The billionaire, the banker – and a bit of birch-thrashing

A libel case is shedding light on the secretive world inhabited by the super-rich – and Lord Mandelson. Jerome Taylor reports

When a Russian oligarch, a peer of the realm and a British banking scion lay on their stomachs at a Siberian sauna to be thrashed with birch twigs, before plunging together into an invigorating ice bath, none of the men had business on their minds. Nor could they have envisaged, through the steam of the Russian banya in which they submitted to the traditional spa treatment, that their business dealings would be unpicked by lawyers seven years later as part of one of the most surprising libel battles to be heard in a British court.

This week, Nathaniel Rothschild, the investment banker and heir to the Rothschild dynasty, went to the High Court to sue the Daily Mail for its investigation into the January 2005 trip in which a group of business figures stayed at the Siberian chalet of Oleg Deripaska, the billionaire owner of Russia's largest aluminium plant.

Mr Rothschild, 40, claims the story damaged his reputation by suggesting that he invited Lord Mandelson to Siberia to help smooth the way for a £500m deal with Mr Deripaska.

Hugh Tomlinson, QC, who represents Mr Rothschild, said the Mail's article portrayed Lord Mandelson – then an EU trade commissioner in Brussels – as "a poodle that [my client has] wheeled out to impress Mr Deripaska". He added: "This is an article in relation to Mr Rothschild that makes a clear accusation he has done something wrong. That is the sting of the libel."

The piece described how Mr Rothschild persuaded Lord Mandelson to fly to Moscow for the weekend after they met at the World Economic Forum in Davos. The story alleged that the peer attended a dinner which resulted in a £500m deal between a company owned by Mr Deripaska and Alcoa, America's largest aluminium manufacturer.

Mr Tomlinson said the story portrayed Mr Rothschild as "a puppet-master" who made sure Lord Mandelson was at the dinner to reassure all parties that EU import tariffs for aluminium would not rise over the coming years.

Last month, the Daily Mail's owner Associated Newspapers, admitted it could not prove that Lord Mandelson attended the Alcoa dinner. Mr Rothschild's lawyers insist that he was at a separate dinner in the same restaurant with a Russian minister, though the former Business Secretary was not called to the court to give evidence. But the Mail said there was a "reasonable suspicion" that aluminium tariffs were discussed during the visit and that the nature of the trip had created a "perception of a conflict of interest".

The original Mail story made no mention of the trip to Siberia, which became public knowledge only after the case came to court. Lord Justice Tugendhat, who is hearing the case, was told that following the visit to Moscow, Mr Rothschild and Lord Mandelson were whisked in a private jet to the Siberian town of Abakan, where Mr Deripaska owns a chalet and smelting plant. Peter Munk, a Canadian gold magnate, and Sebastian Taylor, a friend of Mr Rothschild, also joined the group.

Taking the stand earlier this week, Mr Rothschild said his friends were taken to a traditional sauna, where they were whipped with birch leaves before plunging themselves into icy water.

"It is the best way in the world to beat jet lag and everything else," he said. "It was incredibly enjoyable. Everyone woke up the next day feeling revitalised and excited about the day."

Over the next 24 hours, the party spent time skiing, visiting an aluminium smelter, playing football and listening to a traditional Cossack band. Lord Mandelson then returned to Brussels and the rest of group went on to central Asia to visit more of Mr Deripaska's industrial plants in Tajikistan and Kyrgyzstan. Mr Rothschild insisted the Siberian part of his trip was entirely recreational and that the peer was invited because he was a friend.

"The presence of Lord Mandelson and Mr Taylor on the trip was purely social," he said. "No EU tariffs or other matters of that nature were discussed. The only business was to take place in central Asia, after Lord Mandelson had returned to Brussels."

He added: "I have never sought to exploit my friendship with Lord Mandelson to further my relationship with, or impress, Mr Deripaska or any other person with whom I do business. Lord Mandelson was and remains a good friend. Our relationship is no more than that."

But the case has also shone light on the powerful political circles in which Mr Deripaska, who went from being the manager of an aluminium plant to one of the world's richest men, now moves.

On Wednesday, the co-chairman of the Conservative Party, Lord Feldman, told the court he and George Osborne, who was then Shadow Chancellor, were invited to a party at a villa on Corfu owned by Mr Rothschild.

Mr Deripaska was also at the party, which eventually moved on to his luxury yacht moored nearby. The party caused huge media interest over allegations that Mr Osborne solicited a party donation from Mr Deripaska.

But according to Lord Feldman, it was Mr Rothschild who first suggested that the Russian was looking to make a donation through one of his UK-owned companies.

"I said that I was not sure if such a donation was appropriate," he told the court. "I told Mr Rothschild I would have to seek advice. It was decided after consulting senior party officials that it would not be appropriate."

Mr Justice Tugendhat is expected to give his judgment in a fortnight.

Who? What? Where?

The "puppet master": Nathaniel Rothschild

According to Rothschild's counsel, the Eton-educated banking heir and hedge fund boss was libelled by the Daily Mail in May 2010 when they painted him as a "puppet master" willing to exploit his friendship with Mandelson to smooth Deripaska's £500m aluminium deal.

The guest of honour: Peter Mandelson

The court heard the then European Trade Commissioner attended a restaurant in Moscow in 2005 as a guest of Rothschild.

The oligarch: Oleg Deripaska

The Russian aluminium tycoon, who has an estimated £6.5bn fortune, is the centre of the story, with claims Rothschild tried to "impress" him by bringing Mandelson to the dinner. Deripaska provided the jet which took Mandelson and Rothschild to Siberia.

The fundraiser: Lord Feldman

The Conservative party co-chairman denies soliciting a donation for the party from Deripaska when he and George Osborne visited the oligarch's yacht in August 2008. He went aboard the Queen K, he said in court, because he "had never seen a boat that size close up".

The birch whipping at the spa

After visiting a Siberian smelter, the party went to a Banya spa, where the men were thrashed with birch twigs by a 25-year-old before jumping into icy water to improve circulation. "It was incredibly enjoyable. Everyone woke up feeling revitalised," said Rothschild in court.

The villa in Corfu

Lord Rothschild's villa on the Greek island has long been known as a place where plutocrats and politicians mingle, and it is here, Feldman claimed, that Rothschild suggested Deripaska was interested in making a donation to the Tories. Rothschild denies this.

Samuel Muston