Kensington International Ltd. v Republic of the Congo

(As Approved by the Court)

1. LORD JUSTICE WALLER: On 20 December 2002 Cresswell J granted summary judgment in favour of the claimant ("Kensington") against the defendant ("the Congo") in the sum of US $56,911,991. He found that Kensington was the assignee of all right, title and interest in various sums due and owing from the Congo under the the terms of a loan agreement dated 18 April 1984. The assignors were not in fact the banks who were originally parties to the loan agreement, but banks who, it would seem, had taken on parts of the loan after 1984 in circumstances which for present purposes do not matter. The Congo was properly served with the proceedings but took no part in the summary trial. Cresswell J found that by clauses 9(i)-(iv) of the loan agreement the Congo had waived sovereign immunity from suit and from execution against its property.

2. Before Cresswell J Kensington also sought injunctive relief against the Congo to enforce certain other provisions of the loan agreement: first, the Congo's obligation not to create any mortgage, pledge or other security over any of its assets in favour of any creditor; and secondly the Congo's obligation to pay its creditors pari passu . Cresswell J was of the view that there ought to be a trial of the issue whether such injunctive relief should be granted and further thought that the court ought to be assisted by an amicus . An amicus was duly appointed and a trial of the issues relating to injunctive relief came on before Tomlinson J between 14 and 16 April 2003.

3. Tomlinson J refused to grant the injunctive relief. His judgment extends over some 54 pages. The reason why Tomlinson J refused the relief is of some relevance to the point that later came before Morison J and is now before us, and I will come back to those reasons so far as they are material.

4. But having failed to obtain that relief, which was of course an attempt at the very least indirectly to recover the debt found due, Kensington then moved without notice for Mareva or freezing relief. It sought orders in the terms that appear in the draft at tab 1 of the bundle. The draft is in the standard form that freezing orders now take, seeking an injunction against the Congo from removing from England and Wales any of its assets which are in England and Wales up to the value of US$60m, or in any way disposing of or dealing with or diminishing the value of any of its assets, whether they are in or outside England and Wales, up to the same value. The prohibition by paragraph 5 included the following assets in particular: (a) any property or assets directly or indirectly held by or owned by or controlled by Societie Nationale des Petroles du Congo ("SNCP") or SNCP UK or Olearius Ltd (a company incorporated in the Cayman Islands) and any assets in which any of those entities had an interest; and (b) the share capital of SNPC UK. There were also provided in square brackets at the stage the draft was before the judge an exception which would have allowed dealing in the ordinary course of business, and provisions by reference to which the Congo or SNPC or SNPC UK or Olearius could assume that a transaction was in the ordinary course of business if it had not received notice from the solicitors who had been informed about that dealing after at least 48 hours of notifying them of the transaction.

5. When the the matter came on before Morison J, he refused to hear Kensington's application ex parte and directed that notice be given to the Congo, to SNPC, to SNPC UK and to Olearius, at various addresses which are identified in a draft of the order that he made which has been handed up to us by Mr McQuater. He directed that notice be given with evidence in support by 7 May 2003, for a hearing to be listed on 16 May.

6. As was apparent from the draft to which I have referred, Kensington was seeking a freezing injunction not only in relation to the Congo but also in relation to assets of the entities SNPC, SNPC UK and Olearius, and it is the way these other entities fit into the picture which was the subject of the judgment of Tomlinson J. Briefly, SNPC was held by him to be a state entity and thus part of the Congo, and SNPC is responsible for the production and marketing of the Congo's oil. SNPC owns all the shares in the UK company SNPC UK Ltd and it appears that very substantial trading activities take place through SNPC UK Ltd in relation to oil produced in the Congo. The SNPC has endeavoured to organise its trading in oil so as to keep such oil and the proceeds of such oil out of the hands of creditors such as the banks or the assignees of banks such as Kensington, who loaned money to the Congo many years ago. Olearius is a Cayman Island company also set up for the purpose of trading in oil. The intention undoubtedly is that the assets of SNPC UK Ltd and Olearius will not be held by courts enforcing judgments against the Congo as assets of the Congo.

7. Before Tomlinson J Kensington refused to reveal the name of its holding company and passages in its accounts have been redacted on the grounds of commercial sensitivity. It also refused to reveal on the same grounds what it had paid for the debt it had purchased, and it was the refusal to reveal that latter fact which provided the first ground on which Tomlinson J refused to grant injunctive relief. But he went on to hold that if that figure had been revealed he would still have refused relief. His reasons which are set out in his judgment at pages 50-52 of the transcript that is before us are as follows:

"However, I should make it clear that even had I been told of the consideration and, on the assumption that it is more than derisory and represents a substantial investment, I should still have declined to grant the relief claimed. The claimant already has a judgment in respect of the amount due. It is seeking relief over and above the normal mechanisms of execution. Compliance by the defendant with the injunctive relief sought can for all practical purposes be achieved only by distraint against assets of the defendant, although for the reasons which I have already given I am doubtful whether such measures could be taken against this defendant. if, however, there are available assets of the defendant against which such measures could be taken they can equally well, indeed more appropriately, be made the subject of execution of the judgment debt.

Moreover the order which is sought, particularly paragraphs 2 and 3 thereof, would be likely to disrupt arrangements which the defendant has already made for the payment of creditors. The task of supervising compliance with any such order would be both unmanageable and invidious where the defendant against whom it is made is a foreign sovereign State. Many of the world's banks maintain offices in London. The court would potentially be asked to intervene in respect of transactions having nothing whatever to do with this jurisdiction simply upon the basis of the presence within the jurisdiction of the entity contracting with the defendant.

I do not accept that the sole consideration in deciding whether to grant such relief is the question whether compliance with the order of the court will benefit the claimant, or achieve the purpose for which it is sought.

The court is also concerned with the question whether damages or directly available monetary relief is an adequate remedy and with the question whether there is any realistic prospect that the court can by direct action against the party enjoined enforce compliance. Mr McQuater rightly reminds me that it is not uncommon for compliance with, for example, freezing orders to be secured by service of notice upon third parties such as banks. That is of course correct, but such orders are still in a meaningful sense directed in the first instance to the defendant and are only made in cases where the court has jurisdiction over the defendant. I do not regard it as an appropriate exercise of my discretion, at any rate in the particular circumstances of this case, to make an order compliance with which can only realistically be achieved by coercion of third parties. I view with disquiet in the circumstances of this case a situation in which third parties are potentially exposed to penal consequences which could never be visited upon the defendant to whom the order is actually directed."

8. Kensington in its application for a freezing order has now revealed the sum paid for the debts. The accounts are still heavily redacted and that is a matter which we took up with Mr McQuater, but for present purposes it is unnecessary to explore the basis for so doing any further.

9. The application for the freezing order came on before Morison J. He ruled that he would not hear the matter ex parte . We have a note of his judgment which is at tab 5 of bundle 2. He sets out the background and then, having set out Mr McQuater's submissions that there was good evidence of a risk of dissipation and the submission that the court should proceed to make the order sought, he said this:

"I on the other hand am of the view that although there must be a risk that if notice is given the Mareva relief may be defeated, overall the interests of justice require notice to be given. I say this for two reasons. Firstly, there is clearly a very substantial oil operation being conducted. Oil represents a significant part of the state economy. Approximately $2.5 billion of oil is produced and sold each year. The chances in these circumstances of an immediate dissipation of assets to defeat this creditor is not in my view of a credible order despite Mr McQuater's submission.

Secondly, in any event it seems appropriate that notice should be given to Congo and the other entities so that they can participate in the litigation so that any separate interests from Congo can be determined. If there is a chance of dissipation then that would have been done when Congo was notified of the injunctive relief sought before Mr Justice Tomlinson. Although at that stage the two month moratorium on enforcement had not expired (even if it applied), Congo knew that the Claimant was seeking to enforce its judgment by injunctive relief. There seems to be no greater risk of dissipation if notice of this step is given. In any event, I believe that the court will be assisted in considering whether there are any considerations of the sort raised by Mr Justice Tomlinson in his Judgment which might militate against injunctive relief of the sort being sought on this application. I am of the view that the prudent course is to require notice to be given to Congo, SNPC, SNPC UK and Olearius and to give them an opportunity to explain why the Order sought should not be made. The application should be heard as soon as practicable although I anticipate that if the Defendants want to take part then this may take some time."

10. I for my part can understand the reluctance of Morison J to hear this matter without the Congo and, at the very least, SNPC UK Ltd or Olearius being represented. The background is that clearly steps have been taken by SNPC to enable trading in oil to continue on a basis that will keep both the oil and the proceeds out of the hands of creditors. At present, on the evidence that I have seen and was before Tomlinson J, it is difficult to view that exercise as a dishonest attempt to do just that, in that it seems that the scheme is available publicly on the internet and was devised by US attorneys. It will be for a court to decide at some stage whether that has been successful or not. It would appear to be unlikely that notice of an application to make a freezing order will lead now to a total unscrambling of the very substantial oil operation to which Morison J referred and to a dishonest attempt by those entities to dispose of assets.

11. In any event, as Morison J pointed out, Kensington has for some time now been pursuing the Congo, and the summary judgment application before Cresswell J and the application before Tomlinson J must have come to the notice of the Congo, SNPC, SNPC UK Ltd and Olearius. Furthermore, there have been applications in other jurisdictions for relief and indeed some relief was granted in the Cayman Islands on 13 August 2002 relating to assets within the Cayman Islands. It must have been obvious to the Congo and the other entities that if Kensington were pursuing summary judgment applications and injunctive relief they would be seeking to enforce such judgments as they obtained against the assets of those entities. If those entities and the Congo had any predilection to act dishonestly, then that is something they would have done already.

12. The whole context of this application is, as it seems to me, rather different from most Mareva applications. This is not the original creditor pursuing his debtor immediately on the failure to pay. This is an old debt assigned, where difficulties with enforcement were well understood and had been well understood for many years and where, as the history demonstrated, the Congo had been taking the steps which I have previously described; in some cases, as I understand the judgment of Tomlinson J, with the approval of certain of the bank creditors who were parties to the original loan agreements. I am not sure that the case that assets of SNPC UK or Olearius are the assets of the Congo is such a powerful one that it would be right to grant injunctive relief without them having an opportunity to put forward the arguments that they want to put forward.

13. But the essential point is that Morison J made an order on the material in front of him and we are an appellate court. To succeed in the Court of Appeal, the appellant would have to demonstrate that Morison J reached a decision which he could not have reached and/or that he misdirected himself in some way. For my part, I cannot see that Kensington can pass that test.

14. Some reference has been made during the argument to what might have been a more limited application relating to the shares in SNPC UK and the possibility of some ancillary relief in relation to that company conducting its business in the ordinary course, but that is not the application which was before the judge. He had the application for use of what is termed in the authorities "one of the nuclear weapons" and, on the evidence that he had before him, he was entitled to take the view that this application should be made on notice.

15. Mr McQuater asked us to look at the question whether the amount of notice which the judge suggested should be given was not too long. That is not a matter which he has actually raised in his notice of appeal, but never mind that. It seems to me that when one has regard to the practical circumstances of this case and to the view that the judge had formed in relation to dissipation, the notice requirement that he has provided is again something which could not be challenged in this court.

16. I would dismiss this appeal.

17. LORD JUSTICE KAY: I agree.

ORDER: Appeal dismissed