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Belokon vs Oystons - Summary 1

BST24/06/2017

What Do We Know After Two Weeks In The High Court ?

We have now heard the opening submissions, the Latvian witnesses (Valeri Belokon, Normunds Malnacs and Kaspars Varpins) together with the evidence of various Oyston witnesses: Rod Dyer (company secretary,) Ian Cherry (auditor), Tony Dempsey (solicitor), Howard Belton (tax advisor); and the first day of Karl Oyston's cross-examination.

It is important to bear in mind that the evidence we hear is incomplete, because we don't get to see the witness statements on file nor any of the documents referred to; we only hear the opening argument and the replies to cross examination. As such, any analysis is inevitably incomplete.


The Belokon case:

Valeri claims his investment created a quasi-partnership based on parity as between himself and Owen. Many will remember the Gazette articles on this back in 2006. It seems to be common ground that his initial investment was £4.5m later augmented by the player fund and the Investment Agreement for the South Stand that is linked to the stand which we heard a lot about in the first trial in Manchester in December.

It is claimed that the agreement to invest in Blackpool FC was on an equal quasi partnership basis which was only altered to accommodate Owen's request that he first be allowed to offset tax relief on losses incurred in respect of his investment in BFC. The questions put to Ian Cherry and Rod Dyer suggest these tax benefits could only be claimed if Owen/Segesta kept at least 75% of the shares in BFC.

As such the initial investment was seemingly split with £1.8m being paid for 20% of the shares and £2.7m being loaned (known as the Vlada loans, as the money came from Valeri's daughter).

Valeri's legal team claim that the underlying understanding was that, notwithstanding the formal arrangement, the equal quasi partnership would operate in practice until the Vlada loans converted to equity to create parity.

It is claimed that when the Club was promoted to the Premiership then everything changed, that the prejudice that Valeri seeks to establish with this claim started and that ultimately this left him feeling he had no alternative other than to look to exit Blackpool FC.

Examples given as to how this prejudice manifested itself in the trial so far were said to include:

1) Owen no longer being willing to run Blackpool FC as a true partnership

2) Owen's refusal to honour the gentlemen's agreement to convert the £2.7M loan to shares to bring about parity

3) Owen and Karl making management decisions without taking into account Valeri's views

4) The decision to make large payments to various Oyston companies including Protoplan/ Zabaxe and loans to Segesta & BFC Hotel

5) Changes in the Articles of Association to benefit the majority shareholder


The Oyston Defence:

It doesn't seem to be denied that the initial discussions between Owen and Valeri involved parity or that it was at Owen's request that this changed.

The Oyston legal team however maintain that the paper agreement is what it is and that any ‘understanding’ is not binding upon them or enforceable by Valeri Belokon.

Oystons QC has spent a lot of time querying the source of funds that provided the £4.5m investment and seems to want to run an argument that this taints the whole agreement with illegality (which might deny Valeri Belokon the remedies he seeks). However, as we understand it, they can't do this as it is not set out in the defence. It is understood the Oystons tried to amend their defence late on but were denied the right to do this by the Court.

Consequently to introduce this evidence the Oyston QC has argued that it's nevertheless relevant to Valeri's credibility.

BST members who have attended the trial have suggested that the Trial Judge doesn't seem too impressed by this line of questioning but is still giving the Oystons lawyers a reasonable amount of latitude in the cross examination of Valeri on this issue.

Equally the Oystons don't seem to have firm evidence to support such allegations. They seemingly can show Valeri took a £2.8m loan from a joint venture with Maxim Bakiyev in Latvia two weeks before the ‘Vlada loan’ of £2.7m is paid to BFC. Valeri however says the funds are from a legitimate source and that in any event the joint venture used capital introduced by Latvian companies, not from offshore companies.

Those present in Court have observed that there doesn't seem to be hard evidence to refute Valeri's explanation and rather the Oystons QC is basically inviting the Trial Judge to draw inferences that a £2.8m loan Belokon used to make the ‘Vlada loan’ to BFC was really money removed from Kyrgyzstan that he and Bakiyev have been censured by the seizure of Manas bank, the subsequent convictions in absentia ( which the Belokon legal team say is political and which he wasn't offered the opportunity to defend) and the Paris judgment. In the later case the impact of that judgment is subject to wildly different interpretations with the Oyston QC claiming it nullifies the whole award originally made in Belokon's favour in the Court of Arbitration which his lawyers say isn't the case. One for the lawyers not fans to debate !

The Oystons maintain Valeri continued to be treated as what he was in their eyes, a 20% shareholder in Blackpool FC. Their QC in questioning Valeri seemed to be focused on putting back the date that the relationship finally broken down to after relegation. He also seemed to suggest that Valeri’s conduct in absenting himself from BFC had contributed towards the breakdown. We believe this to be relevant to how the Court should value Valeri's shares if he wins.

Oystons QC also sought to suggest Valeri and his nominees had some form of strategy in place to try to force Owen to honour his demands for parity on exit which included being obstructive in board meetings, sharing confidential information with third parties and using the press and fans’ groups to stir up discontent against the Oyston family. Valeri vigorously disputes this and in cross examination it was put to Karl that the Oyston's themselves might be responsible for much of the media attention and any hostility from Blackpool fans, citing a number of examples such as the defamation claims, the state of the pitch, ‘Textgate’ and Karl's use of the ‘Oyston out' number plate.

As regards the withdrawal of funds, it is the Oystons’ contention that the payments to Protoplan and Zabaxe were consistent with the underlying agreement and that the loans for the most part have been spent on football-related activities. It was also suggested Valeri could have asked for a payment himself if he had wanted one.

After the cross-examination of the Latvian witnesses had concluded on Tuesday, an astonishing series of snippets came to light as the Oyston advisors, BFC company secretary and latterly Karl took to the stand to be cross-examined. These included:

1) Allegations that Owen was seeking to convene a meeting with his trusted advisors within five days of promotion to the Premiership to discuss how to get large sums of money out of Blackpool FC without Belokon's approval and without paying tax.

2) The apparent lack of any tangible evidence to support the decision taken to make the payment of £11m to Zabaxe - a company Valeri's barrister suggested had laid dormant for a number of years. There seems to be a lot of confusion about whether the payment was director's remuneration (as per the accounts), salary or compensation for services delivered by Zabaxe. Karl appeared to confirm it was compensation for services delivered. Valeri's case on this is that this is a disguised distribution to Owen to avoid paying a dividend to Valeri and the other minority shareholders.

3) An allegation that HMRC had been told that Owen only occasionally attended BFC board meetings when in fact he'd attended 24 of the 29 such meetings between 2006 and 2013.

4) The extent to which Valeri's representatives were seemingly excluded from management decisions.

5) Evidence that there had been at least three bids for Blackpool FC, despite what has been claimed on the official Club website.

6) Alleged death threats by Valeri to both Owen and Karl. Valeri was questioned on this in week one and denied them. We assume Valeri's QC will be raising them with Owen next week.

7) Mr Cherry apparently told HMRC in a letter that, while the legal title was held by Segesta, Blackpool FC was the beneficial owner of the stadium. Under cross examination Karl appeared to think beneficial ownership was referring to the club's right to use the stadium; however Valeri's QC put it to him that this wasn't right - it was about the underlying ownership. So it seems either Mr Cherry was wrong to say that or if he was right – and if the club is the beneficial owner - might that impact on the valuation of Valeri's interest? We will have to see what the Judge says!

Predicting outcomes when we aren't even at the half way point has limited value. However, whatever the outcome, this trial is proving a real eye-opener for those able to attend.

As we go into week three we can expect Karl and then Owen Oyston to be subjected to extensive cross- examination as Valeri's QC tries to establish the existence and extent of unfair treatment that would trigger a court intervention based on prejudicial conduct towards a minority shareholder.

The first two weeks have been compelling - providing a real insight into what has gone on at Blackpool FC over the last ten years If you can get there for a day or even a few hours, do so. If you can't, there are daily updates on AVFTT being provided by fellow fans reporting through Justice4Fans – and a summary of week 3 events will be posted on the BST website next week-end.

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