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By Natalia Reva, URE Club
May 5th London Court of Arbitration adopted final decision as to Arricano’s lawsuit against Stockman Interhold S.A. According to the verdict Stockman should have passed Arricano all shares of Assofit Holdings Limited, the company owned Sky Mall, for as low as $ 0. However, the court enforcement action didn’t mean that Sky Mall would pass into the ownership of Arricano automatically. The reason was that Assofit didn’t own the shopping mall anymore. Yet, execution of a judgment order is left without answer.
History of the conflict
The conflict took its rise since February 2010 when Arricano’s majority stakeholder Hillar Teder trying to find additional fund for shopping mall development attracted the Stockman Company presented by its owner Andrei Adamovskiy. Mr Adamovskiy invested in the project $ 40 million taking in return majority stock in the Assofit Company (Cyprus). At the time Assofit owned the Prisma Beta Company, which in its turn was the only stakeholder of Sky Mall shopping mall. During the deal two parties signed the Call Option Agreement, according to which Arricano had the right to buy controlling block of shares for 51,4 mln US dollars. In that case the annual profit of Adamovskiy would be 40%.
In his turn, owner of Stockman set forth its conditions. In particular, the parties agreed upon non-disclosure of terms of the deal for 5 years, as well as it was not allowed to change beneficiaries of Assofit, as well as its owners Arricano and Stockman for 2,5 years. Violation of those particular terms by Arricano was the main reason to terminate the agreement by Andrey Adamovskiy.
In December 2010 Arricano resorted to their right of option, though it was turned down by Adamovskiy who terminated the agreement and initiated the international arbitration. Such actions were caused by the announcement on the London Stock Exchange dated September 13th, 2010 that DUDP (Dragon Ukrainian Properties & Development) had bought 35% of Arricano’s stocks for 30 mln US dollars. Moreover, it was also announced about the agreement between Arricano and DUDP upon the purchase of the majority share of Sky Mall for $ 51-56 million.
Hiller Teder asserts that Adamovskiy knew about the deal with DUDP. However, lack of written consent gave the latter reason to initiate the international arbitration court and won a suit December 2011.
During the time owner of Stockman offered Arricano several times to purchase his share in Assofit, for the market price though, neglecting call option price. Hence, the price grew to $ 56-58 million, then to 70 million and in autumn it reached its maximum – 90 million.
At the same time Arricano kept appealing against court decision of 2011. And finally August 19th, 2014 the International Commercial Arbitration in London adopted a decision in favour of the company. However by that tome Assofit hadn’t already owned Sky Mall and its majority stakeholder didn’t pay Arricano any dividends.
It’s worth mentioning that all the time Sky Mall was successfully operated and even generated good income. According to Raul Parusk, executive director at Arricano, the annual income from Sky Mall comes up to 20 mln US dollars. It is 100 mln US dollars for 5 years of legal proceedings.
How did conflict stop being fair?
Legal proceedings between Arricano and Stockman could have remained at the level of business conflict if law-enforcement authorities hadn’t interfere with the case. Lawyers of Arricano say that every single win of the company in arbitrations was accompanied by pressure on the part of Ukrainian enforcement authorities and included criminal, fiscal and administrative prosecutions.
Several times the prosecutor’s office sued Arricano and its specific employees; the State Security Service of Ukraine raided the office of the company. Part of the cases is closed due to lack of elements of the offence, another part is withdrawn by the prosecutor’s office, and some of them still are pending.
Today Vyacheslav Peskov, lawyer of Arricano anticipates another pressure as a result of the decision of the London Arbitration Court made May 5th, 2016.
Complicated turining back
Currently Sky Mall is seized by Pivdennyi Bank for debts. Arricano asserts and the London Arbitration Court also confirms that the lifting an attachment of property and then its mortgage were illegal. Hence, bank had no rights to seize the property as charge on asset.
In January 2016 Business Ombudsman office recommended the Ministry of Justice to strengthen the protection of investors against unauthorized interference in the register of real property rights. Violations committed by the register, who withdrew an attachement of the shopping mall before its mortgage were recognized by the Ministry of Justice as well. Today the prosecutor's office is investigating the case.
But in general this is nothing. To change the situation and take back control of the shopping mall Arricano needs at least regain control over Assofit. So far, the execution of the arbitration decision is under Cyprus jurisdiction. But sooner or later the case will be investidated by the Ukrainian courts. Despite the fact that Ukraine has committed itself to implement the decisions of international tribunals, it will not be easy to implement them in the country.
At best, to regain a control over Sky Mall will take, according to the forecasts of lawyers, for about two years in case if Assofit come into the ownership of Arricano.
The indicator of business climate
Recently, President Poroshenko promised billions of dollars to be invested in Ukrainian economy this year. European businessmen are actually willing to invest in the Ukrainian market, but only in case of clear rules of the game for them and guarantees of protection of private property, says Mikhail Merkulov.
After the decision of LCIA, Arricano sent an open letter to the President with a request to facilitate the implementation of this decision. If there was a political will the problem could be solved within a month. However, it seems there is still no answer from the president administration: Arricano evasively comments that they expect to reach the president through public activities and international organizations.
The lawyers are already rely on judicial reform and adoption of the registered in the Verkhovna Rada a bill on the promotion of the implementation of the decisions of international arbitration and ... advise to seek ways to conclude a settlement agreement with Adamovsky. At this point, it seem it’s not the way Arricano considers as the best one – says Makhail Merkulov, to resort to this measure would not be desirable. It's also unlikly this act will help to return the shopping mall.
