shore still require written confirmation on the source of funds….”
In an email to Mrs Rapp of 23 April, Mr Jacobson said, “Can you let me see a format for the source of funds letter.” On 15 June, Mrs Rapp sent Mr Jacobson an email in which she said:
“I’m ready to pay interest for the ill-fated Loan….
You wanted to sent me a draft of letter to be signed by our BVI directors….”
On 22 June, Mr Jacobson sent Mrs Rapp an email in which he referred to a meeting they had had the previous Friday and proceeded:
“With regard to our discussions, please confirm that the interest will be paid from the Company’s account with UBS London. In this regard, we would like to receive a bank reference from UBS on the Company and also a source of funds letter signed by the directors of the Company. I have prepared a draft for your review based on the discussions we have had….”
On 7 July Mr Jacobson sent Mrs Rapp a further email, in which he said:
“… I am now under pressure this end to get matters finalised as soon as possible.
Can you please try and give me a time frame as to when I can expect the documents and release of the funds from UBS.”
259.	There followed email correspondence between Mrs Rapp and Mr Jacobson as to the terms of the source of funds letter and who should sign it. In due course, a letter dated 15 July 2004 was signed on behalf of Anstead by Mr Peganov, and on 16 July the London branch of UBS Wealth Management provided a letter of reference for Anstead. On 22 July, Anstead’s directors resolved to grant Mr Peganov a new power of attorney (a predecessor having apparently lapsed), and Mrs Rapp faxed both the power of attorney and the resolution to Mr Jacobson on 28 July, together with a note reading:
“Sorry for delay, but I’ve just arrived. Pls, find enclosed power of attorney and resolution from directors.”
On the same day, Mr Jacobson provided Mrs Rapp with details of North Shore’s account with FCIB, and Anstead made its first repayment (of $250,000) on 30 July.
260.	In an email of 7 October 2004, Mrs Rapp said (in English translation):
“We have to inform you that at present we cannot continue paying interest, as, after your refusal to accept the money into your account in the spring, most of the money was invested in real estate and land.”
261.	Mrs Rapp’s recollection, as she explained when asked about this email, was as follows:
“They did not want to accept money in March, and I don’t remember already now what purpose was for it, and we were kept waiting for about two months … – we kept this money and let’s say did not have a chance to transfer somewhere for North Shore and then we just used this money for some purposes.”
262.	In an email to Mr Fomichev of 1 November 2004, Mrs Nosova commented:
“The fact that James [Jacobson] asked for the source of funds docs did not give you the right to invest the money due to the Principal into the real estate and other things from where you cannot exit fast.”
263.	In his oral evidence, Mr Jacobson rejected a suggestion that delay in setting up the North Shore account was to blame for the delayed receipt of interest.
Conclusions
264.	It is clear law that tender by a debtor of the money he owes can potentially be a good answer to a claim by the creditor for interest on the money. Thus, Chitty on Contracts, 30th edition, states as follows (in paragraph 21-084):
“Where a debtor is obliged to pay a specific sum of money to a creditor a successful plea of tender does not discharge the debt, but if the creditor subsequently sues for the debt, the debtor may, by paying the money into court and by proving the tender and his continued willingness to pay the debt since the tender, bar any claim for interest or damages after the tender; the creditor will also be liable to pay the debtor his costs of the action, on the ground that the action should not have been brought.”
265.	However, the general rule is that a “plea of tender must be established by showing that the promisor made an unconditional offer to perform his promise in terms of the contract but that the promisee refused to accept performance” (Chitty on Contracts, 30th edition, at paragraph 21-083). Further, to “constitute a valid tender there must either be an actual production of the money, or its production must be expressly or impliedly dispensed with by the creditor” (Chitty on Contracts, 30th edition, at paragraph 21-088). Moreover, “where a borrower of money tenders the amount due for principal and interest, the tender does not stop interest running after the date of the tender unless there is evidence that the sum has been set aside and is available for payment at any time” (Chitty on Contracts, 30th edition, at paragraph 21-084, footnote 447, citing Barratt v Gough-Thomas [1951] 2 All ER 48).
266.	Of course, the issue in the present context is not whether Anstead is liable for any interest but whether it is liable for default interest. In my judgment, however, one could expect the circumstances in which Anstead would avoid default interest to be comparable to those in which a debtor other than a borrower could escape any liability for interest. It seems to me, therefore, that:
i)	For Anstead to avoid default interest it must at least have made an unconditional offer of payment (by whatever means) which North Shore refused; and
ii)	Anstead would be relieved of liability for default interest for no longer than the refusal to accept payment continued.
267.	On the facts, it has not been established that Anstead made an unconditional offer of payment which North Shore refused. Although there was reference in February 2004 to a payment being in prospect, no unconditional offer materialised; no cheque was “sent by DHL”, for example, as foreshadowed by Mr Peclard. It was not, in the event, until mid-June that Mrs Rapp said that she was “ready to pay interest for the ill-fated Loan”; and by then North Shore had succeeded in opening an account with FCIB. In July, it was Mr Jacobson who was pressing to get matters finalised.
268.	A further point is that the period over which North Shore could be said to have indicated that it was not in a position to receive a payment was relatively short. It was not until 17 March 2004 that Mr Jacobson said that North Shore was “trying to set up the account”, and by 20 April Mr Jacobson had told Mrs Rapp that North Shore had a bank account. Even, therefore, if I had taken the view that Anstead had made a sufficient offer of payment, I would have decided that Anstead’s liability to default interest had been negated for no more than about a month.
269.	As it is, I have concluded that Anstead was never exonerated from default interest on this ground.
The alleged 2004 and 2006 variations
Introduction
270.	It is Mr Fomichev’s and Mr Peganov’s case that the Loan Agreement was varied in November 2004 and February 2006.
271.	As regards the alleged November 2004 variation, paragraph 6.4(5) of the Re-Amended Defence and Counterclaim alleges that it was agreed by North Shore (acting by Mr Berezovsky) and Anstead (acting by Mr Fomichev) that:
“(a)	interest would be payable once a year (in arrears) from the date of drawdown of the relevant tranche at the rate of 15% per annum;
(b)	if the interest was not paid within 2 weeks of the end of the relevant year, the interest would be added to the capital outstanding and would thereafter accrue interest at 15% per annum; but
(c)	compounding would only commence in August 2004 (given that North Shore’s only notified its account details to Anstead on 28 July 2004).”
272.	With respect to February 2006, the following is pleaded in paragraph 5.5 of the Re-Amended Defence and Counterclaim:
“At a meeting in the Berkley Hotel in London in early February 2006, Mr Fomichev (on behalf of Anstead) and Mr Berezovsky and [Mr Patarkatsishvili] (on behalf of North Shore) agreed that, in consideration of Anstead continuing to seek to obtain the release of the Frozen Loan Monies, Anstead would not have to pay interest on the Frozen Loan Monies.”
Law
273.	A variation of a contract depends, of course, on the parties having so agreed.
274.	A variation of a contract, to be legally effective as such, also requires consideration. For there to be consideration, there must be either detriment to the promisee or benefit to the promisor. If the proposed variation is capable of benefiting only the promisee (say, where a promisor agrees to accept a lesser payment without obtaining anything in return), there will be no consideration and so no legally binding variation (although the doctrine of promissory estoppel may potentially apply). Further, there must be a link between the variation and any detriment or benefit. It is not enough that, following an agreement to vary a contract, a promisee in fact does something which is of benefit to the promisor. To constitute consideration, the benefit and the promise must be causally linked.
275.	Agreement to give up a doubtful claim is capable of constituting good consideration. However, agreement to give up a claim which is clearly invalid in law will not amount to consideration unless “it was a ‘reasonable claim’ (i.e. one made on reasonable grounds) which was in good faith believed by the party forbearing to have at any rate a fair chance of success” (see Chitty on Contracts, 30th edition, at paragraph 3-052).
Facts: the alleged November 2004 variation
276.	In the course of 2004, Mr Berezovsky asked Mrs Nosova to become involved with matters relating to the loan to Anstead. On 27 October 2004, she sent Mrs Rapp a calculation in which Anstead’s liability was assessed by reference to the Loan Agreement. That led to Mr Fomichev’s protest that the “loan was at 15 % but not 20% Compound” (see paragraph 225 above), following which Mrs Nosova told Mr Fomichev on 1 November that in her opinion (see paragraph 226 above):
“... what you still have to negotiate with [Mr Berezovsky] is:
1.	Whether you pay or not on the frozen money
2.	Whether the interest is only compounded or we also have to increase the interest rate as provided for by the agreement.”
277.	On 11 November 2004, Mrs Nosova sent Mr Jacobson, with copies to Mr Fomichev and Mrs Rapp, an email in which she said:
“Could you, please, ask to recalculate the interest on 50 mio loan on the following principles:
Interest to be paid once a year 15 % p.a. depending on the dates of disbursements and their corresponding amounts, two weeks of delay of paying the interest – grace period, after 2 weeks – 15 % to be accrued also on the amount of overdue interest.
The issue of whether interest will be charged or not on the frozen money will be addressed later.”
278.	Mrs Nosova said in evidence that her email “wasn’t meant as a variation of the loan agreement”. “Mr Berezovsky offered this,” she said, “as just a step to move forward so that they start repaying.” It was, she said:
 “... goodwill of Mr Berezovsky that didn’t find any response because ... they still didn’t pay the monies they were owing”.
Similarly, Mr Berezovsky said that he “did not intend to forego North Shore’s right to interest on the frozen money or to finally agree the interest rate but thought these issues should be ‘parked’ so that undisputed money could at least start to be paid”. He said that he did not remember what had happened in November 2004, but that he knew what was not agreed – and that was “not to make step back”. For his part, Mr Fomichev thought that he must have spoken to Mr Berezovsky but could not remember exactly what was said.
279.	In contrast, Mr Jacobson said that, as far as he was concerned, this was “the final resolution”. He agreed that, had he understood the terms to represent a temporary concession, he would have been concerned in correspondence with Anstead to reserve North Shore’s right to claim additional interest. He said that he had not seen Mrs Nosova’s 1 November email to Mr Fomichev.
Conclusions on the alleged November 2004 variation
280.	The relevant oral evidence is rather limited. It can be inferred from the contemporary emails that Mr Berezovsky and Mr Fomichev discussed interest in November 2004. However, neither individual had any real recollection of the discussion.
281.	Mr Berezovsky and Mrs Nosova both gave evidence to the effect that no contractual variation was intended. However, the Courts adopt an objective approach when determining whether a contractual agreement has been concluded. Here, Mr Jacobson understood the terms of the 11 November email to represent a “final resolution”, and I am prepared to accept that an objective observer would have made the same assumption.
282.	However, it seems to me that there was no consideration for any variation. Mr Swainston suggested that consideration was to be found in the compromise of a dispute as to liability. I doubt, though, whether that is how the parties viewed matters. The chances are, I think, that Mr Berezovsky agreed to take less interest, not by way of compromise of any legal dispute, but as a concession. In this context, the evidence of Mr Berezovsky and Mrs Nosova is significant. It indicates that Mr Berezovsky saw himself as making a concession to Anstead: as Mrs Nosova said, this was “goodwill of Mr Berezovsky”.
283.	In the circumstances, I do not accept that the Loan Agreement was varied in November 2004.
Facts: the alleged February 2006 variation
284.	In February 2006 Mr Fomichev, Mr Berezovsky and Mr Patarkatsishvili met at the Berkley Hotel in London. According to Mr Fomichev, it was agreed at this meeting that Anstead should not pay interest on the frozen money. Further, Mr Peganov said in evidence that he had been told by Mr Fomichev that it had been agreed that interest should not be paid on the frozen money.
285.	In contrast, Mr Berezovsky said that there “was never any question at this meeting, or ever, of North Shore agreeing to waive the interest on the frozen monies (or any interest)”; he “agreed to wait, but never to forgive”.
286.	About a year after the Berkley Hotel meeting, on 28 March 2007, Mr Fomichev sent an email to Mr Landi in which he said:
“The agreement reached on 01.02.06 with Mr. Berezovskiy was that we should repay 10,000,000 USD of unfrozen moneys including interest and capital, there would be no interest on frozen moneys, there going to be no interest compounded.”
Some 20 minutes later, Mr Fomichev told Mr Landi in a further email:
“Sorry, just checked and the agreement was reached on 24.02.06”.
A few minutes after that, Mr Fomichev sent Mr Landi an email reading:
“Sorry Damian to mess you around but I will come back to you with all the agreements tomorrow if I may, I need to remember some things”.
287.	Mr Landi said in a witness statement on which he was not cross-examined that he was not himself aware of an agreement such as mentioned by Mr Fomichev and that Mr Fomichev never in the event returned to him on the point.
Conclusions on the alleged February 2006 variation
288.	I have not been persuaded that the Loan Agreement was varied in February 2006.
289.	I prefer Mr Berezovsky’s evidence about the Berkley Hotel meeting to Mr Fomichev’s. As Mr Tregear pointed out, there was no reference to any agreement that no interest should be payable on frozen money in (a) a letter of 9 July 2008 from the solicitors then acting for Mr Fomichev and Mr Peganov, (b) the original Defence or (c) the evidence served in connection with an application to discharge the freezing order. I agree with Mr Tregear that this is telling. Had Mr Fomichev genuinely believed that it had been agreed in February 2006 that Anstead should not be liable for interest on the frozen money, there would surely have been mention of that fact in one or all of the documents mentioned by Mr Tregear.
290.	In any case, there was, in my judgment, no consideration for any variation which might have been agreed. Mr Swainston argued that consideration was to be found in Anstead’s continuing efforts to obtain the release of the frozen money. However, the evidence does not appear to me to establish any causal link between, on the one hand, the alleged agreement at the Berkley Hotel and, on the other, the steps which Anstead took to secure the frozen money’s release.
Late 2007: variation/promissory estoppel
Introduction
291.	It is Mr Fomichev’s and Mr Peganov’s case that, in late November or early December of 2007, Mr Patarkatsishvili agreed with Mr Fomichev on the telephone that interest would not be payable on frozen money and that, in reliance on that assurance, Anstead agreed with the Swiss Prosecutor, Mr Lamon, that it would make a contribution to his costs and waive any claim it might have against the Prosecutor. It is said that this agreement served to vary the Loan Agreement or, alternatively, that North Shore is as a result estopped from claiming interest on frozen money.
Mr Fomichev’s evidence
292.	Mr Fomichev said the following in a witness statement:
“I understand that Mr Lamon spoke with Mr Peclard sometime in November 2007 and offered to release [the remaining frozen money] provided that (i) Anstead paid his costs of dealing with the investigation and (ii) Anstead did not pursue the FPO for any interest that could have been earned on the monies whilst they were frozen.
… [B]efore I agreed to the above offer with Mr Lamon to secure the release of the frozen monies, I wanted [Mr Patarakatsishvili] to agree that Anstead could accept Mr Lamon’s offer and confirm that North Shore (or himself as the owner of North Shore) would not seek to claim interest from Anstead (compounded or otherwise) in respect of the unfrozen monies.
Accordingly, I telephoned [Mr Patarakatsishvili] in late November/early December 2007. I said to him that in order to get the money released I needed to give an indemnity to the FPO. He was happy for me to do so and told me that North Shore would not claim interest from Anstead in respect of the frozen monies.
As a result of my telephone conversation with [Mr Patarakatsishvili] I informed Mr Peclard to tell Mr Lamon that Anstead agreed to his offer and Anstead would not pursue the FPO for interest on the loan.”
“Economic divorce”
293.	A certain amount of evidence was given in this context as to whether there was an “economic divorce” between Mr Berezovsky and Mr Patarkatsishvili.
294.	Mr Fomichev said that he had been told on the telephone by Mr Patarkatsishvili about a week after the Berkley Hotel meeting of February 2006 that he (Mr Patararkatsishvili) had taken the loan from Mr Berezovsky, from which Mr Fomichev inferred that the Anstead loan “was included into their separation agreement that they had entered at that time”.
295.	Mr Jaffe, in particular, gave evidence suggesting that there had been such a “separation agreement” (or “economic divorce”). Mr Jaffe said that he had been told by Mr Berezovsky and Mr Patarkatsishvili in early 2006 that they had decided to separate their economic interests. More specifically, he said that Mr Patarkatsishvili had told him both in the summer of 2006 and in the spring/summer of 2007 that the loan to Anstead was his asset. On the other hand, he also observed that he could not say with 100% certainty that there had been an “economic divorce”.
296.	Mr Berezovsky denied that there was any “economic divorce” and said that, in any event, North Shore “was never a joint venture asset anyway”. Mr Berezovsky said that he and Mr Patarkatsishvili agreed in early 2006 that they should publicly announce an “economic divorce” and “do [their] best to produce impression that it’s really happened” (because Mr Berezovsky understood that he was in a “risky position” and “dangerous for [their] business”), but that this was only “to protect [their] business” and no “economic divorce” was in fact effected. Mr Berezovsky added:
“Could you imagine that having this scale of business which Badri and I have together for long time, it take just less than a year to finalise economic divorce?”
297.	Mr Berezovsky was cross-examined about an interview with the police on 30 March 2007. The interview was conducted by British police officers, but a representative of the Prosecutor General’s Office of the Russian Federation was also present, and the transcript records that a delegation of Russian investigators was in London to interview witnesses in connection with the death of Mr Alexander Litvinenko, who had died from radiation poisoning in 2006. In the course of this interview, Mr Berezovsky said that Mr Patarkatsishvili “formerly … used to be [his] business partner”. He also said:
“we [i.e. Mr Berezovsky and Mr Patarkatsishvili] almost don’t have any joint business cos’ about one year ago we decided that he would purchase all my business. And we are almost to the end of this process.”
298.	Of this interview, Mr Berezovsky said:
“It’s not answering for British police, it’s answering for Russian prosecutor office”
and:
“Understanding that I was questioned by prosecutor office of Russia, definitely I want present impression that we made economic divorce ….”
299.	Mr Keeling said that he had no knowledge of either the loan or beneficial ownership in North Shore being transferred to Mr Patarkatsishvili. He said that he had heard talk from Mr Jaffe or one of his colleagues of an “economic divorce”, but that he was not himself aware of any announcement by Mr Berezovsky and Mr Patarkatsishvili that they had separated their economic interests. He said that he had had dealings with entities associated with Mr Patarkatsishvili, but not with Mr Patarkatsishvili himself. Asked whether he had any reason to contradict Mr Jaffe’s evidence about what was included in the alleged “economic divorce”, he observed:
“I would be a little miffed, to say the least, that nobody bothered to tell me that a company for which I was responsible was included in this restructuring.”
300.	Mrs Nosova said that she did not believe that the North Shore loan had been assigned to Mr Patarkatsishvili. In cross-examination, Mrs Nosova explained that legal (but not beneficial) ownership of certain assets had been transferred, but said that no consideration was paid and that the supposed “economic divorce” was “deliberate leak of information to mass media, with the only purpose to protect the assets, to distance the assets from Boris Berezovsky, who was a politically exposed person and an enemy of President Putin and the Russian authorities”. In any event, she said, North Shore was “never a joint venture asset” and was “never part even of this asset protection arrangement”.
Other evidence of Mrs Nosova
301.	Mrs Nosova said in a witness statement:
“I remember that when the final tranche of frozen monies were released by the Swiss authorities and paid over to Anstead in early 2008, I discussed with [Mr Berezovsky] and [Mr Patarkatsishvili] the best way to get Anstead to pay the outstanding interest. [Mr Patarkatsishvili] suggested taking it one step at a time. He suggested sending an email to Mr Fomichev thanking him for the money that had been paid and then proposing a further meeting to discuss when the interest would be paid.”
302.	In the course of her oral evidence, Mrs Nosova said:
“... in the end of January 2008 when these so-called frozen monies were paid, I discussed it both with Boris and Badri, how we proceed further to collect the debt, and I took advice from Badri, and Badri advised me to write to Ruslan to thank him for the loan, because Badri was very polite person, and to agree a meeting to discuss further how he pays the outstanding interest, including on the frozen funds.”
Conclusion
303.	The short answer on this part of the case is that I do not accept Mr Fomichev’s evidence. I take the view, I am afraid, that Mr Fomichev invented his supposed conversation with Mr Patarkatsishvili to take advantage of the fact that Mr Patarkatsishvili has died and so is unavailable as a witness.
304.	The alleged conversation of late 2007, like that of November 2006, did not feature in the letter of 9 July 2008 from the solicitors then acting for Mr Fomichev and Mr Peganov, in the original Defence or in the evidence served in connection with an application to discharge the freezing order. I agree with Mr Tregear that its emergence recently represents an “inexplicably late recollection”.
305.	Further, I accept Mrs Nosova’s evidence that Mr Patarkatsishvili proposed in January 2008 that she should seek to agree a meeting to discuss further “the outstanding interest, including on the frozen funds”. He would not have done so had he recently agreed with Mr Fomichev that no interest was to be payable on frozen money.
306.	In the circumstances, I do not need to express any view on the question, which I know is the subject of other litigation, whether there was an “economic divorce” between Mr Berezovsky and Mr Patarkatsishvili.
Frustration
307.	Mr Fomichev’s and Mr Peganov’s final defence is frustration. Mr Swainston contended that the Courts recognise frustration of contracts where there is a frustration of purpose, or preclusion of the only method of performance, provided that the relevant purpose or method of performance is part of the bargain. Here, Mr Swainston said, the purpose for which the money was required was a fundamental part of the bargain. In this connection, he relied on clause 2.2 of the Loan Agreement, which, to repeat paragraph 50(i) above, was in the following terms:
“The proceeds of each Advance shall be used for the business undertaken by [Anstead] and the Related Entities and such business comprising the sale or purchase of processed meat and meat products primarily for supply in the Russian Federation and the sale and purchase of petroleum products in the Russian Federation and for no other purpose.”
308.	Krell v Henry [1903] 2 KB 740 was a case in which a contract whose purpose had become incapable of achievement was held to be frustrated. Mr Henry had agreed to hire a flat in Pall Mall for the days on which King Edward VII’s coronation processions were to take place, but the processions had to be cancelled as a result of the King’s appendicitis. Vaughan Williams LJ, with whom the other members of the Court of Appeal expressed agreement, formulated the correct legal approach as follows (at 749):
“I think that you first have to ascertain, not necessarily from the terms of the contract, but, if required, from necessary inferences, drawn from surrounding circumstances recognised by both contracting parties, what is the substance of the contract, and then to ask the question whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things. If it does, this will limit the operation of the general words, and in such case, if the contract becomes impossible of performance by reason of the non-existence of the state of things assumed by both contracting parties as the foundation of the contract, there will be no breach of the contract thus limited.”
On the facts, he concluded as follows (at 750):
“In my judgment the use of the rooms was let and taken for the purpose of seeing the Royal procession. It was not a demise of the rooms, or even an agreement to let and take the rooms. It is a licence to use rooms for a particular purpose and none other. And in my judgment the taking place of those processions on the days proclaimed along the proclaimed route, which passed 56A, Pall Mall, was regarded by both contracting parties as the foundation of the contract; and I think that it cannot reasonably be supposed to have been in the contemplation of the contracting parties, when the contract was made, that the coronation would not be held on the proclaimed days, or the processions not take place on those days along the proclaimed route; and I think that the words imposing on the defendant the obligation to accept and pay for the use of the rooms for the named days, although general and unconditional, were not used with reference to the possibility of the particular contingency which afterwards occurred.”
“[T]here is not merely the purpose of the hirer to see the coronation procession,” Vaughan Williams LJ said (at 751), “but it is the coronation procession and the relative position of the rooms which is the basis of the contract as much for the lessor as the hirer.”
309.	Krell v Henry can be contrasted with another “coronation” case, Herne Bay Steamship Company v Hutton [1903] 2 KB 683, which was decided by an identically-constituted Court of Appeal in the same month. In the Herne Bay case, Mr Hutton had agreed to hire a steamship for the day of a naval review which was to take place two days after the Edward VII’s coronation; the contract referred to the ship being at Mr Hutton’s disposal “for the purpose of viewing the naval review and for a day's cruise round the fleet”. In the event, the King’s appendicitis meant that the review was cancelled. The Court of Appeal nonetheless concluded that the contract for the hire of the steamship had not been frustrated. Vaughan Williams and Romer LJJ each took the view that the purposes for which Mr Hutton had hired the steamship did not represent the “foundation” or “essence” of the contract. Thus, Vaughan Williams LJ said (at 689):
“ … Mr. Hutton, in hiring this vessel, had two objects in view: first, of taking people to see the naval review, and, secondly, of taking them round the fleet. Those, no doubt, were the purposes of Mr. Hutton, but it does not seem to me that because, as it is said, those purposes became impossible, it would be a very legitimate inference that the happening of the naval review was contemplated by both parties as the basis and foundation of this contract …. On the contrary, when the contract is properly regarded, I think the purpose of Mr. Hutton, whether of seeing the naval review or of going round the fleet with a party of paying guests, does not lay the foundation of the contract within the authorities.”
Similarly, Romer LJ said (at 690):
“ … it is a contract for the hiring of a ship by the defendant for a certain voyage, though having, no doubt, a special object, namely, to see the naval review and the fleet; but it appears to me that the object was a matter with which the defendant, as hirer of the ship, was alone concerned, and not the plaintiffs, the owners of the ship”,
continuing (at 691):
“ … so far as the plaintiffs are concerned, the objects of the passengers on this voyage with regard to sight-seeing do not form the subject-matter or essence of this contract.”
Stirling LJ, agreeing, referred specifically to the fact that part of the stated purpose, the “day’s cruise round the fleet”, had remained possible. He said (at 692):
“It seems to me that the reference in the contract to the naval review is easily explained; it was inserted in order to define more exactly the nature of the voyage, and I am unable to treat it as being such a reference as to constitute the naval review the foundation of the contract so as to entitle either party to the benefit of the doctrine in Taylor v Caldwell.  I come to this conclusion the more readily because the object of the voyage is not limited to the naval review, but also extends to a cruise round the fleet. The fleet was there, and passengers might have been found willing to go round it. It is true that in the event which happened the object of the voyage became limited, but, in my opinion, that was the risk of the defendant whose venture the taking the passengers was.”
This passage suggests that a partial failure of a contractual purpose will not frustrate a contract.
310.	Subsequent cases have, moreover, warned that frustration in general, and Krell v Henry in particular, should not be extended. In Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524, Lord Wright, giving the judgment of the Privy Council, said (at 529) that Krell v Henry was “certainly not one to be extended”. In J. Lauritzen AS v Wijsmuller BV (The “Super Servant Two”) [1990] 1 Lloyd’s Rep. 1, Bingham LJ said (at 8):
“Since the effect of frustration is to kill the contract and discharge the parties from further liability under it, the doctrine is not to be lightly invoked, must be kept within very narrow limits and ought not to be extended”.
311.	In the present case it seems to me that the Loan Agreement was either frustrated in its entirety or not at all; it could not be frustrated only as to the money that was frozen. Mr Swainston argued that partial frustration can occur where a contract contemplates separate adventures, relying on Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724. In that case, however, the House of Lords concluded that two charterparties were, in the words of Lord Atkinson in Larrinaga & Co Ltd v Société Franco-Américaine des Phosphates de Medulla, Paris (1923) 29 Com.Cas. 1 (at 11):
“wholly distinct, separate, and severable adventures between which there was no interdependence in the sense that the carrying out of any one of them was made to depend in any way upon the carrying out or abandonment of any of the others”.
In the present case, in contrast, it cannot be said that the $23 million drawdown which was frozen (for the most part, as to $18 million) was “wholly distinct, separate, and severable” from the remainder of North Shore’s $50 million loan.
312.	Was then the entire Loan Agreement frustrated? In my judgment, it was not.
313.	In the first place, even the frozen money was not put wholly outside Anstead’s control. While Anstead could not use the money as it wished, it was able to earn interest on it and to use it in foreign exchange transactions.
314.	Secondly, I do not consider that availability of the money for meat and oil trading represented the “foundation” or “essence” of the Loan Agreement. That the money should be so available was, as it seems to me, “a matter with which [Anstead] … was alone concerned” (to adapt words of Romer LJ in the Herne Bay case). North Shore’s interest was, at most, a negative one: to ensure that the money it lent was not used otherwise than for the purposes of Anstead’s business. North Shore will not have been concerned that Anstead should in fact be able to use the money in any particular way. Further, I do not read clause 2 of the Loan Agreement as rendering the uses which were in fact made of the frozen money (to earn interest and in foreign exchange trading) in breach of the Loan Agreement.
315.	Thirdly, it was in any case only ever a minority of the $50 million that was frozen. For the most part, only $18 million of the $50 million (or 36%) was frozen. The balance of the money could be used as Anstead wished.
316.	Fourthly, the freezing of the money can, I think, be regarded as self-induced. In The “Super Servant Two”, Bingham LJ said (at 8):
“The essence of frustration is that it should not be due to the act or election of the party seeking to rely on it”
and:
“A frustrating event must take place without blame or fault on the side of the party seeking to rely on it.”
Further, “fault” in this context should include negligence (see Treitel, “Frustration and Force Majeure”, 2nd edition, at paragraph 14-003). Here, the $23 million would not have been frozen but for the fact that, as a result of a miscalculation on Mr Fomichev’s part, Anstead gave instructions for the money to be paid to C.I.M Banque in Switzerland.
Implications of the default judgment against Anstead
317.	North Shore sought to place reliance on the default judgment it has obtained against Anstead. The argument advanced was to the effect that, under the Guarantee, Mr Fomichev and Mr Peganov have guaranteed not only Anstead’s indebtedness under the Loan Agreement, but also “all [Anstead’s] other liabilities to North Shore”, including, it was said, liability under the default judgment. I did not find this an attractive argument, and Mr Fomichev and Mr Peganov argued that the default judgment was in any event a nullity because of Anstead’s dissolution (see paragraph 88 above). If needs be, I would have considered seriously setting aside the default judgment to enable Mr Fomichev and Mr Peganov to contest the true extent of Anstead’s liability under the Loan Agreement. Having regard, however, to the conclusions I have arrived at on other matters, I do not think that it is necessary for me to say any more about the default judgment.
Postscript: proceedings in Russia
318.	I have recently had drawn to my attention by North Shore’s solicitors proceedings which Mr Peganov has instituted in his home town of Ufa, seemingly in May 2010, to invalidate the Guarantee. The Statement of Claim, in an English translation, relies on certain provisions of the Civil Code of the Russian Federation and includes the following:
“ … the Plaintiff [i.e. Mr Peganov] has never signed or otherwise concluded the Agreement [i.e. the Guarantee], he had never agreed with its conditions and displayed no will to assume liabilities specified in it.”
319.	I can but express surprise at the bringing of these proceedings, not least because (a) the Guarantee provides for the Guarantee to be governed by English law and subject to the exclusive jurisdiction of the English Courts and (b) Mr Peganov accepted in evidence in the present proceedings that the Guarantee was signed on his behalf, and with his authority, by his secretary.
Overall conclusion
320.	North Shore’s claims against Mr Fomichev and Mr Peganov succeed. 
321.	I would hope that the parties will be able to agree the amounts which, on the basis of this judgment, I should order to be paid. If, however, no such agreement proves to be achievable, I shall hear further argument on the precise sums that should be awarded.