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UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK ______________________________________ BASE METAL TRADING SA et al Plaintiffs v. RUSSIAN ALUMINUM et al. Defendants ______________________________________ Docket No. 00 Civ. 9627

LEGAL OPINION OF ANATOLY KLEYMENOV

I, Anatoly Kleymenov, pursuant to the provisions of 28 U.S.C. §1746, hereby declare as follows: 1. I am a citizen of the Russian Federation and an attorney admitted to

practice law in Russia in accordance with the legislation of the Russian Federation. 2. I was asked by Marks & Sokolov, LLC, counsel for Plaintiffs in the above

captioned matter, to give my expert opinion on issues of Russian law as set forth below.

I. 3.

QUALIFICATIONS AS EXPERT

In 1993 I received a degree in law from the Moscow Law Institute

(currently Moscow State Law Academy) and have been practicing law in Russia since that time. 4. I serve as an attorney -at-law with the law office # 35 affiliated with the

Moscow City Bar.

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5. 6.

I have been member of Moscow City Bar since 1994. I specialize in commercial law, including securities transactions, arbitrazh

procedures and criminal law, concentrating on economic crime and tax fraud. I also have in depth knowledge in the field of administrative liability and customs regulations. 7. I have represented numerous clients on both trial and appellate levels in

courts of general jurisdiction and arbitrazh courts. I have handled litigation involving various shareholders' disputes, including lawsuits brought to invalidate various resolutions of state and private entities, and resolutions passed by corporate bodies. 8. I have represented an American company-claimant in a case before the

Constitutional Court of the Russian Federation in which the constitutionality of Article 380 of the Russian Customs Code was challenged.1 I also represented the Federation Council (the upper chamber of the Russian Parliament) in the Constitutional Court when a review of the constitutionality of Article 46 and Article 51 of the Criminal Procedure Code of the RSFSR was performed.2 9. 10. I have experience both in litigation and as a legal counsel. I have authored a publication on Russian law entitled "Who is a proper

defendant in tax evasion cases."3 11. I am fluent in English. II. 12. QUESTIONS PRESENTED

I have been asked to render my opinion on the following question:

Were the transfers of the shares in GOK owned by Holdex LLC, Omni Trusthouse Ltd. and Foston Management Limited made in accordance with Russian law?
1 2

See Constitutional Court Resolution of May 14, 1999 No. 8-P See the Decision of the Constitutional Court of the Ruffian Federation of June 27, 2000 3 See Russian Justitsia, No. 8/2001, p. 52

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III. 13.

SUMMARY OF CONCLUSIONS

For the reasons set forth in detail below, I have concluded that: · The deprivation of the three shareholders (Holdex, Omni and Foston) of their shares in GOK was the result of gross violations of substantive and procedural norms of Russian law, and the court decisions that ordered the alienation of those shares were tainted with fraud.

IV. 14.

DOCUMENTS REVIEWED

In preparing my expert opinion, I have reviewed the fact witness

statements of Dov Reiger concerning Omni and Holdex, the witness statement of Nikita Illyich Chervinsky in regard to Holdex, Marina Ashikhmina's witness statement concerning Foston, and the declaration of Alexei Zanadovorov. For the purposes of rendering my opinion, I have assumed the facts contained in those declarations to be true. I have also reviewed the declaration of Samir Kapura and the declaration of Paul B. Stephan III. 15. My expert opinion is based upon my knowledge both as a practicing

attorney and a legal scholar of the Constitution of the Russian Federation, the Arbitrazh Procedure Code of the Russian Federation, the Civil Code of the Russian Federation, the Federal Law "On Joint Stock Companies" (the "Corporations Act"), as well as other norms of Russian laws and regulations and of Russian judicial practice. 16. I have reviewed and analyzed the court decisions and certain pleadings in

each of the three court proceedings whereby the GOK shares owned by Holdex, LLC, Omni Trusthouse Ltd, and Foston Management Limited were alienated.

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V.

DISCUSSION

TRANSFER OF SHARES

A. HOLDEX
1. Facts

17.

Based on my analysis of the witness statements of Dov Rieger, Nikita

Illyich Chervinsky, pertinent contracts for the sale of shares, financial documents indicating the payment for the shares in question, certain pleadings and court decisions, I have determined the following facts which serve as the basis for my conclusions. 18. Holdex, LLC ("Holdex") purchased 2,307,984 shares in GOK from

Polyprom according to Contract # KGOK-001/A dated January 20, 2000. [Exhibit 1] As indicated by the bank Payment Order dated February 17, 2000, Holdex paid Polyprom the full purchase price under the contract for the GOK shares in question. [Exhibit 2] 19. Polyprom, in turn, had purchased those shares from GOK Trading House,

a subsidiary of GOK, under Contract # 3, dated January 18, 2000. [Exhibit 3] As indicated by the Acceptance Act signed by GOK Trading House and Polyprom on January 19, 2000, attached as an exhibit to the Declaration of Dov Rieger, Polyprom fully paid for the GOK shares in question, and the title to the shares was transferred from GOK to Polyprom. [Exhibit 4] 20. Subsequently, GOK filed a complaint against GOK Trading House and

Polyprom in the Kalmykia Arbitrazh Court ("KaAC") seeking to take back the shares. GOK claimed that the shares were sold by GOK Trading House to Polyprom under a different contract -- dated January 18, 1999 [Exhibit 5], and not January 18, 2000 -- and that at that time, the parties who signed the contract were not authorized to do so. Based 4
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on the contract presented by GOK, on November 22, 2000, KaAC invalidated the sale of GOK shares from GOK Trading House to Polyprom, as well as the subsequent sale to Holdex. [Exhibit 6] 21. According to the sworn statement of Dov Rieger, and the text of the

November 22, 2000 KaAC decision itself, Holdex was not served, joined, or notified of the proceedings seeking to alienate its shares. 22. By Order dated April 17, 2001, the Federal Arbitrazh Court for the North

Caucasus Circuit reversed the November 22, 2000 decision and remanded the case to KaAC, ordering the lower court to properly investigate the circumstances of the case with regard to the existence of two different contracts for the same transaction, and to join the current registered owner of the shares. [Exhibit 7] 23. Upon remand, the KaAC held a new hearing on July 5, 2001. By order of

the same date, ignoring the instructions of the Federal Arbitrazh Court, the KaAC again directed the reversal of the sale of GOK shares to Polyprom and, accordingly, the subsequent sale to Holdex, without serving, joining or notifying Holdex. [Exhibit 8] 24. As described in the declaration of Chervinsky, Polyprom subsequently

filed an appeal with the appellate instance of KaAC. This appeal was accompanied by a motion to join Holdex as the registered purchaser of the shares. 25. By order dated September 10, 2001, the appellate instance of KaAC

granted Polyprom's motion to join Holdex, LLC, and postponed the hearing of the appeal. [Exhibit 9] On November 9, 2001, Holdex appeared as a third party at the hearing at the appellate instance of KaAC. By order of November 9, 2001, the appellate instance of KaAC upheld the lower court's decision dated July 5, 2001. [Exhibit 10]

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26.

On January 21, 2002, the Federal Arbitrazh Court for the Northern District

of Caucasus reversed and remanded the November 9, 2001 decision and the July 5, 2001 decision because both instances of KaAC failed to follow the explicit instructions of the Federal Arbitrazh Court contained in its decision dated April 17, 2001. [Exhibit 11] The Federal Arbitrazh Court had ordered KaAC to properly review the circumstances of the case, which it failed to do, and it also failed to provide any reasoning why it preferred one contract over the other, or give any consideration to Holdex's right of ownership of the shares in question. The Federal Arbitrazh Court remanded the case for a de novo review of all circumstances of the case to the court of the first instance. 27. On March 12, 2002, KaAC issued another decision in favor of GOK,

invalidating the sale and ordering the return of shares to GOK. [Exhibit 12] Polyprom and Holdex were not present at the March 12, 2002 hearing and the court record indicates that they allegedly had sent telegrams consenting to the conduct of the hearing in their absence. According to the declaration of Chervinsky, neither Polyprom nor Holdex ever sent such telegrams or consented to conducting the hearing in their absence. Once again, the owners of the property sought to be alienated were not notified of the proceedings. Once Polyprom in fact learned of the March 12, 2002 hearing and an adverse decision, it filed a cassation appeal with the Federal Arbitrazh Court for the North Caucasus Circuit. However, on April 23, 2002 the cassation appeal was dismissed for procedural reasons. [Exhibit 13]

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2. Issue 28. The issue is whether the absence of notice of the court proceedings that

disposed of the ownership interests of Holdex in the shares of GOK constituted a violation of Holdex's rights. 3. Applicable Law 29. The Russian legal system provides for two branches in the court system:

courts of general jurisdiction and arbitrazh courts. 30. The subject matter jurisdiction over cases arising out of commercial

disputes between legal entities is vested in the Arbitrazh Court, pursuant to Article 22 (1) of the Russian Arbitrazh Procedure Code4 ("APC RF") . [Exhibit 14] 31. The principle of the "rule of law" is one of the overarching principles of

the Arbitrazh courts' practice in the Russian Federation. Pursuant to Article 6 of the Federal Constitutional Law "On Arbitrazh Courts", entitled "The main principles of the functioning of the Arbitrazh Courts in the Russian Federation,"5 The functioning of the arbitrazh courts in the Russian Federation is based on the principles of the rule of law, independence of the judges, equality of the organizations and the individuals before the law, adversary nature of the proceedings, public nature of the court hearings. 32. The principle of the rule of law requires that the arbitrazh courts properly

apply the substantive law and strictly comply with the procedural rules governing the operation of the arbitrazh courts. Specifically, pursuant to Article 11(1) of the APC RF "The Laws Applied in the Adjudication of Disputes"6: The arbitrazh courts, in resolving disputes, must follow the Constitution of the Russian Federation, federal laws, the Edicts of the
4 5

All Arbitrazh Procedure Code articles referred to in this declarations are to April 5, 1995 version. Exhibit 15 6 Exhibit 16

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President of the Russian Federation and the Resolutions of the Russian government, normative legal acts of the federal government bodies, normative legal acts of the subjects of the Russian Federation and international treaties of the Russian Federation. 33. There are a number of important provisions of substantive law that are

applicable to the present case. First and foremost is Article 35(3) of the Constitution, which states: "Nobody could be deprived of his property otherwise than on the basis of a decision of a court of law." [Exhibit 17] 34. The exclusive list of the circumstances under which an owner of property

can be deprived of the rights of ownership or possession of property is set forth in Article 235 (2) of the Russian Civil Code ("CC RF") [Exhibit 18]. It provides that: a compulsory deprivation of a person of his property shall not be permitted except in the following instances allowed by law: (1) levying execution on property for obligation (Article 237) [Exhibit 18]; (2) compulsory alienation of property which by virtue of a law can not belong to the particular person (Article 238) [Exhibit 19]; (3) alienation of immovable property in connection with the withdrawal of a plot (Article 239) [Exhibit 20]; (4) purchase of improvidently maintained cultural valuables and domestic livestock (Article 240 and 241) [Exhibit 21]; (5) requisition (Article 242) [Exhibit 21]; (6) confiscation (Article 243) [Exhibit 21]; (7) alienation of property in the instances provided for by the Article 252(4), Article 272(2), and Articles 282, 285, and 293 of the present Code [Exhibit 22]. 35. Russian law also contemplates legal proceedings that are akin to replevin

suits, which are actions brought by an alleged owner of property to recover that property from someone who allegedly gained possession unlawfully. Thus, Article 301 of the CC RF states that "The owner has the right to claim his property from an other's illegal possession." [Exhibit 23]. In such a case, the proper defendant is the party whose possession or ownership is being challenged by the plaintiff. [See Exhibit 24, M.I. 8
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Braginsky, Senior Legal Analyst of the Institute of Legislation and Comparative Jurisprudence at the Russian Government, PhD in jurisprudence, Professor, V.V. Vitrainsky, Commentary to Part I of the Civil Code of the Russian Federation for Enterpreneurs at p.269.]7 36. Where a party's property rights are at stake, it is critical that the Arbitrazh

courts strictly follow all procedural requirements. The observance of the adversary nature of the proceedings is the cornerstone principle of the administration of justice in the Russian Federation, which is guaranteed by Article 123 (3) of the Constitution of the Russian Federation. [Exhibit 25] It states: 3. The adjudication of cases in the courts must be conducted with the observance of the adversary nature of the proceedings and equality of the parties. 37. Consistent with this, the Arbitrazh Procedure Code ("APC") of the

Russian Federation provides that "the legal proceedings in the arbitration court shall be conducted on the basis of the competitiveness and equality of the parties." Article 7 of APC. [Exhibit 26] 38. To ensure the adversary nature of the proceedings, all parties whose

interests are affected must have an opportunity to appear before the Court. Thus, Article 112 (2) of the APC requires that when preparing the case for hearing, the Court must notify all the interested parties about the proceedings. [Exhibit 27] As explained in the commentary to the APC, edited by the Chairman of the Supreme Arbitrazh Court, Professor Yakovlev and First deputy Chairman of the Supreme Arbitrazh Court

7

Commentary to the Part I of the Civil Code of the Russian Federation for Enterpreneurs, Head of the authors team - M.I. Braginsky, Moscow 1995.

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of the Russian Federation, Professor M.K Yukov, at 2788, the interested persons are all the persons "who have a legal interest in the (substantive or procedural) outcome of the litigation and can occupy a procedural position provided for in the law." [Exhibit 28] 39. Further, Article 36 of the APC [Exhibit 29] requires courts to attest that

the action has been brought by and against proper parties: 1. In the instances when the arbitrazh court has determined in the course of the proceedings that the claim is brought by a party which lacks the right to bring the claim or not against the party which has to be a respondent in the case, the court can, provided the plaintiff's consent is in place, substitute the initial plaintiff or a respondent by a proper plaintiff or defendant. [...] 3. In a case where the plaintiff does not consent to the substitution of the defendant, the court has the right, with the plaintiff's consent, to join the proper person as a second defendant. 4. After the improper party is substituted, the proceedings begin from the initial stage. 40. Although the law requires the consent of the plaintiff in order to dismiss

the improper defendant, in the absence of this consent, the court has the right to join the proper defendant as a second defendant pursuant to Article 36(3) [Exhibit 29]. 41. The APC mandates the reversal of a decision rendered in violation of a

party's right to participate in a proceeding concerning that party's property interest. Article 158 of the APC [Exhibit 30] provides, in subsection 3, that: A violation of procedural rules is a ground for modification or reversal of a decision of the Arbitrazh court of the first instance: [...] 4) where the court issued a ruling regarding the rights and obligations of the parties which were not included in the proceedings...

8

Commentary to Arbitrazh Procedure Code of the Russian Federation, Editorial Board: Chairman of the Supreme Arbitrazh Court of the Russian Federation , PhD in jurisprudence, Professor V.F.Yakovlev, first deputy Chairman of the Supreme Arbitrazh Court of the Russian Federation, PhD in jurisprudence, Professor M.K Yukov, Moscow, 2000.

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42.

It follows from the discussion above that, under Russian law, a violation

of the aforementioned principles affects the legitimacy of court decisions and constitutes an error that mandates a reversal. 4. Application. 43. In the instant case, GOK filed a complaint that asserted its claim over the

shares in question, in Kalmykia Arbitrazh Court, which, according to Art 22 of APC had subject matter jurisdiction over the controversy. 44. However, the proceedings that took place in that case were obtained as a

result of procedural and substantive violations of basic, well-established legal norms violations that are so severe that I believe these decisions were procured through fraudulent conduct. 45. Though GOK sought to invalidate the transactions which resulted in the

transfer of shares from GOK's account, GOK essentially sought to replevin the shares allegedly as a legal owner. In doing this, GOK failed to comply with the requirements of Article 301 CC RF, as explained by Decree of the Plenum of the Supreme Arbitrazh court dated February 25, 1998 # 8 "On certain issues of the dispute resolution practice, dealing with the protection of the ownership right and other property rights", section 22 [Exhibit 31]. 46. Specifically, the Plaintiffs did not name Holdex as a Respondent in their

action, even though Holdex was the registered owner of the shares in question. 47. Moreover, the KaAC failed to comply with Article 36 of the APC, which

required the court to join the current owner of shares as a co-defendant. To the contrary, Holdex, as an interested person within the meaning of Article 112 (2) of the

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APC, was not even notified of the proceedings, much less joined as a party to them, until much later. Further, neither the Plaintiffs nor the KaAC took the required steps to ascertain the owner of the shares in question. 48. The failure to notify Holdex of the proceedings and to join Holdex as a

party is a clear basis under Article 158 of the APC for reversal of the lower court's decision. As noted above, subsection 3 of Article 158 mandates reversal where the court "issued a ruling regarding the rights and obligations of the parties which were not included in the proceedings." That Article 158 required such a result in this case is not surprising, given that Holdex's rights as an owner of the property in question were guaranteed by Article 35 of the Constitution, which conferred upon Holdex the right to take part in proceedings seeking to alienate its property and to defend its right of ownership. 49. The deprivation of Holdex's right to participate also violated Holdex's

rights to the equality of the parties in the adversary system under Article 123 of the Constitution of the Russian Federation and Article 7 of the Arbitrazh Procedure Code. 50. The only plausible explanation for this violation of basic procedural rules,

a violation that is unequivocally proscribed by the Arbitrazh Procedure Code, and for the subsequent failure to correct the error, is the court's improper bias.

B. OMNI
1. Facts 51. Based on my analysis of the witness statement of Dov Rieger and exhibits

attached to his witness statement, which include pertinent pleadings, court decisions and documents reflecting the movements of shares, namely, excerpts from the register 12
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of shares of GOK, I have determined the following facts which serve as the basis for my conclusions. 52. As of September 2000, Omni owned 34,031,114 shares of GOK, which

amounted to 17.8 % of the company's authorized stock. [Exhibit 32]. Omni had acquired approximately 10.6 million of these shares from a closed joint stock company called Profit House ("Profit House"). Profit House, in turn, had acquired those shares as a result of the September 1998 judicial sale of GOK shares that had belonged to NPRO Urals. In Spring 2000, nearly two years after the judicial sale of its shares, NPRO Urals filed a lawsuit in the Chelyabinsk Arbitrazh Court ("ChAC") to set aside the judicial sale of GOK and to re-register the GOK shares in the name of NPRO Urals. On August 1, 2000, the ChAC ruled in favor of NPRO Urals and ordered that the shares be reregistered in the name of NPRO Urals. [Exhibit 34]. 53. Omni was never made a party to this proceeding, and was never notified

of the proceeding, even though Omni was the record owner of the shares at the time the lawsuit was brought. 54. Profit House appealed this decision. On October 16, 2000, the appellate

division of ChAC ordered that the shares be re-registered. [Exhibit 35]. In its October 16, 2000 Order, the court rejected Profit House's argument that the current owners of GOK shares had not been parties to the proceeding. The bizzare reason given by the ChAC was that ChAC had taken measures to ascertain and join the true owners. The October 16, 2000 order was affirmed by the Federal Arbitrazh Court for the Ural District on or about December 4, 2000. [Exhibit 36].

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55.

The re-registration apparently occurred on or about November 15, 2000.

[Exhibit 37] Omni did not learn of the transfer, and did not learn of any of the abovementioned litigation, until two months after the transfer took place. 56. On June 4, 2001, Profit House filed a petition with the Supreme Arbitrazh

Court of the Russian Federation, seeking to bring a protest of the ChAC decision of August 1, 2000, the ChAC Order of October 16, 2000 and the decision of Federal Arbitrazh Court for the Ural District of December 4, 2001 [Exhibit 38]. The petition is still pending. 2. Issue 57. The issue is whether the absence of notice of the court proceedings that

disposed of the ownership interests of Omni in the shares of GOK constituted a violation of Omni's rights. 3. Applicable Law 58. The applicable law is discussed above.

4. Application 59. In the instant case, NPRO Urals filed a complaint asserting its claim over

the shares in question in Chelyabinsk Arbitrazh Court ("ChAC"), which, according to Article 22 of the APC had subject matter jurisdiction over the controversy. 60. However, the decisions that were obtained in that case, like the decisions

rendered in the Holdex case discussed above, were obtained as a result of procedural and substantive violations of basic, well-established legal norms - violations that are so

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severe that I believe these decisions, like the decisions in the Holdex case, must have been procured through fraudulent conduct. 61. As in the Holdex case, the NPRO Urals lawsuit involved an attempt to

replevin the shares. However, NPRO Urals failed to comply with the proper defendant requirements of Article 301 CC RF, as explained by Decree of the Plenum of the Supreme Arbitrazh court dated February 25, 1998 # 8 "On certain issues of the dispute resolution practice, dealing with the protection of the ownership right and other property rights." 62. Specifically, NPRO Urals, like GOK in the Holdex case, did not name

Omni as a Respondent in its action, even though Omni was the registered owner of the shares in question. 63. Moreover, the ChAC, like the KaAC in the Holdex action, failed to

comply with Article 36 of the APC, which required the court to join the current owner of shares as a co-defendant. Like Holdex, Omni was not notified of the proceedings as an interested person within the meaning of Article 112 (2) of the APC, much less joined as a party to them. Further, neither the Plaintiffs nor the KaAC took the required steps to ascertain the owner of the shares in question. 64. The failure to notify Omni of the proceedings and to join Omni as a party

is a clear basis under Article 158 of the APC for reversal of the lower court's decision. As noted above, subsection 3 of Article 158 mandates reversal where the court "issued a ruling regarding the rights and obligations of the parties which were not included in the proceedings." Here, as in the case of Holdex, Omni's rights as the owner of the property in question were guaranteed by Article 35 of the Constitution, which conferred

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upon Omni the right to take part in proceedings seeking to alienate its property and to defend its right of ownership. The deprivation of Omni's right to participate also violated Omni's rights to the equality of the parties in the adversary system under Article 123 of the Constitution of the Russian Federation and Article 7 of the Arbitrazh Procedure Code. 65. As with Holdex, the only plausible explanation of this violation of the

basic Arbitrazh procedure rules and subsequent failure to correct the error is that the Court was biased in favor of NPRO Urals.

C. FOSTON.
1. Facts 66. As of September 25, 2000, Foston owned 37,779,600 of GOK shares, or

19.7% of the total outstanding shares. [Exhibit 32]. 67. Pursuant to a court execution sheet dated October 10, 2000 [Exhibit 39],

virtually all of Foston's shares ­ 37,715,167 of them -- were removed from Foston's account pursuant to the decision dated September 29, 2000 of the Solntsevo Intermunicipal Court of the city of Moscow ("Solntsevo Court") [Exhibit 40]. 68. Having obtained a copy of the decision, Foston applied to the Solntsevo

Court to obtain information on the case and was informed that the case materials were lost from the court files under strange circumstances. 69. On February 20, 2001, pursuant to Foston's application to the Solntsevo

Court, the case was reactivated and the term for cassation appeal reinstated. [See Exhibit 33, Exhibit 41].

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70.

Thereafter, on January 26, 2001, Foston filed a cassation appeal of the

Solntsevo Court's September 29, 2000 decision with the Moscow City Court, which sits as an appellate court to the Solntsevo Court. [Exhibit 42]. 71. At the March 30, 2001 hearing of the cassation appeal, the Moscow City

Court reversed the September 29, 2000 decision based upon the absence of any evidence that Foston had been notified of the proceeding. [Exhibit 43] It did not, however, order the transfer of shares back to Foston. 72. On November 30, 2001, the Solntsevo Court heard the case on remand

from the Moscow City Court. [Exhibit 44] 73. The Solntsevo Court held that it had no jurisdiction over the case,

choosing instead to defer to the Sverdlosk Arbitrazh court. The Court also refused to order the return of shares to Foston (see Decision of the Solntsevo Court of November 30, 2001, Exhibit 44). Thus, the very Court which had ordered the divestiture of Foston's shares had inexplicably determined that it had no jurisdiction, yet had left its prior improper decision intact. 74. Foston appealed the Novmeber 30, 2001 decision to the extent it refused

to reverse the execution of the dismissed case. [Exhibit 45] 75. The Moscow City court heard the case on appeal on May 22, 2002 and

according to the declaration of M. Ashikhmina, it refused to grant Foston's appeal. 76. On July 17, 2002, the Office of the Prosecutor for the City of Moscow

brought a protest to the Presidium of the Moscow City Court in regard to the decisions of the Solntsevo Court of November 30, 2001 and the Moscow City Court of May 22, 2002. [Exhibit 46]

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77.

According to the declaration of M. Ashikhmina, the Presidium of the

Moscow City Court granted the protest and remanded the case to the Solntsevo Court -the very court which had disregarded Foston's rights in all its prior rulings -- for the purpose of reversing the two decisions, which had, in part, refused to reinstate Foston's shareholding in GOK. The date for the hearing in the Solntsevo court has not yet been set. 2. Issue 78. The issue is whether the absence of notice of the court proceedings that

disposed of the ownership interests of Foston in the shares of GOK constituted a violation of Foston's rights. 3. Applicable law 79. As discussed above, the Russian legal system provides for two branches in

the court system: courts of general jurisdiction and arbitrazh courts. The general rule of subject matter jurisdiction is that arbitrazh courts generally hear "economic disputes between the legal entities and the individuals engaged in the entrepreneurial activities." 80. If at least one party to the dispute is an individual who does not have the

status of an entrepreneur, the case is within the subject matter jurisdiction of a court of general jurisdiction and should be resolved according to the procedural rules of the Civil Procedure Code (CPC). 81. Article 10 of the CPC9 provides that: The court shall decide the civil cases on the basis of the Constitution of the Russian Federation, federal constitutional laws, federal laws, normative legal acts of the President of the Russian Federation, Russian Governments, other federal bodies, constitutions (charters) of the subjects of the Russian federation, laws of the subjects of the Russian Federation,
9

Exhibit 47

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local authorities, international treaties of the Russian Federation. The court applies the customary business practice, in cases provided for in the normative legal acts. 82. As noted in my discussion relating to the Arbitrazh courts, the observance

of the adversary nature of proceedings is the cornerstone principle of the administration of justice in the Russian Federation, which is guaranteed by Article 123(3) of the Constitution. It states: "The adjudication of cases in the courts must be conducted with the observance of the adversary nature of the proceedings and equality of the parties." 83. Consistent with this Constitutional provision, the Civil Procedure Code

provides: "The civil legal proceedings shall be conducted on the basis of the competitiveness and equality of the parties." Article 14 of the CPC. [Exhibit 48]. An analogous provision, which is discussed in connection with the Holdex Action, is found in the Arbitrazh Procedure Code. See Article 7 of APC. 84. Like the procedure in the Arbitrazh Courts, the Civil Procedure Code,

which applies to courts of general jurisdiction, requires all parties whose interests may be affected to have an opportunity to appear before the Court, thereby ensuring the adversary nature of the system. Pursuant to Article 106 of the CPC [Exhibit 49], the Court is required to notify the parties of the time and place for the hearing. It provides: Court Notifications. Parties and their representatives shall be notified by court notifications about the time and place of the hearing and about any procedural action taken by the court. ... The parties to the proceedings and their representatives shall be notified having taken into account that they shall be allowed sufficient time for appearing in court and preparation for the hearing...

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85.

Where a court renders a decision in violation of procedural or substantive

law, the CPC mandates the reversal of such decision. See Article 306 of the CPC [Exhibit 50]. Further, Article 308 of the CPC [Exhibit 51] requires reversal of any decision rendered in violation of the party's right to be notified and to participate in the proceedings. It provides that: A decision shall be reversed, if 1) 2) the court heard the case in the absence of the person who is a participant to the proceedings, who was not notified about the time and place of the hearing. ... If, prior to the reversal of the improper decision, the party has already

86.

executed the judgment, the CPC mandates reversal of the execution. Thus, Article 430 of the CPC states that "If the decision is executed and subsequently reversed and when heard on remand the suit is dismissed in full or in part or the decision is made to terminate the proceedings or leave the suit without consideration, the defendant is entitled to receive back everything which the plaintiff recovered from him pursuant to the reversed decision (reversal of the execution of a decision)." [Exhibit 52] In addition, pursuant to Article 431 of the CPC [Exhibit 53], the Judge or the Court hearing the case on remand, at their own initiative, shall consider the issue of the reversal of the execution and rule in this regard in the new decision. 87. In short, the CPC ensures that a party that was wrongfully deprived of a

legal or property interest shall have that interest returned to him in the event a lower court decision is reversed.

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4. Application 88. In the instant case, three Plaintiffs, OAO "Nizhnitagilsky Metallurgical

Combine", OOO Inrossmet and ZAO "Standart Trust", filed a complaint in Solntsevo Intermunicipal court, asserting ownership of shares in GOK. Plaintiffs sued several companies, including Foston, and also sued an individual. Because an individual was sued, the Solntsevo Court had jurisdiction. 89. The proceedings that took place in the Solntsevo Court were so permeated

by procedural and substantive violations of basic, well-established legal norms that it is my opinion that the decisions rendered by the Court were procured through fraudulent conduct. 90. Specifically, Foston was not notified of the proceedings as provided in

Article 106 of the CPC. This is a clear basis under Article 308 of the CPC for reversal of the lower court's decision, which as noted above, requires reversal where the court "heard the case in the absence of person participating in the case who was not notified of the time and place of the court hearing." 91. In addition, the deprivation of Foston's right to participate violated

Foston's rights to the equality of the parties in the adversary system under Article 123 of the Constitution of the Russian Federation and Article 14 of the CPC. 92. The Moscow City Court, which sits as an appellate court to the Solntsevo

Court, reversed and remanded the September 29, 2000 decision of the Solntsevo Court on March 30, 2001 on the ground that there was no evidence that Foston had been notified of the proceeding.

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93.

On November 30, 2001, the trial court hearing the case on remand failed

to order the reversal of the execution in violation of Article 431 (part 1) of the CPC, which requires the court to do so on its own initiative. This represents a clear violation of Article 430 of the CPC, which requires the reversal of the execution of a previously rendered decision when that decision itself has been reversed. Further, the trial court refused to grant Foston's request -- a request that Foston was required to make because the court would not do so on its own initiative -- to reverse the execution pursuant to Article 431 (part 2) of the CPC. This decision was affirmed on appeal. 94. For the reasons discussed above, the failure to order the return of Foston's

shares in GOK was clearly contrary to Russian law and was a gross violation of Foston's legal and property interest in the GOK shares. The failure to restore Foston's ownership, despite the fact that the Court had reversed the decision, which stripped Foston of that ownership, cannot be reconciled and illustrates that the Court held an improper bias against Foston. CONCLUSION For the reasons stated above, I conclude as follows: · Foston, Omni and Holdex were denied fundamental rights of notice and opportunity to be heard in connection with the lawsuits that resulted in the divestiture of their shares. The violations were particularly egregious, given that Foston, Omni and Holdex were the record owners of the shares. The courts' decisions were so clearly erroneous and contrary to fundamental Russian legal principles that the courts necessarily were biased against Foston, Omni and Holdex.

· ·

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