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The former chairman of leading Russian fertiliser company PhosAgro, Alexander Gorbachev, has launched a legal action in Cyprus against his former partner and the company's principal shareholder Andrei Guryev in a bid to reclaim a 24% stake in the company estimated to now be worth $1.2bn.

"Following recent media reports, Alexander Gorbachev confirms that a criminal prosecution has commenced against Andrei Guryev, principal shareholder in Russian fertilizer giant PhosAgro, for the alleged theft by Guryev of Gorbachev’s rightful 24% shareholding in the business," Gorbachev's PR agency said in a press release on June 11.

PhosAgro is a leading light in Russia's highly profitable fertiliser business and more recently has become an investors darling, with the likes of Jim Rogers, George Soros' partner in Quantum Capital, hyping the stock. However, Guryev is probably better know to an international audience as the owner of Witanhurst House, the second-largest residence in London after Buckingham Palace, which was recently profiled in a fascinating New Yorker article.

PhosAgro issued a statement later the same day denying that the claim or legal case has any validity: "The company declared at the time, and maintains today, that the claim has no legal basis and PhosAgro will defend its position in any jurisdiction," the company said in a press release.

In addition, PhosAgro claimed that the case brought in Cyprus is not a criminal case but a private commercial case: "The company notes that in his press release today, Mr. Gorbachev and his PR agency misrepresent the nature of the proceedings in Cyprus. They falsely imply that the criminal proceedings have been commenced by the Cypriot prosecuting authorities. In fact, they are private proceedings, brought to the court by Gorbachev alone, and Cypriot prosecuting authorities are not pursuing any criminal cases in relation to these accusations. As such they do not represent the position or conclusions of any law enforcement authorities in any country."

Guryev, who co-founded PhosAgro with Gorbachev, and another 13 other defendants have been indicted by the District Court Limassol in Cyprus on May 21, according to Gorbachev's press release. They are accused by the prosecuting authorities in Cyprus of using fraudulent means to deprive Gorbachev, a former chairman of PhosAgro, of a stake in the business that is listed in London and Moscow with a current market capitalization of about $5bn.

Friendship gone sour

Gorbachev and Guryev met and became close friends in the 1980s when they were both working in the Moscow Communist Youth Leagues. Gorbachev chaired PhosAgro until 2004, by which time it was already a multibillion-dollar company with 35,000 employees, but fled Russia in 2003 due to his links to Mikhail Khodorkovsky, an oil tycoon jailed by the state on fraud charges the same year. Gorbachev claims he was caught up in the aftermath of Khodorkovsky's scandalous arrest and targeted by prosecutors over an allegedly improper transaction involving one of PhosAgro’s subsidiaries, the press release says. He subsequently moved to the UK where he was granted asylum.

Gorbachev claims that he placed his 24% stake in PhosAgro in trust with Guryev when he fled Russia, who later reneged on his promise to return it and "used Gorbachev’s rightful share in the business to further enrich himself and his associates". 

The case will be fought in Cyprus because there are several offshore companies used in the disputed transactions, say Gorbachev's lawyers, some of which are domiciled in Cyprus. Representatives of these companies are among the other defendants in the case.

"The defendants have been put on notice to appear at the Limassol Court on September 16 to hear the charges against them. Their trial is expected to follow soon after," Gorbachev's lawyers said in the press release. If found guilty, some of the defendants face significant jail time, while PhosAgro itself faces "potentially massive sequestration of its assets", in order to compensate Gorbachev

The former chairman said in the statement: “I was instrumental in building PhosAgro. I oversaw the formation, development and eventually the global success of the group. I did this in partnership with Andrei Guryev, who was my friend, and whom I trusted implicitly. We had an agreement that he would hold my shareholding in trust."

Investors are likely to be extremely worried, but as the news broke late on June 11 and June 12 is a national holiday in Russia there has been no reaction from the market as of the time of writing.

Till court do us part

This is the second large Russian company in a month to face a potentially debilitating law suit: Norilsk Nickel's principle shareholder Vladimir Potanin is being sued by his former wife for half his stake in the company. Under Russian divorce laws, ex-wives are entitled to half of any wealth or assets accumulated by the husband during the course of the marriage and in this case Potanin's former wife is claiming $7bn worth of stock that she intends to gift to the state if she wins. However, experts say that because Russian law courts do not undertake investigations themselves and the structures used to hold stakes are extremely complex, former wives rarely win their cases.

The case is also reminiscent of a high profile fight between the Cherney brothers and Oleg Deripaska, the principle shareholder in aluminium giant RusAl (formerly Siberian Aluminium, or SibAl). In that case too the Cherney brothers built up a huge raw materials business but allegedly passed it to Deripaska around the time Russian President Vladimir Putin took office. In a London-based law case they claimed they had given Deripaska control of the company "in trust" but were never paid for their stakes, worth £1.6bn according to the court documents submitted in 2012.

"I gave the best years of my life to PhosAgro and to Guryev, and in return have lost my livelihood, my country and financial security for my family. I am determined that justice will be done," Gorbachev said in the statement.
Gorbachev is being represented by Loukis Loukaides, one of Europe’s most distinguished lawyers and a former deputy Attorney General of Cyprus.