Case No: 2000 Folio 362
Neutral Citation Number [2003] EWHC 2419 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 22 October 2003

Before :

THE HONOURABLE MR JUSTICE TOMLINSON
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Between :

	BASE METAL TRADING LIMITED	Claimant	
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	RUSLAN BORISOVICH SHAMURIN	Defendant	

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Charles Hollander QC and Brian Dye (instructed by Messrs Holman Fenwick and Willan) for the Claimant
John Jarvis QC and James Evans (instructed by Messrs Weightman Vizards) for the Defendant

Hearing dates : 4,5,9,10,11,12,16,17,18,19,23,24,25,26 and 30 June, 2,3 and 4 July 2003
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Judgment

Mr Justice Tomlinson:
1.	Introduction

In this judgment I shall refer to the Claimant Base Metal Trading Limited as “BMTL” and to the Defendant as Mr Shamurin. It will also be necessary to make frequent reference to the current beneficial owners of BMTL, the brothers Yuri and Mikhail Zhivilo, to whom I shall refer in this judgment as they were at trial simply as Yuri and Mikhail or, together, the Zhivilos. 

2.	This case concerns a falling-out between friends. The friends, Yuri, Mikhail and Mr Shamurin, were at the relevant times young Russian businessmen exploiting the opportunities which presented themselves to able entrepreneurs in that country after the collapse of the Soviet Union in October 1991. By way of a joint venture they set up a group of companies one purpose of which was to export metal, principally aluminium and titanium sponge, from Russia to the West. The events with which this case is concerned occurred in 1992, 1993 and 1994. The transactions conducted by Mr Shamurin of which BMTL in this action complains had ceased by 2 November 1994. The falling-out occurred either in the second half of 1994 or in 1995. Since October 1997 Mr Shamurin seems to have devoted much if not all of his time to pursuing a determined campaign against Yuri and Mikhail. He has made a series of criminal complaints against them in Russia, all of which, so far as I am aware, have ultimately been dismissed. In 1999 he began proceedings in Guernsey, where BMTL is incorporated, against the company itself, Yuri and Mikhail, claiming that he was deprived of his shareholding in the company by duress. In that action in Guernsey he claims that he remains entitled to a 50% share in the company. This action was begun by BMTL in March 2000 by way of a riposte to the Guernsey proceedings brought by Mr Shamurin. It was in part a spoiling tactic to divert and to deplete Mr Shamurin’s resources. Whether it has been successful in that regard is a moot point, as Mr Shamurin evidently has backers, or, if it does not come to the same thing, the Zhivilo brothers have enemies, who have been prepared to fund Mr Shamurin in the defence of this litigation. It is a fair inference from the evidence given about the extent of their support in this and in other litigation that the generosity of this source or of these sources has so far amounted to a figure approaching or in excess of a million pounds. I rather doubt whether the Zhivilos expect to be able to recover from Mr Shamurin the amount of any judgment which they may obtain in this action, although the source of funding to which I have referred above was apparently prepared to meet a judgment given against Mr Shamurin by Cresswell J in December 2001 in Leadenhall Capital Management Ltd v. Shamurin. That was an action on a loan agreement, brought effectively by a Mr Kheifits, also once a friend of Mr Shamurin, with whom he had also once had a joint venture. Mr Shamurin says that the Zhivilos orchestrated the bringing of that action against him. Whether that is so or not, in the course of his judgment Cresswell J found: -

1. That Mr Shamurin relied upon the absence of the original document [the loan agreement] in circumstances where he had in fact himself removed it from the claimant company;

2. That when documents did appear they proved to be inconsistent with Mr Shamurin’s case;

3. That Mr Shamurin tailored his evidence to suit his case, and

4. That Mr Shamurin denied having signed documents which obviously he had signed.

	The judgment given by Cresswell J in that action was for the principal sum of US$120,000 which, together with interest, amounted to about US$243,000. The claim here by BMTL is for a far greater sum, approaching US$6 million, being a loss allegedly suffered in 1994. I am quite confident that this action (and this claim) would never have been brought against Mr Shamurin had he not in turn pursued his campaign against the Zhivilos, one and perhaps the principal object of which is to enable Mr Shamurin to share in the prosperity of BMTL which has enured to it in consequence of its successful takeover, after his departure, of the Novokuznetsk Aluminium Plant, a privatised aluminium smelter in the far eastern Kemerovo region of Russia. However even if the Zhivilos do not expect to make a significant recovery from Mr Shamurin, who says that he is without assets, a judgment in a significant sum would no doubt be of assistance to them in the overall campaign being waged between them and him in the various theatres. 

3.	As so often with friends, the extent of the falling-out is deep. The Zhivilos say that, just as in the Leadenhall case, so here Mr Shamurin has fabricated a fundamentally dishonest story. They say that he caused BMTL massive losses by unauthorised speculative trading in its name on the London Metal Exchange, hereinafter the “LME.” They say that his defence to the effect that he was by these trades in large part pursuing an agreed hedging policy for the company, and that the Zhivilos were in any event regularly apprised of what he was doing, is pure invention. They say that he walked out on the joint venture rather than shoulder responsibility for his unauthorised activity, just as Mr Kheifits asserted he had done in relation to the joint venture the subject of the Leadenhall action. The Zhivilos say that Mr Shamurin is an inveterate liar and that he has made a pastime of making outrageous allegations about them.

Mr Shamurin for his part says that Yuri and Mikhail are dangerous people, prepared to resort to threats or violence, who have amongst other things threatened to kill him. He has placed evidence before me to the effect that Mikhail is accused of complicity in a plot to assassinate a former Governor of the Kemerovo region. He has placed before me second hand hearsay evidence with a view to persuading me that the Zhivilos are infamous in Moscow circles for their criminal and other activities. Mr Shamurin says that at the behest of the Zhivilos and in their presence he was threatened on Admiral Ushakov Boulevard in Moscow by two large athletic men one of whom had a gun in a holster, plainly visible when the wind lifted the flap of his jacket. 

4.	The evidence ranged far and wide. It generated rather more questions than answers. It did however demonstrate conclusively that the dispute between these former friends has nothing of any substance to do with this jurisdiction. It is a dispute about a joint venture the plans for and of which were discussed in Russia between Russians. The joint venture operated in and from Russia. It is common ground, one of the very few things about which these parties could agree, that if the alleged conduct of Mr Shamurin said in this case to be actionable at the suit of BMTL is judged according to the law of Russia it discloses no cause of action known to Russian law. Even if it did the cause of action would under the Russian law of limitation have been time barred since November 1997. BMTL says that its claim against Mr Shamurin, or at any rate at least one way in which that claim can be formulated, is governed either by English law or by Guernsey law, Guernsey law not having been shown to be in this or any respect different from English law. There are two reasons why it has been possible to argue with any semblance of plausibility that the relationship between BMTL and Mr Shamurin is governed by English or Guernsey law. One is because the joint venturers chose to use as one of their vehicles BMTL, a company incorporated in Guernsey. By the same token they also used companies incorporated in the Isle of Man, Panama and the British Virgin Islands. The second reason is that the particular activity of Mr Shamurin about which BMTL complains is trading on the LME. The complaint would be in substance no different had Mr Shamurin been trading on the New York Metal Exchange, or indeed had the Moscow Exchange in the foundation of which Mr Shamurin was prominent been sufficiently developed to permit him to carry out the same volume of trading there. 

5.	Mr Hollander QC for BMTL pointed out in his written Closing Submissions that the contract upon which BMTL sues “is in substance a joint venture or quasi partnership between two individuals with equal rights and powers.” The two individuals to whom he was referring were Yuri and Mr Shamurin. I agree entirely with this analysis, and it matters not for present purposes that Mr Shamurin maintains that Mikhail was also a partner, with the brothers representing 50% between them. The longer I have listened to the evidence in this case and the longer I have thought about it, the more it has become clear that this was a joint venture or partnership rooted in Russia, moulded by contemporary conditions there, and that any attempt to manufacture in BMTL a relevant cause of action against one or other of the joint venturers is artificial. The nature of the exercise is vividly illustrated by the manner in which the case is pleaded, to which I must shortly turn. 

6.	On any view of the case it is quite unnecessary to make findings on many of the matters canvassed in the evidence. In any event many of the matters canvassed were matters in respect of which I would find it impossible to make reliable findings. Moreover since the circumstances in which Mr Shamurin came to divest himself or to be divested of his interest in BMTL form the subject matter of the Guernsey proceedings to which I have already referred, and in which a trial is yet to take place, it is undesirable that I should make findings in that area save insofar as I will necessarily have to say a little as to the inherent probabilities concerning the circumstances in which a parting of the ways came about.

7.	The Soviet Union collapsed in October 1991. The period before and particularly after its demise was marked by a preoccupation amongst young Russian businessmen with the profitable opportunities which privatisation of previously state-owned infrastructure and assets would bring. The opportunity lay particularly although no doubt not exclusively in the potential for the acquisition of ownership of the assets and the potential for selling their products for hard currency. Metal production in Russia, particularly the production of aluminium, offered particular opportunities and by all accounts generated very significant rewards.

8.	In the early 1990s Mr Shamurin worked at the Russian Raw Materials Commodities Exchange. He met Mikhail at about this time. In about October 1991 they incorporated a Russian company called Dark Horse and Company. This is a translation of the Russian name but it appears to carry the same connotation in Russian culture as it does in English parlance. Dark Horse traded in non-ferrous metals. Mikhail provided the initial capital to enable it to trade. Yuri at this time worked in metals at the state trading company Rasnoimport. In 1992 Yuri left Rasnoimport and became a director of Dark Horse. Another Russian company in which all three were involved was Metallurgical Investment Company, “MICOM.” Its purpose was to invest in metals projects in Russia.

9.	In the autumn of 1992 there were discussions concerning the possibility of setting up a foreign company. Setting up a foreign company was a step in exploiting the opportunities to sell to the west metals produced in and to be exported from Russia. The structure envisaged was that BMTL would make short term loans to “friendly” companies (e.g. MICOM or Dark Horse or Chernobyl Sodievesky), and those companies would purchase the metals within Russia, and then sell on to BMTL (via the compulsory use of the Russian special exporters such as Rasnoimport or Mashinoimport), with BMTL taking title to the goods only outside Russian borders, usually in Ventspils or Rotterdam. The metals would then be sold to western companies, usually ex warehouse Rotterdam but sometimes Ventspils or on a CIF Rotterdam basis.

10.	It is inherently likely that Mikhail was involved in these discussions. However it seems never to have been envisaged that Mikhail would be either a shareholder in or a director of what became BMTL. The mechanics of setting up the company were handled by BDO Spread International, an associate company of BDO Reeds, Chartered Accountants in Guernsey, on the instruction of Rabin Leacock and Lipman, solicitors in London. It seems to have been Mr Shamurin who dealt principally with Rabin Leacock. On instructions, Rabin Leacock sent to BDO a completed registration questionnaire, with a view to BDO setting up a company in Guernsey. The main activities for which the company was required were stated as “trading activity on the international market of non-ferrous metals (aluminium, copper, nickel, lead, zinc etc.)” Five suggested alternative names were proffered for the company, each of which ended with the abbreviation “UK Ltd.” This suggests, as do other contemporary documents, that neither Yuri nor Mr Shamurin drew any clear distinction between the UK, England and Guernsey. The questionnaire indicated that there would be two shareholders, each with a 50% stake, and that the beneficial owners would be Yuri and Mr Shamurin. Their addresses in Moscow were given and they were both said to be Russian nationals domiciled in Russia. It was explained that the company was to have Guernsey “tax exempt” status, a status available only to a company carrying on in Guernsey no business other than of an administrative nature. As to the location of the central management control of the company’s business, the response was “ shareholder controlled in Russia.” The questionnaire noted that the company’s residence would be mainly determined by a contribution of three factors:- beneficial shareholder control, residence of the directors and the intended location of directors’ meetings. It was said that the directors would be Yuri and Mr Shamurin. 

11.	A further document apparently completed on behalf of Yuri and Mr Shamurin was an “Application for Registration of a Company incorporated in Guernsey in 1992.” In answer to the question “where is the central management and control of the business to be exercised?” the answer given was “Russia.”  The reason(s) for incorporating in Guernsey was simply given as “convenient offshore location.” 

12.	BMTL was incorporated in Guernsey on 4 December 1992 with nominee directors and shareholders, replaced on 7 December 1992 by Yuri and Mr Shamurin. BMTL’s registered office was at the office of BDO in St Peter Port. Tax exempt status was applied for and obtained. Mr Shamurin signed a form of consent to act as a director of BMTL on 15 December 1992. He gave his home address in Moscow. A similarly dated form of consent for Yuri to act as director was signed by Mikhail. Mikhail’s signature is over a corporate stamp of Dark Horse. That Mikhail should have signed at all, let alone in this manner, is curious but not for any relevant purpose illuminating. He could offer no explanation. It is a building block towards showing that, for whatever reason, the Zhivilos were concerned at trial to minimise the true role played by Mikhail in or in connection with BMTL. However it does not appear from the documents that he was ever intended to have a formal role. At some stage Yuri signed a similar but undated consent to act as a director of BMTL. 

13.	On 16 December 1992 BMTL resolved to appoint the Moscow Narodny Bank in London as its bankers. This resolution was written on letter paper bearing an address in Great Russell Street, London. This was purely an accommodation address. It was the premises of Office Box Ltd, which essentially for present purposes offered a mail forwarding service. An instruction given to Office Box Ltd in writing by Mr Shamurin by fax from Moscow on 23 March 1993 was that anybody who needed to speak with people from BMTL should be told that everybody was on a long business trip to Russia and worked in the Moscow Representative Office of BMTL. All correspondence was likewise to be sent to the Moscow Representative Office, the address of which was given at Krasnopresnenskaya naberezhnaya. The permission to open this latter office issued by the Russian Chamber of Commerce referred to BMTL (Great Britain) and it seems likely that this reflected the manner in which the or an application had been made. Later Mr Shamurin signed a document explaining that BMTL is a juridical person in accordance with British legislation, and in connection with a request to Isle of Man company formation agents he said that BMTL was incorporated in 1992 in the UK. 

14.	It is overwhelmingly apparent that neither Yuri nor Mr Shamurin had any clear idea of the status of Guernsey, other than that they thought that it was a part of the UK but that it enjoyed tax advantages, as reflected in BMTL’s tax exempt status. It is clear that they thought that in Guernsey the applicable law was English or in substance English. They may have thought that it was “British” law or UK law – they would not have drawn any distinction between English, British and UK law. The same would be true of many non-British businessmen who habitually subject their contracts to English law, and indeed of many British businessmen too. The fact that Guernsey was selected as the place of incorporation rather than, say, England, was regarded by Yuri and by Mr Shamurin as of significance only in the context of tax. A perusal of the contracts thereafter entered into by BMTL shows references to BMTL described variously, indiscriminately and apparently fortuitously as being of England, London, the UK or Great Britain, but never of Guernsey.

15.	Yuri and Mr Shamurin needed a non-Russian company to take title to Russian metal outside Russia and to generate profits outside Russia. Furthermore in the confused banking, legal and regulatory situation prevailing in Russia after the collapse of the Soviet Union western companies were understandably reluctant to contract with Russian companies. Russian companies seeking bank lending would be charged interest rates significantly in excess of those asked of western companies. It was therefore important that Yuri and Mr Shamurin should incorporate this new trading vehicle in a stable jurisdiction with a clearly defined legal system. International trading contracts are often made subject to English law and a company incorporated in or associated with the UK was an obvious choice. It accorded with Yuri and Mr Shamurin’s understanding of the situation that BMTL was thereafter held out to trading counterparties as a UK, London, English or British company. It also accorded with their understanding that no significance whatever, beyond the perceived tax advantage, was attached to the fact that BMTL was actually incorporated in Guernsey, rather than in London, England, Great Britain or the UK. 

16.	Mr Shamurin completed a company account mandate form for the opening of sterling and US dollar accounts at Moscow Narodny. Although the Guernsey address of the company’s registered office was given, bank statements were to be faxed to a Moscow fax number for the attention of Mr Shamurin. The bank was instructed to act on the instructions of one director and the specimen signature of Mr Shamurin alone was given. The bank account was operated from Moscow via telex and fax and cash was regularly drawn in Moscow by bank transfer made to accounts there. BMTL was never intended to nor did it have any place of business in either England or Guernsey. The business of BMTL was conducted almost entirely from Russia, the only exception being when Mr Shamurin happened to be travelling. Typically the business with which this action is concerned, trading on the LME, was conducted by telephone by Mr Shamurin from the office of BMTL or of an associated company in Moscow, or from his office at the Moscow Non-Ferrous Metals Exchange. By means of such telephone calls Mr Shamurin gave instructions to one of three London brokers with whom BMTL opened metal trading accounts in April, July and October 1993 respectively, Rudolf Wolff and Co. Ltd, Mocatta Commercial and Refco Overseas Ltd. 

17.	It is undoubtedly the case that the setting up of BMTL was preceded by discussions between, at least, Yuri and Mr Shamurin concerning the trading structure which I have described and the part which would be played in it by BMTL. I leave out of account as irrelevant for present purposes the debate as to the role played by Mikhail in those discussions. It is common ground that it was discussed and agreed that the business of the company would include hedging. The risk to be hedged was the risk of price fluctuation between the time of pricing of a physical purchase in Russia and the time of pricing of a physical sale to a western buyer. This risk was exacerbated by the relatively long time interval which might elapse between conclusion of a purchase and appearance of the metal at either Rotterdam or Ventspils. Yuri says that the discussion and the agreement went no further than this. Mr Hollander in closing accepted that probably this agreement was concluded prior even to incorporation of BMTL. Yuri says that it was never discussed, still less agreed that BMTL would enter into independent speculative futures transactions on the LME. There is a large dispute as to precisely how much of the LME trading carried out by Mr Shamurin in fact constituted hedging. Mr Shamurin says that very much more of it was hedging than the Zhivilos are prepared to admit, and that the picture is incomplete because of Yuri’s unwillingness to procure disclosure of the purchase contracts concluded by the associated or “friendly” companies. However he also says that it was agreed that the company would get involved in speculative futures transactions on the LME. He says that this was agreed between himself and the Zhivilos prior to incorporation of BMTL. He also says that in any event all of the business being transacted by the company, including that part of it which constituted speculative activity, was discussed at regular meetings. He says that in the course of those meetings he gave a full account of all the transactions entered into since the previous such meeting and discussed the nature of the transactions proposed to be carried out before the next such meeting, so that Yuri and Mikhail were at all times fully aware of the precise nature of the business being undertaken. 

18.	It is agreed that there was a discussion to which at least Yuri and Mr Shamurin were party at which it was agreed that at least Yuri and Mr Shamurin would be entitled to draw a salary of US$3,300 per month for their services to BMTL. It is common ground that in the light of this there came into existence a contract of employment between BMTL and Mr Shamurin. It is not alleged that it was an implied term of Mr Shamurin’s contract of employment that he should not, on behalf of BMTL, enter into speculative futures transactions. What is alleged is that it was an implied term of his contract of employment that he would exercise reasonable care and skill in the performance of the services rendered by him under that contract of employment. It is also said that, as a director to whom a salary was paid for his services, he owed to BMTL a duty, both at common law and in equity, to exercise reasonable care and skill in the business he transacted on behalf of BMTL. It is then said that it was implicit in the policy for hedging, either as originally agreed or as agreed on an ad hoc basis between Yuri and Mr Shamurin in relation to each proposed physical purchase, that the futures trades concluded by Mr Shamurin on behalf of BMTL would be confined to hedging. Finally it is said that in breach of the duty of care and skill owed to BMTL Mr Shamurin unreasonably and without the knowledge and consent of Yuri departed from the agreed policy by concluding a large number of futures trades on behalf of BMTL with a view to speculation rather than hedging. 

19.	It is accepted by Mr Shamurin that, if any relevant relationship between himself and BMTL is governed by English or Guernsey law, he owed the duties of care and skill alleged. It is not suggested that the alleged equitable duty is of any wider ambit than the alleged contractual or common law duties. However Mr Shamurin asserts that the ambit and the extent of the duty owed by him to BMTL is governed by Russian law. He also denies that entering into a futures contract with a view to speculation as opposed to hedging amounts of itself to a breach of the duties which he accepts would, as a matter of English or Guernsey law, be imported into the relationship between himself and BMTL.

20.	There is agreement as to the reason why, pursuant to the law of Russia, the duties alleged would not arise. The Russian law of delict does not recognise a duty to exercise reasonable care and skill in the transaction of business. Russian labour law would not imply an obligation to fulfil specific duties in the absence of a written agreement providing therefor. Finally the law of Russia would not impose upon Mr Shamurin qua director of BMTL duties which, broadly, English law would characterise as equitable. It is also agreed that if Russian law were to recognise any of the suggested ways in which a claim might be brought against Mr Shamurin, such claim would have become time-barred in or about November 1997. 

21.	The manner in which the claim is put by BMTL is, in my judgment, somewhat contrived and artificial. In particular I find artificial reliance upon an implied term in a contract of employment which contract is itself simply a construct of the law. BMTL was simply one vehicle through which Yuri and Mr Shamurin pursued their joint venture or partnership. The evidence certainly demonstrates that they felt free to distribute its funds for purposes not obviously related to the immediate business of BMTL. Furthermore each of Yuri, Mikhail and Mr Shamurin drew US$566,000 in salary or wages in 1993, rather more than the agreed amount of US$3,300 per month, and notwithstanding BMTL’s case that Mikhail was not an officer of BMTL. In 1994 substantial payments were made to various individuals, such payments being described in the cashbook somewhat euphemistically as “to cover the office’s expenses”. I doubt if it ever occurred to either Yuri or Mr Shamurin that they were in any meaningful sense employees of the company. In any meaningful sense the company was their creature or their servant rather than vice versa. To put at the forefront of the case the proposition that Mr Shamurin was in breach of his contract of employment seems a most extraordinary inversion of reality. I also find it odd to suggest that for Mr Shamurin to conduct the business of BMTL in a manner which had not been the subject of prior agreement with Yuri is of itself a failure to exercise reasonable care and skill. It seems to me that what would more plausibly need to be relied upon is some express or implied prohibition couched in absolute terms. Nowhere in the Particulars of Claim is it suggested that there was agreement that the business of BMTL should be subject to a limitation over and above its objects, which objects are amply wide enough to embrace dealing on the LME in futures contracts not simply by way of hedging. The closest that the pleader comes to this is the suggestion that as a result of the policy that the price fluctuation risk on physical purchases and sales would be hedged, and the manner in which that was implemented by ad hoc agreement of Yuri and Mr Shamurin on the occasion of each physical purchase, it was implicit that the futures trades concluded by Mr Shamurin on behalf of BMTL would be confined to hedging. However I do not consider that that proposition can be said to be implicit at all. If it were, I would have expected it to be alleged either that it was an implied term of Mr Shamurin’s contract of employment that he should not enter into futures contracts for any purpose other than hedging or that his equitable duty as a director necessarily carried with it a similar limitation. Furthermore I find incompatible with the manner in which the claim is put Yuri’s clear acceptance in evidence that, since he and Mr Shamurin were co-directors each with a 50% beneficial share in the company, he did not have the power to stop Mr Shamurin binding the company in a manner of which he did not approve nor even the power to give him recommendations as to how he should conduct business on the company’s behalf. If that be so, and it is obviously correct, then I ask rhetorically of what relevance is it that Mr Shamurin acted, if he did, without Yuri’s knowledge and consent. 

22.	I therefore have great difficulty in understanding how the claim can be well-founded even if the relationship between BMTL and Mr Shamurin is to be regarded as governed entirely or in some relevant part by English or Guernsey law. Mr Hollander suggested that I should approach the case on the footing that the agreed business of the company was to carry out physical trading and matters ancillary thereto, including such hedging as was from time to time agreed. He said that I should regard Yuri and Mr Shamurin as having agreed that on behalf of the company. Their agreement is effectively what the company had decided would be its business. They were giving effect to their agreement through the medium of a company for whom they acted as agents, or as its directing mind. Mr Shamurin’s obligation was, submitted Mr Hollander, to carry out the agreed business of the company with reasonable care and skill, and a departure from the agreed policy amounted ipso facto to a breach of that duty owed to the company. 

23.	All of this seems to me to break down on the facts in the absence of any suggestion of agreement that the business of BMTL should be limited in this manner. It seems to me that there is a world of difference between an agreement that the company should be the medium for physical trading and matters ancillary thereto, and an agreement that the company should not be used for any other purpose. Furthermore if there had been a relevant agreement, over and above what is said to have been implicit in what was agreed, I would have expected the claim more naturally to have been pursued as a claim brought by Yuri for breach of his agreement with Mr Shamurin, the loss to be measured in terms of the diminution of value of his shareholding in BMTL. Particularly is this so where it is accepted that the relevant discussions and agreement as to the nature of the business which would be conducted by the Guernsey company probably took place before its incorporation. 

24.	One obvious forum in which such a claim might have been pursued is Guernsey where Mr Shamurin has sued not just BMTL but also Yuri and Mikhail as Second and Third Defendants and in which action Yuri might have counterclaimed against Mr Shamurin. Indeed it might also have been thought natural for the present claim by BMTL, if thought to be well-founded, to have been brought by way of counterclaim in that action rather than by way of a separate action in this jurisdiction. However in that action Yuri and Mikhail challenged the jurisdiction of the Guernsey court and moreover both BMTL and the brothers suggested that Russia is the most appropriate forum in which that action should be tried. It would undoubtedly have been difficult, if not impossible, to sustain that approach consistent with a counterclaim against Mr Shamurin by BMTL the foundation for which was duties of care allegedly created by operation of Guernsey (or English) law arising out of a relationship between BMTL and Mr Shamurin said to be governed by Guernsey (or English) law. A counterclaim by Yuri would not have sat easily with his challenge to the jurisdiction. The content of Russian law relevant to a claim for breach of contract by Yuri against Mr Shamurin is not in evidence, however on the strength of such Russian law as is in evidence it seems unlikely that it would have been in Yuri’s interest to suggest that such a claim should appropriately be tried in Russia. The reality is of course that however this matter is looked at the foundation for any cause of action which BMTL may have against Mr Shamurin is such agreement as was concluded between Yuri and Mr Shamurin as to the part which would be played by BMTL in their overall joint venture or partnership. It seems to me inescapable that that underlying agreement is an agreement governed by Russian law and it would I think be highly anomalous if a claim which essentially asserts a breach of that agreement by Mr Shamurin could be formulated in a manner which attracts a governing system of law other than Russian. 

25.	Mr Hollander put at the forefront of his submissions the fact that in setting up BMTL Yuri and Mr Shamurin consciously sought to distance that company from the Russian legal and regulatory system. However the purpose in so doing was to create a vehicle with which western companies would be happy to contract and which would the more readily be able to borrow. I do not consider that Yuri and Mr Shamurin’s actions in this regard demonstrate an intention that their own relations with BMTL should themselves be governed by the law, or supposed law, of the place where BMTL was to be incorporated. The relations of Yuri and Mr Shamurin with BMTL were no more than a manifestation of their relations with each other. Having heard evidence at trial as to the manner in which the agreement for formation of BMTL was reached and the role which BMTL played in the overall joint venture, I would find artificial any analysis which concluded that the relationship between BMTL and Mr Shamurin is governed by a system of law other than that of Russia.

26.	The duty owed by Mr Shamurin to BMTL is said to derive from three sources:

     1. his contract of employment;
     2. an assumption of responsibility, independent of his status as director, and
     3. his position as a director of a Guernsey company.

I must examine each source separately in order to reach a conclusion, informed by English conflict of laws principles, as to what is the proper law which governs each of the relationships which is said in this manner to give rise to a duty in Mr Shamurin owed to BMTL to exercise reasonable skill and care.

27.	I should note at the outset three points. First, in effect it is common ground that it is a possible conclusion that not all three relationships are governed by the same proper law, although it was the Defendant’s primary contention that all the relationships should be governed by the same governing law. Furthermore it is enough for BMTL’s purposes, at any rate at this stage of the debate, to establish that just one of the relationships is governed by English or Guernsey law. Secondly, it is common ground that, if the proper law is in each case English, or Guernsey, law, then the ambit and extent of the duty owed is in each case identical. Thirdly, it was suggested by Mr Hollander that the analysis might more readily yield the result that at least the relationship between company and director is governed by Guernsey law if that relationship is examined first. However I do not propose to follow that suggestion, and not simply because both the pleadings and the argument at trial started with the contract of employment. There is also the consideration that it was a matter of indifference and fortuity where the non-Russian corporate vehicle which became BMTL should be incorporated. England/the UK was an obvious choice but it might as easily have been the British Virgin Islands or the Isle of Man or, I suspect, the Netherlands Antilles or some similar stable offshore jurisdiction with or connected with a clearly defined legal system. But in any event the conclusion as to the first two questions does not inevitably dictate the conclusion as to the third, and it ought to be a matter of indifference to the result in what order they are addressed.

28.	The contract of employment

By virtue of the Contracts (Applicable Law) Act 1990 the question by what law the contract of employment is governed is to be determined by reference to the provisions of the Rome Convention on the Law Applicable to Contractual Obligations, interpreted and applied with regard to their international character and to the desirability of uniformity in their interpretation and application. The Convention provides, so far as relevant:-

Article 1  Scope of the Convention 

1. The rules of this Convention shall apply to contractual obligations in any situation involving a choice between the laws of different countries.

2.They shall not apply to:

(e) questions governed by the law of companies and other bodies corporate or incorporate such as the creation, by registration or otherwise, legal capacity, internal organisation or winding up of companies and other bodies corporate or incorporate and the personal liability of officers and members as such for the obligations of the company or body;

Article 3  Freedom of choice

a.A contract shall be governed by the law chosen by the parties. The choice must be express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.

b. The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice under this Article or of other provisions of this Convention. Any variation by the parties of the law to be applied made after the conclusion of the contract shall not prejudice its formal validity under Article 9 or adversely affect the rights of third parties.

c. The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from by contract, hereinafter called “mandatory rules.”

d. The existence and validity of the consent of the parties as to the choice of the applicable law shall be determined in accordance with the provisions of Articles 8,9,11.

Article 4  Applicable law in the absence of choice

1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.

2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporated, its central administration. However, if the contract is entered into  in the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.	

3. Notwithstanding the provisions of paragraph 2 of this Article, to the extent that the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is most closely connected with the country where the immovable property is situated.

4. A contract for the carriage of goods shall not be subject to the presumption in paragraph 2. In such a contract if the country in which, at the time the contract is concluded, the carrier has his principal place of business is also the country in which the place of loading or the  place of discharge or the principal place of business of the consignor is situated, it shall be presumed that the contract is most closely connected with that country. In applying this paragraph single voyage charter-parties and other contracts the main purpose of which is the carriage of goods shall be treated as contracts for the carriage of goods. 

5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.

Article 6  Individual employment contracts

1. Notwithstanding the provisions of Article 3, in a contract of employment a choice of law made by the parties shall not have the result of depriving the employee of the protection afforded to him by the mandatory rules of the law which would be applicable under paragraph 2 in the absence of choice.

2.Notwithstanding the provisions of Article 4, a contract of employment shall, in the absence of choice in accordance with Article 3, be governed:

(a) by the law of the country in which the employee habitually carries out his work in performance of the contract, even if he is temporarily employed in another country; or

(b) if the employee does not habitually carry out his work in any one country, by the law of the country in which the place of business through which he was engaged is situated;

unless it appears from the circumstances as a whole that the contract is more closely connected with another country, in which case the contract shall be governed by the law of that country.

29.	Mr Hollander realistically accepts that, confining the enquiry to the criteria set out in Articles 6.2 (a) and (b) the conclusion would be that this contract of employment is governed by Russian law. That conclusion can only be escaped by showing either a choice of law which satisfies Article 3 or, as Mr Hollander again realistically accepts, more plausibly by reliance upon the proviso to Article 6.2. It is not suggested that there was an express choice of law. Since, as I have already concluded, I doubt whether the parties were conscious that a contract of employment was being created, it is really quite impossible to conclude that either the terms of the contract or the circumstances of the case demonstrate with reasonable certainty a choice of law by BMTL and Mr Shamurin by reference to which the contract, or contracts, of employment was or were to be governed. It should be borne in mind that the exercise of identifying a choice demonstrated with reasonable certainty as required by Article 3 is by no means the same as the exercise involved in identifying the law of the country with which a contract is most closely associated. 

30.	The Report on the Convention by Professors Giuliano and Lagarde is to be taken into account in ascertaining the meaning or effect of the Convention. At page 17 of their report the professors say this: -

“ The choice of law by the parties will often be express but the Convention recognises the possibility that the Court may, in the light of all the facts, find that the parties have made a real choice of law although this is not expressly stated in the contract. For example, the contract may be in a standard form which is known to be governed by a particular system of law even though there is no express statement to this effect, such as Lloyd’s policy of marine insurance. In other cases a previous course of dealing between the parties under contracts containing an express choice of law may leave the court in no doubt that the contract in question is to be governed by the law previously chosen where the choice of law clause has been omitted in circumstances which do not indicate a deliberate change of policy by the parties. In some cases the choice of a particular forum may show in no uncertain manner that the parties intend the contract to be governed by the law of that forum, but this must always be subject to the other terms of the contract and all the circumstances of the case. Similarly references in a contract to specific Articles of the French Civil Code may leave the court in no doubt that the parties have deliberately chosen French law, although there is no expressly stated choice of law. Other matters that may impel the court to the conclusion that a real choice of law has been made might include an express choice of law in related transactions between the same parties, or the choice of a place where disputes are to be settled by arbitration in circumstances indicating that the arbitrator should apply the law of that place. 

This Article does not permit the court to infer a choice of law that the parties might have made where they had no clear intention of making a choice. Such a situation is governed by Article 4.”

The considerations prayed in aid by Mr Hollander all relate to the decision to incorporate a company in such a manner as to ensure that BMTL minimised its connection with Russia and emphasised its connection with the UK/Great Britain/England. However as I have already pointed out those considerations do not bear on the question whether Yuri and Mr Shamurin intended that their own relations with the company would also be governed by the law of the UK/Great Britain/England. Likewise these considerations are far removed from the sort of solid indicia as to intention which Professors Giuliano and Lagarde furnish by way of example of what is required in order to demonstrate with reasonable certainty an implied choice of law. 

31.	Mr Hollander relies upon precisely the same considerations in support of his suggestion that it appears from the circumstances as a whole that the contract of employment is more closely connected with the United Kingdom/Great Britain/England than with Russia. In my judgment the telling and clear manner in which the Article 6.2 (a) and (b) criteria are here met must militate against this submission. Mr Shamurin habitually carried out his work for BMTL in Russia, whether in BMTL’s Representative Office or elsewhere such as at the offices of Dark Horse or MICOM or at the Moscow Non-Ferrous Metals Exchange. If it is relevant, I find that there was never any intention that he should do otherwise. It was always intended that BMTL should be controlled from Russia, and it was never intended that there should be an office in London or anywhere else outside Russia from which business could be or would be carried out. It follows that the place of business through which Mr Shamurin was engaged, insofar as it is sensible to talk of his having been engaged, was likewise in Russia. That is where all relevant discussions took place and from where the business was conducted and controlled. BMTL had no place of business outside Russia. 

32.	Article 4 of the Rome Convention, not directly applicable here, has a similar proviso pursuant to which the presumptions enshrined in that Article as to the applicable law in the absence of choice shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with a country other than that indicated by the presumptions. The authorities in which this proviso has been considered show that in order for it to be satisfied circumstances are required which clearly demonstrate the existence of connecting factors justifying the disregarding of the presumption – see Definitely Maybe (Touring) Ltd v. Marek Lieberberg Konzertagentur GmbH [2001] 1 WLR 1745; Samcrete Eqypt Engineers & Contractors SAE v. Land Rover Exports Ltd [2002] EWCA Civ 2019; Ennstone Building Products Ltd v. Stranger Ltd [2002] 1 WLR 3059 (CA); Iran Continental Oil Shelf Co v. IRI [2002] EWCA Civ 1024, all of which cite Credit Lyonnais v. New Hampshire Insurance Co [1997] 2 Lloyds Rep 1, CA, in particular Hobhouse LJ, and Societe Nouvelle des Papeteries de l’Aa SA v. BV Machinenfabriek BOA 1992 Nederlandse Jurisprudentie No 750. The Court of Appeal in Iran Continental regarded the issue as having been resolved by the judgment of Potter LJ in the Samcrete case: see paragraph 80.

33.	One factor is here relied upon by Mr Hollander additional to those which I have already found insufficient in the context of Article 3. Here he refers me to the fact that, according to Professors Giuliano and Lagarde at p.25 of their Report, one purpose of Article 6 is to secure protection to a party, scilicet the employee, who from the socio-economic point of view is regarded as the weaker in the contractual relationship. The professors continue: -

“ On this basis, Article 6(1) sets a limit on the parties’ freedom to choose the applicable law, as permitted by Article 3 of the convention, affirming that this choice in contracts of employment ‘shall not have the result of depriving the employee of the protection afforded to him by the mandatory rules of the law which would be applicable under paragraph 2 in the absence of choice’

The purpose of this text is as follows:

If the law applicable pursuant to paragraph 2 grants employees protection which is greater than that resulting from the law chosen by the parties, the result is not that the choice of this law becomes completely without effect. On the contrary, in this case the law which was chosen continues in principle to be applicable. In so far as the provisions of the law applicable to pursuant to paragraph 2 give employees better protection than the chosen law, for example by giving a longer period of notice, these provisions set the provisions of the chosen law aside and are applicable in their place.

The mandatory rule from which the parties may not derogate consist not only of the provisions relating to the contract of employment itself, but also provisions such as those concerning industrial safety and hygiene which are regarded in certain Member States as being provisions of public law. 
It follows from this text that if the law of the country designated by Article 6(2) makes the collective employment agreements binding for the employer, the employee will not be deprived of the protection afforded to him by these collective employment agreements by the choice of law of another State in the individual employment contract.

Article 6 applies to individual employment contracts and not to collective agreements. Consequently, the fact that an employment contract is governed by a foreign law cannot affect the powers which an employee’s trade union might derive from collective agreements in its own country.”

34.	Mr Hollander points out in his written submissions that “ the position here is a long way away from what the draftsman had in mind. The contract is in substance a joint venture or quasi-partnership between two individuals with equal rights and powers. The employee is not in a weaker position because if he disagrees with the views or wishes of his co-venturer he can use his 50% share and directorship for blocking purposes.” I have already remarked that I regard this observation of Mr Hollander as in another context highly pertinent, albeit as tending to a conclusion other than that which Mr Hollander urges upon me. However I am not sure that reference to the purpose of Article 6.1 promotes Mr Hollander’s purpose. Article 6.1 is concerned with the problem of a choice of law apparently derogating from mandatory protection. However I do not regard the fact that the present contract of employment is atypical as providing a justification for more readily disregarding the presumptions enshrined in Arts 6.2 (a) and (b). I reject Mr Hollander’s submission that if the court applied Russian law to this contract, it would in effect be frustrating the intention of the parties. The parties gave no thought to the question by which system of law their contracts of employment might be governed so that there is no intention which can be said to be frustrated. In any event the suggestion that it appears from the circumstances as a whole that the contract is more closely connected with the United Kingdom/Great Britain/England than with Russia is for the reasons I have already given unsustainable. If it were relevant, the performance characteristic of the contract was to be and was effected in Russia. In my judgment there are simply no relevant connecting factors which point to a governing law other than that of Russia. If the place of incorporation of BMTL is a relevant connecting factor it is here in my judgment of little or no weight or significance. 

35.	It follows that I conclude that the contractual claim is governed by the law of Russia. Ordinarily, where parties have chosen to regulate their relationship by contract, I would regard it as inappropriate to search for some other source of obligation which may bring about a result different from that obtained by application of the contract in the event of dispute as to the ambit of the obligation undertaken. Mr Jarvis QC for Mr Shamurin submits that I should construe Article 1.1 of the Rome Convention as rendering that search impermissible. However since the contract in question is not one which was consciously made, the considerations which inform my instinctive approach are perhaps of less weight than usual. That does not detract from the fact that the real source of any obligation owed here by Mr Shamurin to BMTL is the agreement between Yuri and Mr Shamurin which preceded the incorporation of BMTL. I will revert to the submission of Mr Jarvis which, although attractive in the context of this case, may be a step too far or at any rate an unnecessary step in its resolution. 

36.	 The claim in tort, or arising out of assumption of responsibility 

Mr Hollander identified as the first question here whether there is one tort or whether there are hundreds of torts. Very realistically he recognised as unattractive an analysis which treats differently from those instructions given in Russia those instructions given to the brokers when Mr Shamurin happened to be in England. He suggested that a passage in the judgment of the Court of Appeal in Kuwait Oil Tankers v Al Bader [2002] All ER (Comm) 271 at paragraph 131 suggests a more pragmatic approach. I would respectfully agree that it is sensible to identify the gravamen of the case, when viewed as a whole. However in my judgment that same approach militates against acceptance of Mr Hollander’s submission that the tort was in substance committed in England. The gravamen of the case is that Mr Shamurin made an impermissible decision to speculate, or that he pursued a policy of speculation. That was a decision made or a policy pursued by Mr Shamurin in Moscow from where he conducted this as all other aspects of BMTL’s business. True of course that the policy was in each case implemented by telephoning brokers in London in order to give them the relevant instructions. However the fact that Mr Shamurin had entered into master agreements with three London brokers is not of itself a matter of complaint. Even on BMTL’s case it was to carry out futures trading by way of hedging and it is accepted to be perfectly standard procedure to deal with more than one broker. BMTL acted with those brokers on a principal to principal basis, so that it cannot be, and is not, asserted that BMTL was in this respect acting in London through the brokers as its agents. Mr Hollander naturally submits that this is a case in which loss was suffered or damage caused in London, because margin calls were paid from the company bank account at Moscow Narodny in London and were appropriated in satisfaction of the losses. However this latter consideration seems to me to concentrate on the machinery of payment rather than upon the reality of where the loss was felt. The reality is, on BMTL’s case, that the loss was felt by BMTL in Russia manifested by its lack of liquidity which for example prevented it from committing to a tolling contract which, once performance was embarked upon, would involve a regular commitment in terms of cash flow which could not, in the light of the large margin payments made to the London brokers, be afforded. 

37.	The test to be applied is where in substance was the tort committed – see per Slade LJ giving the judgment of the Court of Appeal in Metall und Rohstoff v. Donaldson Lufkin and Jenrette Inc [1990] 1QB 391 at 440 and following. The inquiry is often relevant in the context of jurisdiction. One can see at work in such cases, whether consciously or unconsciously, some notion of looking to see whether conduct abroad is directed against persons in the forum jurisdiction, in the sense of being intended to be acted upon in that forum and likely to cause damage there to those who in consequence place reliance on it. In Distillers Co. v. Thompson [1971] AC 458 an English company, Distillers, manufactured in England a sedative and sleep-inducing drug the principal ingredient of which was thalidomide obtained in bulk from German manufacturers. Distillers sold the drug in England to an Australian company in the form and in the packaging in which it was to reach the ultimate consumer. No warning was given either to the Australian company or in the printed matter accompanying the packaged unit intended for re-sale of the harmful effect on a foetus if the drug were taken by a pregnant woman. The drug was taken by a pregnant woman in Australia in consequence of which her child, the plaintiff, was born with defective eyesight and without arms. The tort alleged by the plaintiff against Distillers was a failure to warn of the dangers involved in taking the drug whilst pregnant. That warning might have been given by putting a warning notice on each package as it was made up in England, or it could have been given by communication to persons in New South Wales – medical practitioners, wholesale and retail chemists, patients and purchasers. It was held that the omission to communicate a warning occurred when the plaintiff’s mother purchased the drug in New South Wales – that was in substance when the alleged wrongdoing occurred. In Diamond v. Bank of London and Montreal [1979] QB 333 misrepresentations were made by telex and telephone from outside the jurisdiction which were directed to persons in London where they were received and acted upon. Lord Denning MR said that in such a case the tort is committed where the message is received. In Castree v. Squibb [1980] 1 WLR 1248 a defective machine manufactured in Germany but purchased in England from the manufacturers’ agent caused personal injuries to the plaintiff in England. The substantive wrongdoing was treated as putting on the English market a defective machine with no warning as to its defects. This was held to be a fault committed by the manufacturers within this jurisdiction. In Cordoba Shipping v. National State Bank of New Jersey [1984] 2 LLR 91 negligent misstatements contained in a telex sent from New Jersey to London were acted upon in this jurisdiction. For the purposes of founding jurisdiction under R.S.C.Order 11 the Court of Appeal held that the tort was committed within the jurisdiction. 

38.	All of these cases seem to me essentially different from the present. Here Mr Shamurin was for all practical purposes BMTL, since he was one of two directors and a 50% shareholder. The place of business of BMTL was on anyone’s case located in Russia. Mr Shamurin and BMTL are not directly or immediately comparable to parties at arm’s length. BMTL did not in England act or rely upon things done by Mr Shamurin – BMTL was committed by Mr Shamurin picking up the telephone in Moscow and speaking to London but as I have already observed the outcome would have been precisely the same had he spoken to New York. Although BMTL kept its bank account in London, it would feel the consequences of Mr Shamurin’s activities in its place of business, because it would affect its ability to carry on business. Had Mr Shamurin’s transactions proved profitable this would have been reflected in either greater distributions to the principals in Russia or in payments to trading counterparties in Russia. It would in my judgment be a triumph of form over substance to conclude that Mr Shamurin’s supposed tort was in substance committed in England. In my judgment it was in substance committed in Russia where both Mr Shamurin and BMTL’s place of business were located, the former studying his Reuters’ screen and forming his own evaluation of likely market movements. 

39.	That conclusion renders it necessary to consider double actionability. The events here pre-date the Private International Law (Miscellaneous Provisions) Act 1995. The relevant principle was stated in the 12th, 1993, edition of Dicey & Morris, Conflict of Laws, in the light of the decision in Boys v. Chaplin [1971] AC 356 in this way: -

 “Rule 203 – (1) As a general rule, an act done in a foreign country is a tort and actionable as such in England, only if it is both (a) actionable as a tort according to English law, or in other words is an act which, if done in England, would be a tort; and (b) actionable according to the law of the foreign country where it was done.  (2) But a particular issue between the parties may be governed by the law of the country which, with respect to that issue, has the most significant relationship with the occurrence and the parties.”

40.	In Red Sea Insurance v. Bouygues [1995] 1 AC 190 the Judicial Committee of the Privy Council gave authoritative approval to the Dicey & Morris formulation, derived as it was from the speech of Lord Wilberforce in Boys v. Chaplin. However they went further. Whereas Boys v. Chaplin was concerned only with the suggested exclusion of the lex loci delicti in favour of the lex fori in relation to one isolated issue, the Judicial Committee in Red Sea held that the exception may apply to the whole claim, for example where all or virtually all of the significant factors are in favour of the lex loci delicti. It will also be appreciated from the nature of the example given that their Lordships also concluded, irrelevantly for present purposes, that just as in Boys v. Chaplin the lex loci delicti might be excluded in favour of the lex fori, so too the lex fori might be excluded in favour of the lex loci delicti. The Judicial Committee accepted, as had Lord Wilberforce before them, that “the general rule must apply unless clear and satisfying grounds are shown why it should be departed from and what solution, derived from what other rule, should be preferred” – see at p.206 D. 

41.	It will be apparent from my reasons thus far that I can see no grounds whatever for departing from the general rule in the present case, since I consider that neither England nor, if it be relevant, Guernsey, has a significant relationship with either the occurrence or the parties. Mr Hollander rightly reminded me that the purpose of applying the exception is to achieve fairness and justice – Lord Wilberforce himself in Boys v. Chaplin spoke of the inability of a purely mechanical rule properly to do justice to the great variety of cases where persons come together in a foreign jurisdiction for different purposes with different pre-existing relationships from the background of different legal systems. Mr Hollander submitted: -

“The reason that Shamurin is liable in tort is because he has assumed a responsibility to a Guernsey company which he and Yuri set up to take advantage of the tax status and the advantages of what (it is submitted) they assumed was a UK jurisdiction. Where the parties seek to regulate their affairs and duties by setting up a Guernsey company, to take advantage of the tax and regulatory position, and appoint themselves directors of such a company, they can hardly complain if the courts seeks to regulate the relevant relationships in accordance with Guernsey law (where the internal management of the company takes place) or English law (given that it is submitted that they did not draw a distinction between UK and Guernsey law). But they could legitimately complain, it is submitted, if the court were to apply Russian law in such circumstances. 

Moreover, the court will apply the principles for the purpose of achieving fairness and justice; as a matter of public policy and comity the English court will often not permit a person “who does abroad something which is directed against persons in this country or is foreseeably likely to injure persons in this country to claim exception from liability in tort under English law by reference to the laws of the country where some or all of his acts were performed” – per Slade LJ in Metall und Rohstoff at p.446 G. Such an approach can be seen also from Pearce v. Ove Arup [1999] 1 All ER 769 at 803f where the Court of Appeal plainly thought it would be unfair to deprive the Claimant of a right of action in this jurisdiction because it was based on Dutch copyright law of local effect and thus not giving rise to a cause of action in England. Double actionability is intended as a rule of fairness – and it is submitted that it is not to be applied in a way that would be unfair in giving the Defendant what would amount to an unfair benefit.”

At one stage Mr Hollander summarised his submission by enquiring rhetorically whether it is an appropriate use of the principle of double actionability to allow Mr Shamurin to escape liability by reliance on Russian law. It will be apparent from what I have already said that I regard this submission as wide of the mark. It confuses the potential relationship between BMTL and third parties with the relationship between BMTL and its creators, and essentially the relationship between those creators. Russia is the country in which all of the principal actors, including BMTL, operated and Russian law was the framework against which the legal relationships, rights and obligations were measured. That law and framework did not change in the course of the parties’ relationship in such a manner as to make its application unfair. It is suggested that the application of Russian law gives to Mr Shamurin an unfair benefit. It might surely be equally as plausibly suggested that the application of English or Guernsey law would give to BMTL an unfair benefit, in imposing upon Mr Shamurin a duty unknown to the only system of law with which Yuri and Mr Shamurin can be presumed to have been conversant. For the reasons which I have already given the case is very different from one where a person does abroad something which is directed against persons in this country or which is foreseeably likely to injure persons in this country and then seeks to claim exemption from liability in tort under English law by reference to the laws of the country where some or all of his acts were performed. I can see no conceivable unfairness in the application of Russian law but it suffices to say that it is not shown that the legal system of any other country has, with respect to the question whether Mr Shamurin assumed responsibility towards BMTL, either the more or the most significant relationship.   

42.	Equitable obligations or obligations deriving from Mr Shamurin’s acceptance of appointment as a director of BMTL.

It is not without significance that the treatment of this subject to which Mr Hollander drew my attention in Dicey & Morris, 13th edition, is to be found in the chapter entitled “Restitution.” It is not suggested that Mr Shamurin derived any personal gain from the allegedly unauthorised transactions. There is here no question of unjust enrichment. I do however regard as persuasive the learned editors’ observation: -

“ Given the similarity between equitable wrongs on the one hand, and torts and breaches of contract on the other, it may be appropriate to regard claims which would in domestic law be equitable wrongs as being governed by the proper law of the obligation without attaching decisive significance to the place where the enrichment took place. If the nature of the claim is that a wrong has been done which is analogous to a tort, it would be appropriate for the place of the enrichment to be one factor, but not necessarily a dominant factor, in the identification of the proper law of the obligation to make restitution.  This would mean that greater emphasis might be placed on the law under which the relationship between the relevant parties was created, or which governed the relationship between them, than on the fact that the enrichment occurred in a particular place.”

Mr Hollander characterised the issue as to the ambit of Mr Shamurin’s obligation as being an aspect of the internal management of the company. In my judgment that is inappropriate. One pointer, and I accept that it is no more than that, as to the proper extent of what should be regarded as the internal management of the company is provided by Art 1.2 (e) of the Rome Convention which I have set out above. Thus there is excluded from the application of the Convention “….questions relating to the law of companies…such as the creation, by registration or otherwise, legal capacity, internal organisation or winding up of companies…and the personal liability of officers and members as such for the obligations of the company…” Some light on this catalogue is thrown by Professors Giuliano and Lagarde at p.12 of their report: -

 “… the Group had thought it inadvisable, even in the original preliminary draft, to include companies, firms and legal persons within the scope of the Convention…

Confirming this exclusion, the Group stated it affects all the complex acts (contractual, administrative, registration) which are necessary to the creation of a company or firm and to the regulation of its internal organisation and winding-up i.e. acts which fall within the scope of company law. 

On the other hand, acts or preliminary contracts whose sole purpose is to create obligations between interested parties (promoters) with a view to forming a company or firm are not covered by the exclusion.”

BMTL’s case arises out of discussions and agreements concluded between Yuri and Mr Shamurin in relation to the proposed activities of BMTL, all or at least some of which took place prior to the incorporation of BMTL. It is difficult to see that Mr Shamurin’s acceptance of appointment as a director of BMTL adds anything of significance to the analysis and in particular difficult to see that that which has as its roots agreement between the promoters of a company can properly be regarded as a matter of the internal management of the company. 

43.	Mr Hollander drew to my attention a line of authority in Australia which suggests that it may in this field, ascertainment of the law governing equitable obligations, be appropriate to use the lex fori as a starting point and to apply it subject to exceptions, because the court of equity is a court of conscience and acts in personam over persons subject to and within its jurisdiction – National Commercial Bank v. Wimborne a case in the New South Wales Supreme Court described by Laurette Barnard in an article at 1992 CLJ 474 and Paramasivam v. Flynn a decision of the Federal Court of Australia, reported at 160 ALR 203. The latter case was concerned with alleged breaches of fiduciary duty. As Millet LJ pointed out in Bristol & West Building Society v. Mothew 1998 ChD 1 at p.17, drawing on an observation of Ipp J in Permanent Building Society v. Wheeler 1994 14 ACSR 109 at 157, a director’s duty to exercise care and skill is not a duty that stems from the requirements of trust and confidence imposed on a fiduciary. A commentator on the Paramasivam case notes that  “ the court expressly left out of consideration fiduciary duties arising from agreement, and of directors and officers of foreign corporations, with the suggestion in the former that the appropriate analogy may be the proper law of the express trust (the law intended by the settlor, or in its absence, the law with the closest connection with the trust). Secondly, in other cases, the rule was the “general application of the lex fori” but 

“….subject, perhaps, to this; that where the circumstances giving rise to the asserted duty or the impugned conduct (or some of it) occurred outside the jurisdiction, the attitude of the law of the place where the circumstances arose or the conduct was undertaken is likely to be an important aspect of the factual circumstances in which the court determines whether a fiduciary relationship existed and, if so, the scope and content of the duties to which it gave rise” (at p.217).	

See T.M. Yeo, 115 LQR 571 at 572. This learned author remarks also that “it may be inappropriate to impose the forum’s standards of conscience in cases involving foreign elements (Concha v. Concha 1892 AC 670 at 675).” The article by Laurette Barnard to which I referred above focuses principally on fiduciary obligations and express trusts, expressing the tentative conclusion that the proper law should be the system of law which has the closest and most real connection with the particular claim. 

44.	  In the present case I can see no justification for applying the law of the forum. 
There would be even less justification in a case, which this is not, where there is a substantial difference between the law of the forum and the law of the place of incorporation, but that consideration does not lead me to the conclusion that, on the facts of this case, the relationship between company and director should be regarded as governed by the law of the place of incorporation. I am not bound by any authority to reach that conclusion and it seems to me mechanistic. It would also, in circumstances similar to these, be capable of producing potentially bizarre and unexpected results if, as is not in fact the case, there was a substantial difference between Guernsey law and the law of England which was almost certainly thought by the relevant parties to be applicable in Guernsey. I am inclined to follow the lead of the learned editors of Dicey & Morris in regarding claims which would in domestic law be regarded as arising out of equitable wrongs as being governed by the proper law of the obligation. When the obligation is in reality derived not from the somewhat artificially constructed acceptance of responsibility to act as a director but from prior agreement between the two persons owning and controlling the company, by one of whom the obligation is said to be owed to the company, I would take a great deal of persuasion that the duty owed by the director to the company is governed by a law other than that which governs the agreement by which it is generated. In that regard I respectfully agree with Tipping J when he said, in giving the leading judgment of the New Zealand Court of Appeal in Attorney General of England and Wales v. R 2002 NZLR 91 at 103:-

“ It is difficult to see the logic or overall desirability of making a distinction between legal issues and equitable issues (except possibly in terms of remedy) when deciding which legal system should govern the contract in question. The making of such a distinction can lead to quite unnecessary difficulties and potential inconsistencies. It would also tend to depart from the general direction in which most legal systems comparable to ours have been moving in recent times. 

Law and equity should be viewed as a consistent whole. The individual influences of the earlier discrete streams now work together to produce the appropriate outcome. While many doctrines are still recognisable as legal or equitable and an understanding of their historical origins often remains helpful, the focus now should be on their combined influence rather on their originally separate functions. It would be anomalous to apply one system of law to an issue which would have arisen at law, and another to an issue which would have been for the Courts of Equity to deal with. I make these remarks simply to note the point and to endorse the acceptance of the parties that all issues fall to be determined according to English law.”

45.	In view of my conclusions thus far it is unnecessary for me to decide whether, as Mr Jarvis submitted, the expression “contractual obligations” when used in Article 1.1 of the Rome Convention should be given an autonomous meaning such that the substantive claim by BMTL against Mr Shamurin must be resolved within the framework of the Rome Convention without the possibility of BMTL electing the application of different choice of law rules to govern its cause of action as variously and differently formulated. In that regard he referred me to a most interesting article by Mr Adrian Briggs at 2002 LMCLQ 12. Mr Briggs’ conclusion is that an unconstrained freedom to choose the choice of law  rule on which the claimant chooses to rely is unjustified in principle, barely required by any common law authority, including Henderson v. Merrett 1995 2 AC 145, and incompatible with the Rome Convention now incorporated into the English conflict of laws. Whether that conclusion is open to a court short of the House of Lords is a matter which can await decision on another day. 

46.	For all these reasons I conclude that the claim brought by BMTL against Mr Shamurin is governed by the law of Russia. Pursuant to that law, as is common ground, BMTL has no cause of action. The action must therefore fail. Even if the matter were governed by English law I have the gravest doubts whether the claim can succeed, even on the assumption that Mr Shamurin fails to make good his defence that everything he did was done pursuant to agreement between himself and Yuri, whether because it was hedging or because it was speculation not just agreed in advance, in general terms, and then again on ad hoc terms on a prospective basis at regular meetings, but also retrospectively, by way of approval or adoption at those same regular meetings. I do not consider that BMTL has established the existence of an obligation in Mr Shamurin owed to BMTL not on its behalf to indulge in speculative futures trading, or futures trading not by way of hedging. In that regard it is not suggested that any particular transaction or transactions should be regarded as having been concluded in a manner demonstrative of a failure to exercise the required skill and care – Mr Shamurin is said to be liable on account of his having entered into futures transactions which did not have as their purpose hedging, not because any individual transaction can be shown to have been by some relevant standard imprudent. In these circumstances I propose simply to outline as briefly as possible such conclusions as I have been able to reach on the factual matters in issue relevant to that aspect of Mr Shamurin’s defence, which part of the enquiry does not in my judgment in fact arise.

47.	As I have already set out at paragraph 17 above it was Mr Shamurin’s case not just that speculation was part of the agreed business of the company but also that each speculative transaction was the subject of specific prospective and retrospective discussion at regular meetings between himself, Yuri and Mikhail. Mr Shamurin has not persuaded me to accept this case. It seems to me inherently improbable. As to the discussions before or at the time that the company was incorporated here were three business men with some considerable knowledge and experience of Russian conditions possessed of a bright idea to exploit the opportunities that were opening up to them in their area of experience and expertise. Although Mr Shamurin evidently had a deep interest in futures trading, none of them had any experience of speculative trading in markets which they were sufficiently intelligent and well-informed to have realised were likely to be volatile. Mr Shamurin has been critical of the personal qualities and integrity of Yuri and Mikhail. I saw them both give evidence, Yuri for some considerable time, Mikhail for one long day in Paris where he gave evidence, through an interpreter, before an Examiner. With the agreement of the relevant authorities in France I was present whilst he gave his evidence although the Examiner presided over the proceedings. Mikhail was unwilling to come to London to give evidence because had he done so he would have run the risk of enforcement of an international warrant for his arrest in connection with the matter to which I have already referred, the alleged conspiracy to murder. The French Court of Appeal has declined to order Mikhail’s extradition to Russia, and Mikhail has applied for political asylum in France. It was not in fact clear that Mikhail had relevant travel documents on the strength of which he would have been permitted to travel to the UK. In the circumstances, I draw no inference adverse to Mikhail from his reluctance to travel to England to give evidence. The arrangements made for the giving of his evidence represented an excellent compromise and I am grateful to the relevant authorities in France for affording me the opportunity to observe at first hand. Demeanour in the witness box or its equivalent is rarely of itself a sure guide to integrity, but it may be a more reliable guide to temperament in a broader sense. Neither Yuri nor Mikhail struck me as persons who would from the outset confuse, and potentially subvert, a business plan in which they could have some confidence and over which, as a result of their experience, they had informed control by resort to what amounted to open-ended gambling with the company’s resources. 

48.	Thus the notion of agreement in advance to speculation seems to me not just inherently improbable but also out of character for Yuri and Mikhail. It also seems to me inherently unlikely that, if such an agreement had been made or even discussed, there would be no agreement or discussion as to the permissible limits of exposure, or as to some parameters or controls within which the trading would be conducted. Yet none are alleged by Mr Shamurin to have been discussed or agreed. Mr Shamurin’s answer to this point would be that limits or parameters were unnecessary since each transaction was the subject of discussion and agreement at the regular meetings. However this seems to me a still more improbable suggestion. Whilst there were isolated and modest successes, Mr Shamurin’s speculative trading quickly ratcheted up massive losses. At its peak there was an open position on the LME trading of US$31 million, and for several months the open position was in excess of US$20 million. It is to my mind singularly unlikely that Yuri and Mikhail would for long have tolerated or condoned such consistently unsuccessful speculative activity, and at such a level, had they known about it. Whilst I can understand that Mr Shamurin may simply have become obsessed, metaphorically unable to drag himself away from the gaming tables, I do not think it likely that Yuri and Mikhail became similarly afflicted. 

49.	There is a yet further reason for rejecting this version of events. BMTL’s case is that Yuri (and so therefore Mikhail) knew nothing about Mr Shamurin’s speculative activity on the LME, other than the odd isolated day trade to further his education, until the period in August/September 1994 by which time it was no longer possible for Mr Shamurin to conceal the massive losses being suffered and consequent margin calls. Mr Shamurin himself says that at about this time the size of the losses caused Mikhail to accuse him of theft from the company. On any showing the size of the losses apparent by the autumn of 1994 caused great acrimony, with Yuri visiting the brokers in London to discover how the losses could have come about consistently with honest dealing by Mr Shamurin. I am entirely satisfied that the size of the losses was the immediate catalyst for the acrimonious falling-out and for the Zhivilos’ suspicion, wholly unfounded as it turned out, that their partner had dishonestly misappropriated the company’s resources to his own use. This is wholly inconsistent with the brothers having been previously aware of the scale of the trading and of the exposure, let alone of the cumulative losses which had of course been building up for some time. There is a distinction between being aware that there was speculative trading and being aware of its extent, and a still further distinction between such latter awareness and awareness of the suffering of losses. However here on the version of events suggested, at any rate initially, by Mr Shamurin the three go hand in hand and there is simply no room for the explanation that what angered the Zhivilos was not so much the discovery that there had been speculative trading, about which they already knew, but rather the extent of the losses which it had generated. 

50.	Perhaps in recognition of the implausibility of his case, in the course of his oral evidence Mr Shamurin fashioned a new theory in a most opportunistic manner. Accepting that he had had no prior authority from Yuri and Mikhail to speculate in gold he recounted how, when trapped by civil unrest in an office from which he could see tanks threatening prominent public buildings in Moscow, he had with the aid of his Reuters terminal indulged in some fairly modest, and successful, speculation in gold, the traditional safe haven in time of upheaval. Warming to his task, he explained how Yuri and Mikhail had afterwards approved his actions, pointing out that he was better placed than them to assess the market, and that they trusted him to exercise his discretion. One or other of them had even chastised him for not speculating more heavily which would, of course, in that instance, have resulted in greater profits. Mr Shamurin suggested that this incident was merely illustrative of a general discretion vested in him by Yuri and Mikhail to undertake speculative transactions as he saw fit. 

51.	Since this evidence was not foreshadowed in any of Mr Shamurin’s Witness Statements, I do not have the comments of Yuri and Mikhail upon it. It seems to me not beyond the bounds of possibility that some such incident may have occurred as a result of which there may have been a jocular remark to the effect that Mr Shamurin should have invested more heavily. It is always easy to back a winner after the finishing post has been passed. However it seems to me singularly unlikely that either Yuri or Mikhail said anything which either was or could reasonably have been understood as amounting to confirmation that Mr Shamurin enjoyed with their blessing an unfettered discretion to engage in speculative trading on the company’s behalf. In any event the suggestion that Mr Shamurin enjoyed a complete discretion is completely at odds with his case that each transaction was the subject both of agreement in advance and ratification after the event. I am afraid that I am unable to accept either account. 

52.	It will be apparent that I reject Mr Shamurin’s case as inherently incredible. But I should also record that I formed the clear view that I could place no reliance upon his evidence where it related to matters in controversy. There was one particular area where he gave evidence which was demonstrably false. Like so much of the evidence in this case it related to something of no great ultimate importance, but Mr Shamurin’s approach left me in no doubt that he did not recognise a necessity to confine his evidence to that which he knew to be correct. There were occasions when I wondered whether Mr Shamurin had simply convinced himself of the correctness of what he was saying, but I am afraid that on this occasion that explanation will not pass muster. The issue was whether Mr Shamurin knew that many contractual documents issued by BMTL were signed or at any rate purportedly signed by a Mr Shelly. It was never clear to me whether “Mr Shelly” is alleged actually to have existed as a person, since BMTL said that Mr Shamurin had been responsible for his apparent involvement and they knew nothing about him other than that perhaps he did exist and perhaps had worked for Office Box whereas Mr Shamurin said that he knew nothing whatever of the circumstances in which the signature of “Mr Shelly” had come to be placed on contractual documents. This was one of very many mysteries in this case. However it was blindingly obvious from the manner in which documents had been collated, marked, numbered and sent by Mr Shamurin to the accountants in Guernsey in connection with the preparation of the 1993 accounts that Mr Shamurin knew all about the signature of documents in this manner since he sent to the accountants several such documents signed by Mr Shelly and had moreover on many occasions signed addenda to contracts where the original contract had been signed by Mr Shelly. Indeed on one occasion on 18 March 1994 Mr Shamurin signed a six page contract with MICOM which began “Messrs Base Metal Trading Ltd., England, hereinafter referred to as “creditors,” represented by Director K.Y. Shelly on the one hand….” I have no idea why Mr Shamurin affected not to know about the involvement of Mr Shelly, and by the end of Mr Shamurin’s evidence I had come to the clear conclusion that it was not always profitable to search for a rational explanation of the position which he adopted. However on this point having taken up the position which he did it was demonstrated by irrefutable evidence shown to him in the witness box that his account could not be correct. Mr Shamurin simply refused to acknowledge what was staring him in the face. Mr Shamurin even suggested that Yuri or Mikhail had, when the documents were sent to the accountants, substituted for pages originally signed by Mr Shamurin pages signed by Mr Shelly. This suggestion was absurd since it was obvious from a comparison of the documents sent to the accountants with the manuscript notes prepared by Mr Shamurin for the accountants that it was Mr Shamurin who had put the relevant numbering on the documents, including in some cases on cover pages bearing Mr Shelly’s signature. When I asked Mr Shamurin why would Yuri or Mikhail carry out a substitution of this sort Mr Shamurin replied that it was perhaps in order to blur, by which he meant to obscure or to conceal, the participation of BMTL in the privatisation of Novokuznetsk. Ultimately he accepted that it was not clear how this would have assisted in that aim. I would add that the documents were sent to the accountants on 27 September 1994, and I am not sure whether BMTL’s acquisition of control of Novokuznetsk was by then begun or at any rate advanced, let alone whether there had by then been any developments in the light of which Yuri and Mikhail would have wished to attempt to conceal the involvement of BMTL in that enterprise. At paragraph 115 of his Defence Mr Shamurin says that it was “in or about early 1995” that this acquisition took place.  The proffering of this bizarre explanation when Mr Shamurin had in fact simply been caught out in an inexplicable lie confirmed my belief that Mr Shamurin is somewhat obsessive so far as concerns the question of Novokuznetsk and his belief that he has been unjustly deprived by the Zhivilos of the fruits of the acquisition of a controlling interest therein by BMTL. I am afraid that this incident served also to confirm that I could place no reliance upon Mr Shamurin’s evidence when it was controversial and unbuttressed by independent contemporary documentary support. 

53.	Another example of demonstrably false evidence was Mr Shamurin’s suggestion that Yuri and Mikhail consented to BMTL fronting for Mr Boris Myzin because BMTL at all relevant times had security for the performance of Mr Myzin’s obligations. By “fronting” I refer to the fact that BMTL, on the instruction of Mr Shamurin, entered into a number of transactions in its own name which however Mr Shamurin asserts were in fact entered into for and on behalf of Mr Myzin and/or companies controlled by him. There is documentary evidence which supports Mr Shamurin’s assertion that he was indeed acting in this way, although no documentary evidence of the financial reconciliation between BMTL and Mr Myzin which Mr Shamurin asserts was effected “in or about the fourth quarter of 1994.” As to the suggestion that Yuri and Mikhail were content with this arrangement because of the existence of security for the performance of Mr Myzin’s obligations, at the time when Mr Shamurin began, ostensibly, to use BMTL as a front for Mr Myzin there was no trading relationship between BMTL and Mr Myzin which could generate such security. After this was pointed out to him Mr Shamurin modified his approach to one that agreement had been given in anticipation of the development of such a trading relationship. This was far-fetched. There was no plausible reason why Yuri and Mikhail should wish to assume undocumented responsibility for the unsecured obligations of another prominent Russian businessman arising out of his, not their, speculative activity on the LME. In fact the pattern of the “Myzin” trading broadly follows the pattern (although not the volume) of Mr Shamurin’s simultaneous activity on behalf of BMTL, notwithstanding that some of the latter is said to have been by way of hedging rather than speculation. Although a small point, this broad correspondence rather tells against Mr Shamurin’s case on hedging. Significantly, Mr Myzin although available gave no evidence, documentary or oral, to support Mr Shamurin’s case, although he had apparently funded him in the Leadenhall proceedings to the extent of £40,000. 

54.	It does not follow from all this that I regard Mr Shamurin’s evidence as necessarily incorrect on every controversial issue in the case, or that in relation to every such issue I would necessarily prefer the evidence of Yuri and/or Mikhail. I have already indicated for example that I regard Yuri and Mikhail as having, for whatever reason, somewhat downplayed the extent and significance of Mikhail’s involvement in the affairs of BMTL. However on the few narrow factual issues which I have identified above and which would have been relevant had I not concluded that BMTL’s case is in any event unsustainable, I find Mr Shamurin’s evidence simply inherently incredible, a conclusion which is fortified by but not based upon the view I have formed as to his reliability as a witness. 

55.	 This brings me to the question whether Mr Shamurin has demonstrated that some or all of the activity characterised by BMTL as speculation was in fact hedging. Principally the issue arises in relation to aluminium, although there are also transactions in tin and aluminium alloy in relation to which Mr Shamurin maintained that he had been hedging BMTL’s exposure. Mr Shamurin accepts that all of his trading in gold, foreign exchange, nickel, zinc, lead and copper was speculative. The trading in copper was extensive. The loss sustained by BMTL, net of speculative profit, was US$904,619.77. 

56.	Having accepted that he was speculating to this extent, and having tried but conspicuously failed to show that in speculating he was following an agreed policy or exercising an agreed discretion, Mr Shamurin faces an uphill task in convincing the court of his fall-back position that a large part of his apparently speculative trading should, after all, be regarded as hedging. Mr Shamurin complained, with some justification, that the exercise of analysing these trades was rendered unnecessarily difficult by Yuri’s reluctance to attempt to procure disclosure of the purchase contracts made by the so-called friendly companies. I have no real doubt that Yuri could have caused these documents to be made available but he chose not to make any attempt so to do. However notwithstanding this omission it seems to me that Mr Crabbe’s analysis by reference to the ultimate sales contracts is unanswerable. As Mr Crabbe explained, and as is obvious, if the purpose of the exercise is to hedge risk between purchase and ultimate fixing of the sale price and if the hedging is being carried out in any recognised or orthodox manner, then a hedge must be unwound or taken off when the sale price is fixed. I found wholly unconvincing the belated attack upon this approach praying in aid the suggestion that the hedging may have been imperfect so that the hedge was in fact on occasion, and it would have to be on many occasions, left in position after it had ceased to be necessary. Whilst it was common ground that hedges are sometimes left in position in this manner, it was certainly not the evidence of the experts that this is the rule rather than the exception. Such an approach has in fact ceased to be hedging, since the unneeded hedge becomes a speculation after the price has been fixed on the matching transaction, and it is not consistent with what Mr Shamurin initially maintained (Defence, Paragraph 66) was the method and timescale of his hedging operations. It is true that in that description he did not include the method and timescale of unhedging. However I cannot readily accept as reconcilable with such an allegedly disciplined approach to hedging, that it would be carried out “within 2 or 3 hours of him being informed by Yuri that he had closed a deal,” so undisciplined or arbitrary an approach to unhedging. 

57.	In truth Mr Shamurin’s case on hedging was incoherent and incomprehensible. First he relied upon his two schedules, Physics 1993 and 1994  which did not however withstand scrutiny. He could not explain how it was that in any single case the trades which he had identified in those schedules as constituting hedges could possibly be hedges of the contract to which he said they related. I have stated this conclusion shortly. However Mr Hollander’s cross examination of Mr Shamurin on this point demonstrated that these two schedules were the product of an exercise which had no rational basis – indeed no basis at all so far as I could discern. 

58.	Next Mr Shamurin suggested that the very substantial additional short position taken in aluminium on 21 January 1994, and maintained with one curious short interval (17-28 June) until the overall closing of positions in the autumn of 1994, was attributable to the need to hedge the exposure on a large tolling contract entered into with the Novokuznetsk Aluminium Plant on 7 February 1994, together with the associated coal contract with Kiselevski and the alumina contract with Pavlodar. Under the tolling contract BMTL agreed to supply alumina to Novokuznetsk in return for which, together with a tolling fee, Novokuznetsk would convert the alumina into aluminium which would be supplied in the ratio one tonne for every two tonnes of alumina supplied. Coal purchased from Kiselevski was to be supplied to the Pavlodar Aluminium Plant in return for which alumina would be supplied initially in the ratio one tonne of alumina for 15 tonnes of coal, although later on 10 June 1994 amended to 13:1 to reflect a rise in the price of coal and in transport costs. There can be no doubt that this large short position taken on 21 January 1994 (a net additional short position of 7000 tonnes on top of an existing short position of 3350 tonnes which had been built up, with some fluctuation, since 16 December 1993) must have been the largest which Mr Shamurin had by then ever taken. Furthermore these three related contracts represented one of the largest if not the largest transactions yet undertaken by BMTL. If the explanation for taking the additional short position was that it was a hedge associated with the tolling contract, it is inconceivable that that circumstance could later have escaped Mr Shamurin’s mind. BMTL initially maintained a claim in damages against Mr Shamurin arising out of its alleged inability to perform this tolling contract in consequence of the company being rendered illiquid by Mr Shamurin’s speculative activities. Mr Shamurin’s defence to this claim in his first, unamended, defence, was that the contract in question had never been secured but rather lost to a competitor. Only belatedly and again wholly opportunistically did he assert that he had after all put in place a massive hedge on account of this contract, attributing his earlier oversight to his need to reconstruct without the benefit of documents. I reject this explanation – it is simply not plausible that Mr Shamurin could have forgotten the reason for the single largest position he had ever taken nor incidentally is it credible that he could have been mistaken as to the securing or non-securing of one of BMTL’s single largest contracts. He had himself signed the related coal contract with Kiselevski. 

59.	There are yet further reasons why the suggestion that the additional open short position was by way of hedge against the tolling contract is unsustainable. The tolling contract was not signed until 7 February 1994 yet the position was taken on 21 January. Mr Shamurin says that the contract was agreed on 21 January, although the ascertainment by him of that date is plainly by no process more reliable than the fact that 21 January is the date of the opening of the short position. In fact it was Mr Shamurin’s expert Mr Geddes who first speculated that the tolling contract might have been verbally agreed on or about 21 January, a suggestion which Mr Shamurin later adopted. It is possible that a hedge could be put in place in anticipation of a signed contract, but in the light of the prevailing conditions and the need for consent to perform the tolling operation to be given by the Ministry of the Economy of the Russian Federation before the contract could come into force, I regard this as very unlikely. It would in fact have been illogical to have hedged until the other elements of the deal were in place. The coal contract was not signed until 10 February, and a first payment of US$500,000 made thereunder on 11 February for the first 50,000 tonnes of coal. The Pavlodar barter contract to exchange coal for alumina was not signed until 28 February. Furthermore Mr Shamurin and his expert Mr Geddes were in agreement that the appropriate quantity of aluminium in which to trade by way of hedge would have been 6,300 metric tonnes. Yet a greater quantity than this, 6,750 tonnes, was traded before the contract was signed, subsequently increased to 7,875 metric tonnes. I also reject Mr Shamurin’s further opportunistic change of tack to the effect that the closure of the short position between 14 and 17 June and its subsequent reopening on 28/29 June is to be accounted for by it becoming apparent that the tolling contract would not be performed as originally agreed. There is no evidence of anything happening in June from which this realisation could have sprung – on the contrary in May Novokuznetsk received the necessary Ministry consent to proceed. Furthermore the reopened position bears no relation to the terms of the contract renegotiated in August nor was any attempt ever made to bring it into line.
 
60.	In fact an important feature of the tolling contract, not included in the first draft agreement, was a provision whereby in the event that the LME price of aluminium fell below US$1100 BMTL and Novokuznetsk were to reduce the tolling fee paid by BMTL. This enabled BMTL to renegotiate the contract if the price of aluminium fell to a level where the contract would become less profitable. I am inclined to believe Yuri’s evidence to the effect that this provision was included in consequence of his and Mr Shamurin’s decision that the contract should not be hedged. I am however quite clear that if there had been a joint decision to hedge this contract Mr Shamurin could never have been in any doubt as to this being the explanation for his having opened the large additional short position on 21 January 1994. I have not overlooked the point that, had this been a speculative position, Mr Shamurin could have closed out at a profit on the next trading day, 24 January, when the market was slightly lower. Mr Shamurin had undoubtedly had some success in his day and near day trading in mid-January. However it is by no means uncommon for speculators to miss the window of opportunity. Here that window closed remarkably quickly – on the 25 January the price rose above the break-even point and continued to rise relentlessly against Mr Shamurin for the rest of the year.

61.	Aluminium Alloy

Mr Geddes gave evidence to the effect that aluminium alloy or its products might at times be difficult to sell, or at any rate more difficult than pure base metal products. This seems consistent with the greatly reduced volume of aluminium alloy trading on the LME as compared with that in aluminium, and might indicate that it would be prudent to hedge the risk inherent in maintaining a stock of aluminium alloy. BMTL does not accept that it was ever agreed that aluminium alloy stock should be hedged, however in formulating its claim BMTL has assumed in Mr Shamurin’s favour that at any one time there was a stock of 180 tonnes the risk inherent in the disposal of which Mr Shamurin was justified in hedging. Mr Shamurin maintains that all or at any rate most of his trading in aluminium alloy on the LME is to be accounted for by a slow moving stock held by Rosby Metal, an affiliated company financed by BMTL. The difficulty with this approach is that the BMTL 1993 accounts signed by Mr Shamurin make no reference either to stock held as an asset (other than titanium sponge) or to advances repayable by Rosby. Moreover for most of 1994 Mr Shamurin maintained an open short position on the LME of 800 tonnes, which was, he said, less than the stock held by Rosby. If this be right and if therefore this stock was slow moving, it is not easy to understand why BMTL was actively purchasing aluminium alloy on a fairly substantial scale, up to 3600 tonnes, between October and December 1994. Mr Jarvis for Mr Shamurin placed great weight upon an enigmatic remark by a Wolff broker in the context of a backwardation in aluminium alloy:-

 “ I am sure that your position is a hedge, but if your physical metal is delayed, you may have to borrow at this backwardation.”

I do not myself regard this communication as probative of Mr Shamurin’s trading having been by way of hedging – nor would I regard it as probative of that even if Mr Shamurin had represented to Wolff that what he was doing was hedging. Incidentally had Mr Shamurin explained to the broker the precise nature of the risk which he was allegedly hedging, which I accept he might not have done, then on his case that would have been the risk of disposal of a slow moving stock in relation to which no danger of delay would have existed. It seems to me not beyond the bounds of possibility that a hitherto unsuccessful speculative trader might represent to his brokers that he was hedging when in fact he was not, and equally not beyond the bounds of possibility that brokers to whom financial obligations had hitherto been met might not choose to challenge what they perceived as possible pretence on the part of their client. Looking at the matter overall, if the burden rests on Mr Shamurin to demonstrate that his trading in aluminium alloy was by way of hedging he has failed to discharge it.

62.	Tin

Mr Shamurin accepts that all of his tin trades on the LME after February 1994 were speculative, but he contends that his trades prior to that date were partial hedges in relation to the acquisition of tin from Novosibirsk Tin Works, probably in October 1993, the reason for this assumption being that on 18 October 1993 BMTL made a first payment of US$500,000 to Rasnoimport Moscow on account of tin supplied to Novosibirsk. For the reason which I have already outlined no documents have been disclosed in relation to this purchase. An open short position began to be built up on the LME on the 20 October 1993, peaking at a position of 590 tonnes on 10 November 1993. Mr Shamurin says that this entire position was built up as a partial hedge against the purchase, but then reduced when it became apparent from the terms of the contract dated 15 November 1993 by which the tin was resold to Rasnoimport UK that a hedge was unnecessary. In this regard the base prices as between Rasnoimport Moscow and BMTL and as between BMTL and Rasnoimport UK were back to back, at any rate so far as concerns the second and third shipments, 186.1 and 422.8 tonnes respectively out of the total amount of 1000 tonnes. It is said that this having become apparent the position was reduced and maintained as a speculative position, this accounting for the fact that the admittedly speculative post February 1994 trading consists of the residue of positions taken before February 1994. In Mr Shamurin’s favour it can be said that it is likely to be more than coincidence that his limited activity in tin trading on the LME begins at about the time that, it can be assumed, the purchase from Novosibirsk must have taken place. However that purchase must have been of at least 1000 tonnes, since that it is the amount resold to Rasnoimport UK, and I cannot readily understand on what basis it can have been decided that a partial hedge was appropriate, or on what basis it was determined what proportion should be hedged.  What is equally puzzling is that the relevant trades include day trades and near day trades which are unnecessary for hedging and are the badge of speculative trading. The short position goes down and then up again between 25 October and 10 November which again is not readily explicable in terms of a partial hedge. None of the dates on which so-called hedges are lifted correlate with any of the dates relevant to the shipments under the sale contract, but perhaps on Mr Shamurin’s version of events that is not to be expected. Looking at the matter overall, I simply find it impossible to make any reliable finding. If the burden rests on BMTL to show that the relevant trading was simply speculative, it has failed to discharge it. Likewise, if the burden rests on Mr Shamurin to demonstrate that his tin trading on the LME before February 1994 was by way of hedging, he too has failed to discharge it.

63.	Conclusion

In the result, for the reasons set out earlier in this judgment and summarised at paragraph 46 above, the Claimant’s claim fails and must be dismissed.