It’s not a “realistic scenario” to consider Norebo Holding CEO Vitaly Orlov would seek to sell or reduce the value of his shareholding in the company -- valued at as much as $1.5 billion -- after a freezing order on his assets was lifted, said a London judge.

On Friday, Sue Carr, a judge in the High Court of England and Wales, said a freezing order on $350 million of Orlov’s assets should be removed. In her ruling, Carr said Orlov would not sell his share to defeat any judgment in the ongoing case between himself one of his co-founders, Alexander Tugushev.

She noted the removal of the freezing order does not mean Tugushev -- who is suing Orlov and the third co-founder, Magnus Roth, who sold his third in the company in 2016 and is embroiled in a separate legal dispute with Orlov in Hong Kong, as well as Andrei Petrik, a UK-based Norebo executive, in the UK High Court -- has no case.

This is despite questions around Tugushev's credibility arising from new documents. Read also Orlov: Norebo too big to sell ‘quickly or secretly’, but not worth $1.5bn

Orlov, Roth and Petrik, Tugushev alleges, conspired to deprive him of a third in Norebo, one of Russia's largest fishing companies. Tugushev claims he remained the owner of shares in Almor Atlantika (AA) -- a precursor to Norebo -- even after he went into government. The so-called “AA conspiracy” -- which you can read about in more detail here -- is one of the main themes of Tugushev’s case against Orlov, Roth and Petrik.

The freezing order on Orlov was put in place last June. Carr, however, said she did not see a risk Orlov would look to “dissipate” the assets of the company, which harvests and processes some 400,000 metric tons of fish, employs over 3,000 people, operates 46 fishing and transport vessels -- with crew sizes ranging from 14 to 130 persons -- and three land-based facilities in nearby Moscow, Murmansk and Petropavlovsk-Kamchatsky.

Norebo, she wrote:

“Is a vast, public-facing and international business. It is a business that Mr Orlov built up – he says by developing a reputation as a man who did not miss his payments. Perhaps more importantly for present purposes, his evidence that he does not wish to sell or dissipate the business has instinctive force. He has worked in the fishing industry ever since he graduated in 1991. Mr Orlov did not start out a rich man, but has created what he regards as one of the best, if not the best, fishing groups in the world. It represents his life’s work of which he is proud. He intends to continue working at it until it is too much for him. He says that he would not sell or dismantle it to avoid a judgment against him.”

Some 88% of Orlov’s wealth consists of his shareholding in Norebo, “the value of which far outweighs the value of Mr Tugushev’s claims”, she wrote. Tugushev estimates the value of the Norebo to be in the region of $1.5bn, while Orlov’s expert values his shareholding in Norebo at approximately $718m in June 2018, “and possibly significantly more”.

Carr also cited a failure by Tugushev over the status of his shares in AA, a Norebo precursor company, after he took office in the Russian government as another reason for the discharge of a freezing order on Orlov.

Orlov’s legal team claims “new documents” were discovered in May this year, reportedly signed by Tugushev, which show he had sold his shares before taking a Russian government post in 2003, prior to a conviction for fraud.

The “serious failure” on the part of Tugushev to make due enquiry in relation to his shareholding in AA upon his taking up a position with the Russian government’s fishery department in 2003 -- despite Orlov’s “express assertion that he had been obliged at that stage to divest himself of that shareholding” -- justifies discharge of the freezing order, wrote Carr in her judgment.

Despite this, it appears Tugushev “has a good arguable case on the substantive merits of the conspiracy claims”, which are “hotly contested” by Orlov.

“But evidence of specific dishonest activity on the part of a defendant does not necessarily lead to the conclusion that there is a real risk of dissipation of assets by him/her, particularly when the nature of those assets is considered,” she wrote.

Tugushev, however, does “faces credibility issues”, especially relating to the new documents discovered by Orlov in May 2019, wrote Carr.

Orlov submits that new documents demonstrate that, contrary to Tugushev’s case, the latter divested his shares in AA in 2003, as he was obliged to do upon taking up public office in September 2003. These include two declarations given to the Russian government in 2003 and 2004 that he did not own shares in any company.

These documents were uncovered in an office move of Alternativa, a Norebo company, and relate to Tugushev’s conviction for fraud following his move into a government post, according to the judgment.

“They are highly relevant to a key issue in and fundamental to the AA conspiracy claim. It is inconceivable that Mr Tugushev had forgotten these events. He was under pressure at the time and had to justify his position to the authorities. Whatever dispute there may be now between the Russian law experts, Mr Tugushev understood at the time that what was required of him upon taking public office was that he was not permitted to have any interest in commercial organisations. He was at pains to show that he was not breaking the requirements as he then understood them to be,” Carr wrote.

Tugushev “accepts that the documents are genuine and written and/or completed and/or signed by him. He states that he does not have copies of them”, she wrote.

“Nor could I remember, and could not be reasonably expected to remember, the contents of any such documents dating back to early 2003 and 2004,” Tugushev is reported to have said.

However, Carr also wrote that a “number of detailed submissions” were made on behalf of Tugushev to demonstrate that this material is not as damaging to him as Orlov suggests, or indeed damaging at all.

In both declarations to the Russian government, Tugushev only completed the real property section, crossing out, for example, the section for money in accounts in banks and other credit organizations, Carr wrote. “This supports his evidence that he believed he only had to declare real property interests.”

Tugushev has also” consistently said that he had no recollection of filing any such documentation”, as he was required to sign a great many documents on taking up government office.

Also:

“The dates of the transfers of shares in Oktyabr CJSC (in 2002) and in respect of Sevkomp CJSC and Murmanrybprom CJSC in January 2003 had nothing to do with (being well in advance) of his taking up office in September 2003 (if those dates are correct). Equally, the transfers relating to Karatt CJSC and Karat LLC are dated December 2002.

And:

The fact that the legal opinion records transfers of shares in Karat LLC by Mr Tugushev to AA provides significant support for Mr Tugushev: had Mr Tugushev disposed of his shares in AA and understood that he needed to show that he had divested himself of all shareholdings, he would have volunteered as much about AA, just as he was volunteering information about Karat LLC.

In addition, Tugushev’s statement in the letter of Feb. 5, 2004 “was, in context, limited to the specific companies under scrutiny”, which did not include AA, she wrote.

So, although enough to see the freezing order quashed, these submissions, “miss the point so far as non-disclosure is concerned”, Carr wrote. “Tugushev will have the opportunity at trial fully to explain his position on these documents.”

However. “the fact that he completed the forms and declarations and wrote the letters in the terms that he did is a) directly material to the AA conspiracy claim and b) undisputed”.

The documents are, “at the very least arguably consistent with Mr Orlov’s case and inconsistent with that of Mr Tugushev”, she wrote.

Although the freezing order has been removed, the dispute continues. “It is one thing to be deprived of draconian relief in the form of a freezing order for non-disclosure. It is another to be deprived of the ability to pursue a claim in a chosen (and otherwise appropriate) jurisdiction at all,” wrote Carr.

Tugushev's response

Tugushev's legal team responded to Undercurrent News to note that this judgment only relates to the issue of whether the freezing order should continue, "and is not a decision on Mr. Tugushev’s claim to one-third of Norebo’s value, which the English court will determine in due course".

The documents produced shortly before the hearing by Orlov do not show that Tugushev divested his shares before entering public office, it added. "Mr Tugushev is sure that, following a full trial in England, the court will agree that these documents are consistent with his interest in the Norebo Group and with his High Court claim.”

New documents

The new documents include a declaration of compliance for holding a position in the Russian government supposedly signed by Tugushev on May 22, 2003 attesting stating he “had no shares or other equity interests in any commercial organisations”, the judgment said.

Also, there is internal governmental correspondence in January 2004 querying Tugushev’s compliance with applicable restrictions on his “carrying out business activity or being a member of a commercial organization’s management body by reference to two specific companies”.

In a handwritten letter dated Jan. 23, 2004, Tugushev is said to have stated that, as of Sept. 22, 2003, “he was not a shareholder of nor held management positions in those companies, enclosing a list of supporting documents”.

The new documents also reportedly include a letter, dated Jan. 27, 2004, that Tugushev was still a “shareholder of Karatt CJSC, Sevkomp CJSC, Oktyabr CJSC and Murmanrybprom CJSC”, three Norebo precursor companies.

In response, Tugushev is said to have sent a typed letter and signed a letter, dated Feb. 5, 2004, in which he stated:

“On the basis of data supplied by the Russian Ministry for Tax and Revenues regarding the participation of me…..as a founder of the companies [Karatt CJSC, Sevkomp CJSC, Oktyabr CJSC and Murmanrybprom CJSC], I hereby inform you that on entering government service I took all actions necessary to alienate shares and ownership interests in commercial organisations. As per the above, I …did not violate the Federal Law (On the Principles of State Service of the Russian Federation).

A legal opinion attached from a Russian law firm and concluded that, based on documents presented by Tugushev, sufficient actions were taken by him prior to him taking up public office to transfer his rights to the shares and equity interests in the four companies and also Karat LLC, another Norebo precursor company.

It noted in the documents that Tugushev had passed his interests in Karatt CJSC and Karat LLC to AA.

The documents show Tugushev “selling his shares in Oktyabr CJSC in 2002 to a Mr F V Kuznetsov, someone whom Mr Tugushev denied in 2016 being acquainted with or having ever met. They also showed a sale of shares in respect of Sevkomp CJSC and Murmanrybprom CJSC in January 2003, when Mr Tugushev said in 2016 he was on holiday outside the Russian Federation”.

An additional declaration of compliance to the government was supposedly completed and signed by Tugushev in hand on March 29, 2004. “On the face of the document”, he declared that he had no shares or other equity interests in any commercial organization, said the judgment.

Fraud charges

Orlov also claimed Tugushev did not give the whole picture on his subsequent conviction for fraud in 2004, having gone into politics the previous year as deputy head of the Russian fisheries commission.

The criticism leveled at Tugushev is that he did not set out the full detail and strength of the prosecution case against him, as revealed in a lengthy judgment of the Tverskoy District Court upon sentence, wrote Carr.

Tugushev extracted $3.7m from the owners of a company named Pollucks “in exchange for his promise of additional fishing quotas which he was in fact not in a position to grant. It is said that there was overwhelming evidence against Mr Tugushev from multiple witnesses. The Russian police carried out a sophisticated “sting” operation which captured and recorded incriminating conversations involving Mr Tugushev”, she wrote.

Orlov “submits that this was an egregious failure which misled the court as to the cogency of the evidence” against Tugushev. The latter counter-argued that, because this issue went to his credibility only, “a lesser standard of disclosure was required”. Carr, however, is “not attracted” by this submission for Tugushev.

“This is a case where the credibility of the parties is central. It would have been better to say more by, for example, fleshing out the use of a covert police operation and incriminating recordings of meetings and telephone conversations,” she wrote.

However, “it is a question of degree” and Tugushev did give a high level of detail on the conviction, which he denies.

He set out the precise charge against him; the sum involved in the fraud; the fact that the conviction related not only to fraud but abuse of position; and the sentence imposed, Carr wrote.

Tugushev is “entitled to express his view that the charge was politically motivated and to deny it, a position which he maintains today”.

So, “on balance, I have concluded that he did enough and I do not find that there was a material failure to give full and frank disclosure or fair presentation in this regard. The conviction was squarely before the court”, Carr wrote.