New Media Distribution Company Sezc Ltd v Kagalovsky, Court of Appeal - Chancery Division, October 30, 2018, [2018] EWHC 2876 (Ch)

Resolution Date:October 30, 2018
Issuing Organization:Chancery Division
Actores:New Media Distribution Company Sezc Ltd v Kagalovsky
 
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Claim No: HC-2015-004673

Neutral Citation Number: [2018] EWHC 2876 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (ChD)

Royal Courts of Justice

Rolls Building

Fetter Lane

London EC4A 1NL

Date: 30 October 2018

Before:

THE HONOURABLE MR JUSTICE MARCUS SMITH

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Between:

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Ms Barbara Dohmann, QC and Mr Ajay Ratan (instructed by GSC Solicitors LLP) for the Claimant

Mr James Ramsden, QC and Ms Rebecca Drake (instructed by Bird & Bird LLP) for the Defendant

Hearing dates: 16 and 17 October 2018

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JudgmentMr Justice Marcus Smith:

A. INTRODUCTION

(1) The claim and the parties

  1. This is a claim under sections 423 to 425 of the Insolvency Act 1986 in respect of a transaction entered into at an undervalue by Iota Ventures LLP (``Iota'' Annex 1 hereto lists all terms and definitions used in this Judgment, identifying the paragraph in the Judgment where the term or definition is first used.) at the instructions of the Defendant, Mr Konstantin Kagalovsky, in relation to a television network in Ukraine (``TVi'') indirectly owned by Iota.

  2. New Media Distribution Company Sezc Ltd (``New Media'') brings this claim against Mr Kagalovsky. New Media is a company incorporated in the Cayman Islands. It is, and at all material times was, indirectly owned to approximately 85% by Mr Vladimir Gusinski. See Transcript 17 October 2018 at pp.6ff, where Mr Gusinski's interest in New Media was probed.

  3. Iota is a Delaware limited liability partnership. The partnership is governed by an Amended and Restated Partnership Agreement dated 14 April 2008 (the ``Partnership Agreement''). The parties to the Partnership Agreement are the owners in equal shares of Iota. At all material times, these partners were:

    (1) New Media Holding Company LLC, a Delaware limited liability company, as nominee for Mr Gusinski. I shall refer to New Media Holding Company LLC as ``Mr Gusinski's Nominee'', so as to avoid confusing it with the Claimant, New Media.

    (2) Iota LP, a Jersey limited partnership, as nominee for Mr Kagalovsky. Iota LP replaced a previous entity - whose details are immaterial. To the extent necessary, I shall refer to Iota LP as ``Mr Kagalovsky's Nominee'', so as to avoid confusing Iota LP with Iota.

    (2) The factual background

    (a) Iota

  4. As has been described, Iota is a partnership between Mr Gusinski's Nominee and Mr Kagalovsky's Nominee. Both parties invested substantially in the partnership, Mr Gusinski's Nominee making various funding payments to Iota pursuant to various written loan agreements entered into with Iota (the ``Loan Agreements''). For its part, New Media entered into three written licence agreements (the ``Licence Agreements'') for the provision of television content to Iota.

  5. Iota, as has been described, indirectly (that is, through intermediaries) owned TVi.

    (b) The Dilution

  6. Through various dealings with Iota's interests in these intermediaries and in the interests of the intermediaries themselves, Iota's interest in TVi was substantially transferred away from Iota to Mr Kagalovsky, who now owns (again, indirectly) over 99% of TVi. For the purposes of this Judgment, I shall refer to this transaction as the ``Dilution''. The Dilution was effected in a number of stages, and it might have been said that there were multiple transactions rather than a single transaction. However, these stages were clearly linked, and no point was taken in this regard. I shall, therefore, refer to ``transaction'' in the singular, this term to include all of the linked stages of the Dilution. Two of the companies involved in the Dilution, which were under the effective control and beneficial ownership of Mr Kagalovsky, were Aspida Ventures Limited (``Aspida'') and Seragill Holdings Limited (``Seragill'').

  7. The facts and matters regarding the Dilution are pleaded in paragraphs 6 to 8 of the Particulars of Claim and are admitted in paragraphs 8 and 12 of the Amended Defence. Paragraph 12 of the Amended Defence further admits that, at the time of the Dilution, TVi was worth at least US$50 million. Given these admissions, it is unnecessary to describe the Dilution with any greater specificity.

    (c) The New York Proceedings

  8. The Dilution resulted in litigation, which was commenced in the Commercial Division of the Supreme Court of the State of New York (the ``New York State Court''). I shall refer to these proceedings generally as the ``New York Proceedings''. It is important, however, to note that the New York Proceedings actually involved two separate and distinct complaints:

    (1) A complaint filed by Mr Gusinski's Nominee on 14 December 2009 against (i) Mr Kagalovsky, (ii) Mr Kagalovsky's Nominee, (iii) Aspida and (iv) Seragill under Index No 603742/09 E (the ``Nominee Action''). By this complaint, Mr Gusinski's Nominee alleged that Mr Kagalovsky and his Nominee had breached contractual and fiduciary duties by surreptitiously transferring ownership of TVi and its trademarks away from Iota by way of the Dilution.

    (2) A complaint filed by New Media on 17 December 2009 against (i) Iota, (ii) Mr Kagalovsky and (iii) Mr Kagalovsky's Nominee under Index No 650754/09 E (the ``New Media Action''). The New Media Action was in respect of overdue licence fees and for damages consequent upon termination of the Licence Agreements.

  9. Both proceedings were clearly related to the Dilution, but the causes of action and the damages claimed were different, which is unsurprising, given the different interests of Mr Gusinski's Nominee and New Media. The two actions were consolidated for the purposes of discovery and trial in the New York State Court, before Justice Ramos. The trial took place over 24 days between 7 December 2011 and 26 April 2012. Justice Ramos handed down his decision - the ``New York Judgment'' - on 10 August 2012.

  10. The New York Judgment decided in favour - respectively - of Mr Gusinski's Nominee and New Media. On 20 September 2012, the following judgments were entered:

    (1) In the Nominee Action, it was ordered that Mr Gusinski's Nominee should recover US$31,732,541.85 jointly and severally from Mr Kagalovsky, Mr Kagalovsky's Nominee, Aspida and Seragill (the ``Nominee Judgment'').

    (2) In the New Media Action, it was ordered that New Media should recover US$4,571,059.54 jointly and severally from Mr Kagalovsky and Iota (the ``New Media Judgment'').

  11. The New York Judgment was appealed to the Appellate Division of the New York Supreme Court (the ``New York Supreme Court''). On 29 April 2014, the New York Supreme Court:

    (1) Affirmed the Nominee Judgment in its entirety.

    (2) Affirmed the New Media Judgment subject to a modification on the law so as to vacate the award against Mr Kagalovsky personally. In the New York Proceedings, Justice Ramos had found Mr Kagalovsky liable in relation to claims for tortious interference and unjust enrichment. The New York Supreme Court held that these findings of liability against Mr Kagalovsky by Justice Ramos had been incorrectly made, and they were dismissed on substantive grounds. See pp.17 to 18 of the judgment of the New York Supreme Court. As a result, the New Media Judgment was modified to vacate the award against Mr Kagalovsky.

    (d) The Settlement Agreement

  12. On 15 August 2014, Mr Gusinski and his Nominee of the one part and Mr Kagalovsky and his Nominee of the other part entered into a settlement agreement (the ``Settlement Agreement''). Pursuant to the Settlement Agreement, Mr Gusinski paid the sum of US$36,317,675.41. It will be necessary to return to the scope of the Settlement Agreement in due course, because it is said by Mr Kagalovsky, and disputed by New Media, that the New Media Judgment was compromised by the Settlement Agreement.

    (e) These proceedings

  13. As I have stated, these proceedings are made under sections 423 to 425 of the Insolvency Act 1986. Broadly speaking, in order to make good its claim, New Media must show:

    (1) A transaction at an undervalue. New Media contends that the Dilution was a transaction entered into by Iota with Mr Kagalovsky at an undervalue within the meaning of section 423(1) of the Insolvency Act 1986. Section 423(1) provides, so far as material, as follows:

    ``This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if--

    ...

    (c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself.''

    (2) That it was a ``victim'' of this transaction. Section 424(1) identifies three classes of person who may apply under section 423. The first two classes are, for present purposes, immaterial. New Media contended it fell within the third class. Section 424(1) provides in this regard:

    ``An application for an order under section 423 shall not be made in relation to a transaction except--

    ...

    (c) in any other case, by a victim of the transaction.''

    Section 424(2) provides that ``[a]n application made under any of the paragraphs of subsection (1) is to be treated as made on behalf of every victim of the transaction''.

    (3) That the transaction was entered into for a purpose described in section 423(3). Section 423(3) defines or describes two purposes:

    (a) The purpose ``of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him'': section 423(3)(a).

    (b) The purpose ``of otherwise prejudicing the interests of persons who are victims of the transaction'': section 423(1)(b).

  14. If satisfied in these three respects, the court may (pursuant to section 423(2)) make such order as it thinks fit for:

    ``(a) restoring the position to what it would have been if the transaction had not been entered into, and

    (b) protecting the interests of...

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